Residential Property Analysis and Valuation - Term Paper Example

 UNIVERSITY OF SOUTH AUSTRALIA Assignment Cover Sheet – Internal An Assignment cover sheet needs to be included with each assignment. Please complete all details clearly and insure that this sheet is the front sheet. If you are submitting this assignment by hand, please staple this sheet together with the remaining sheets of your assignment. DO NOT BIND or use folders. If you are submitting the assignment online, please ensure this cover sheet is included at the start of your document. Please check your Course Information Booklet or for assignment submission details. Assignments can be submitted by hand ONLY at the lecture on the due date; otherwise they must be submitted via AssignIT. Name: Student ID                 Email: Course code and title: BUSS 1055 Introduction to Property and Valuation School: Commerce Program code: Course Coordinator: Peter Rossini Tutor: Add your tutors name Day, Time, Location of Tutorial/Practical: Assignment number: Assignment Due date: Assignment topic as stated in Course Information Booklet: Residential Property Analysis and Valuation Further Information: (e.g. state if extension was granted and attach evidence of approval, Revised Submission Date)   I declare that the work contained in this assignment is my own, except where acknowledgement of sources is made. I authorise the University to test any work submitted by me, using text comparison software, for instances of plagiarism. I understand this will involve the University or its contractor copying my work and storing it on a database to be used in future to test work submitted by others. I understand that I can obtain further information on this matter at http://www.unisanet.unisa.edu.au/learningconnection/student/studying/integrity.asp Note: The attachment of this statement on any electronically submitted assignments will be deemed to have the same authority as a signed statement. Signed: Date: Date received from student Assessment/grade Assessed by: Recorded: Dispatched (if applicable): Wormtown Finance Company Wormtown Finance Company 1001 Morphett St., Adelaide SA 5000, Australia RESIDENTIAL VALUATION and SECURITY ASSESSMENT For Mortgage Purposes Page 1 of 2 Organisation/Lender: 1. Property Summary PROPERTY ADDRESS: 61A Elizabeth St., Adelaide SA 5000, Australia TITLE DETAILS: Date of Issue: 13/12/2001, Authority: T9215190 Encumbrances/Current Registrations: REGISTERED PROPRIETOR FEE SIMPLE: WEI REN OF ELIZABETH STREET ADELAIDE SA 5000 Site Area (Sqm)/Dimensions (if regular): ALLOTMENT 132 DEPOSITED PLAN 58449 IN THE AREA NAMED ADELAIDE HUNDRED OF ADELAIDE ZONING/INSTRUMENT: LGA: Main Building Area (Sqm): 904 Outdoor Area (Sqm): 0 Equivalent Main Area (Sqm): 904 Car Spaces (# Cars): 1 MARKETABILITY: B- ESSENTIAL REPAIRS: Nil. ACTUAL RENTAL /UNTIL: --- 2. RISK ANALYSIS Property Risk Rating: Comment on the Property Risk 4 – Medium Risk. Concern due to market price valuation and depreciation risk. Market Risk Rating: Comment on the Market Risk 3 – Medium Risk. Property value dependent on neighbourhood standards & security. 3. VALUATION & ASSESSMENTS SUMMARY Tenure/Interest Valued: $600,000 Market Value: $600,000 I hereby certify that I personally inspected this property on the date below and have carried out the assessments above as at that date. Neither I, nor any member of this firm, has any conflict of interest, or direct, indirect or financial interest in relation to this property that is not disclosed herein. This report is for the use only of the party to which it is addressed and its mortgage insurers for mortgage purposes and is not to be used for any other purpose. No responsibility is accepted or undertaken to third parties in respect thereof. This report does not constitute a structural survey. This report is made in accordance with the Australian Property Institute (API) Residential Valuation and Security Assessment Pro-forma Supporting Memorandum dated 8 May 1998 and must be interpreted with that Memorandum. Valuer: Wormtown Finance Company Firm/Address: 1001 Morphett St., Adelaide SA 5000, Australia Inspection & Valuation Date: 05/01/2011 Phone: 02 555-1234 Signature: Mobile: Email: info@wormtownfinance.com Wormtown Finance Company Wormtown Finance Company 1001 Morphett St., Adelaide SA 5000, Australia RESIDENTIAL VALUATION and SECURITY ASSESSMENT Page 2 of 2 4. The Land Property Identification Has the title been searched? Yes Zoning Effect: Residential Environmental Issues: None. Location: Adelaide Neighbourhood: Elizabeth St Site Description & Access: Townhouse condominium, 2 stories, with garage and street access. No yard, 3rd story balcony area. Services: City electricity, water, gas, sanitation, & trash disposal. 5. Main Building Style: Condo. Street Appeal: Yes. Built About/Year Built: 2000 Additions Yr Built: --- Main Walls & Roof Above balcony area on roof. Window Frames: Stainless-steel / Glass Main Interior Lining Painted. Flooring: Tile / Carpet. Internal Condition Good. External Condition: Fair. Accommodation: 2 Bedrooms. Fixtures and Fittings: Not included. PC Items: Nil Heritage Issues: None 6. Ancillary improvements Not required at time of sale. 7. Sales evidence and the market Sales Evidence (3 sales): Address: 5/21 Russell Street, Adelaide, SA 5000 Details: Penthouse Apartment Sale Price: $679,000 - $708,000 Sale Date: 5/22/2011 – on market Address: 101/185 Morphett Street, Adelaide, SA 5000 Details: TWO BEDROOM APARTMENT IN THE GALLERY COMPLEX Sale Price: $570000 - $600000 Sale Date: 5/22/2011 – on market Address: 20/38 Union Street, Adelaide, SA 5000 Details: East End chic - Executive Pad Sale Price: $540,000 - $550,000 Sale Date: 5/22/2011 – on market Market Activity: Good. Recent Market Direction: Higher prices, low interest rates, appreciation from post-2008 bottom. 8. Additional comments The property is reasonably priced compared to similar properties in the neighbourhood. The property has potential to increase in value if well maintained and/or improved. The neighbourhood continues to appreciate due to local business and academic demand, therefore the investment is sustainable on current projections. Report Details - Title and Development controls See Appendix A – Title Documents Legal Description This assessment is a pro-forma report and presents a real estate analysis through facts, estimates and statistics based in research. However, other factors influencing real estate markets can cause wide fluctuations in expected values. This report is intended to relate the property estimate to current market standards and trends, within a greater context of risk management for the property. However, there is no guarantee that the estimate will reflect future conditions unforseen at the time of analysis. Development Controls Adelaide City Building Standards following Australian Residential Building Codes. Subdivision restrictions are not applicable to this property. Report Details - Neighbourhood See Appendix B for property photos. See Appendix C for property floor plan and layout. Address / Location: 61A Elizabeth St., Adelaide SA 5000, Australia Source: Google Maps (maps.google.com) The neighborhood for this property is near to both Adelaide High School and Adelaide University in the Light Square area with strong residential and commercial demand in this are expected to continue with local economic development. The apartment is close to local entertainment, arts, and nightlife in Adelaide, and there is regular demand for rental residential units in this area. The neighborhood is expected to appreciate on a slightly higher level than average nationally because of the real estate demand for central locations in this area. The neighborhood also makes the property value under consideration more expensive than square footage and acreage in other locations in Australia, but justified in this instance due to the central location in Adelaide’s cultural centre. Report Details - Site aNd Building DESCRIPTION See Appendix D - Property PRO1 Report The property under estimation – front view. Garage area, entry way (secured) and balcony can be seen. The small width of the property makes it suitable for a young urban professional or student seeking a studio apartment. The property and local neighbourhood. The advantage to this property is location and ability to appreciate through renovation and design improvements. The convenience of the location for students or city workers makes rental a viable possibility. The front / street view of the property. The property is a two bedroom, two level apartment with family room, kitchen, living area, and baths. The garage is important in the city environment and the balconies provide extra space for living in the small studio. The floor plan and layout of the property. Important is the two story plus balcony area on the third floor. The garage occupies around 30% of the first floor. There is one bathroom shared between two bedrooms. The kitchen dining and living area are interconnected to create a large functional space. The property has a street level entrance and garage. There are two bedrooms, one of which could be used for storage, studio, or office. Similarly, the dining, kitchen, and family room form a continuous space that is suitable for modern studio apartment design. The roof area and balcony also add options to the living space, which is somewhat narrow and small but centrally located and convenient for both students and young professionals. Detailed Valuation Analysis – Sales Comparison using QualITATIVE METHODOLOGY Address: 5/21 Russell Street, Adelaide, SA 5000 Details: Penthouse Apartment Sale Price: $679,000 - $708,000 Sale Date: 5/22/2011 – on market Address: 101/185 Morphett Street, Adelaide, SA 5000 Details: TWO BEDROOM APARTMENT IN THE GALLERY COMPLEX Sale Price: $570000 - $600000 Sale Date: 5/22/2011 – on market Address: 20/38 Union Street, Adelaide, SA 5000 Details: East End chic - Executive Pad Sale Price: $540,000 - $550,000 Sale Date: 5/22/2011 – on market 1. Stunning Penthouse Apartment in Great City Location “This gorgeous apartment has all the space, style and convenience a busy city resident requires. Set in a quiet street, close to Adelaide Central Market the apartment enjoys great views across the treetops and buildings to the hills and the sea. With 2 double bedrooms, 2 sparkling bathrooms and further powder room, this is an entertainer's delight. The three balconies, one large enough for a barbecue, are great all year round to enjoy.” “The top level features 2 bedrooms, the main with an ensute bathroom and private balcony. Feature ceilings, elegant floor coverings, unique fixtures and fittings are masterfully combined to give a distinctly modern yet warm charm. Downstairs is a huge double garage, and the complex has good security both inside the apartment and with the entrances and garaging.” Source: http://www.realestate.com.au/property-house-sa-adelaide-107410103 2. TWO BEDROOM APARTMENT IN THE GALLERY COMPLEX - INCLUDES SHOP FRONT AND CARPARK!! “Ideal Location, situated on two levels... Providing many options to live AND work (at home) in the Central Business District.Great for home office.., shopfront or similar..Would be a suitable for a cafe or coffee shop or similar STCC...Work downstairs, then relax upstairs on your secluded balcony! This is a unique opportunity in the midst of the CBD! This location is quickly growing... Extra benefits include use of All facilities..including heated swimming pool, spa, steam room, gymnasium, security access and secure, undercover carpark...Work, Live and Play....what a lifestyle advantage! Take advantage of this unique opportunity today!” Source: http://www.realestate.com.au/property-house-sa-adelaide-107408690 3. East End chic - Executive Pad “This interior decorator inspired East End apartment, provides you with the trendy city pad you were looking for. A minutes walk to all the cafes and fashion shopping of Rundle Street. You can also enjoy the close location to the Adelaide University, RAH, and extensive East Parklands.” Large corner balcony 2 spacious bedrooms (both with robes) hardwood floors light filled and spacious 95sqm Full furniture package included. For investors: Equivalent apartments in the complex have achieved approximately $500 - $550/week. Secure underground carspace. Source: http://www.realestate.com.au/property-apartment-sa-adelaide-107119296 The properties listed above can be considered to be in the same price class and category of use as the property under estimation. In this regard, the property under estimation is listed at a slightly lower price for similar area or living space in the same neighborhood. From this, the property can be seen as a good investment value, and similar properties have documented income from rentals. The best scenario would involve a $50,000 reduction in price and the use of the additional funds for renovation and expansion. Another possibility, if the seller is at minimum offer at $600,000, is to recommend an additional investment in improvements to the interior before the purchaser occupies the residence. The additional upgrades to the property could have a more influential effect on increasing the overall property estimate or investment value. Detailed Valuation Analysis – Sales Comparison using QuaNTITATIVE METHODOLOGY Following in-class methodologies, this section will include a wider statistical analysis of eight properties in the neighborhood of the property under consideration. This will lead to a more accurate base for a final evaluation of price. From a research standpoint, the previous section focused on qualitative details of the related neighborhood properties, while this statistical review approaches a more qualitative analysis of real estate in the specific local market area under consideration for the loan and mortgage financing. Historical Sales Data: Address   Sale Date Sale Price Land Use Code Improvements Land Area Frontge Zone Rooms Equiv Area Condition Wall Roof Year built Style 12A ADA ST ADELAIDE 5000 UBD: ADL4 L14 Ref Sec:PT TA 578 04/11/10 $ 385,000 1220 H 3632.08 7.81 RA2 Build M2 7129.63 FAIR FRST/STONE GALV/IRON 1880 COTG/VILLA 22 ALBERT ST ADELAIDE 5000 UBD: ADLA A10 Ref Sec:PT TA 126 16/12/10 $795,000 1100 4H G 4297.30 6.10 MU\19 Build M2 4297.30 --- --- --- 2006 --- 23 CAIRNS ST ADELAIDE 5000 UBD: ADL4 J14 Ref Sec: 07/02/11 $ 780,000 1230 6H G 4875.00 5.26 RA4 6 Build M2:160 4875.00 GOOD RENDERED GALV/IRON 2009 CONVENL 25 CARDWELL ST ADELAIDE 5000 UBD: ADL4 H10 Ref Sec:PT TA 350 15/03/11 $ 645,000 1230 T/HSE DCP 6861.70 5.28 MU\26 7 6861.70 GOOD RENDERED GALV/IRON 2000 CONVENL 157 CARDWELL ST ADELAIDE 5000 UBD: ADL4 H10 Ref Sec:PT TA 593 31/01/11 $840,000 1230 6H DG 7500.00 7.24 RA4 6 7500.00 GOOD BRICK GALV/IRON 2007 HQCONVENL 64A CORRYTON ST ADELAIDE 5000 UBD: ADL4 K12 Ref Sec:PT TA 590 24/01/11 $330,000 1230 H 6111.11 4.19 RA2 --- 3437.50 FAIR FRST/STONE GALV/IRON 1880 ROW/COTGE 12A DALY ST ADELAIDE 5000 UBD: ADL4 H9 Ref Sec:PT TA 283 16/03/11 $650,000 1230 5H G 4113.92 4.15 MU\20 5 4113.92 GOOD RENDERED GALV/IRON 2007 HQCONVENL 304 GILLES ST ADELAIDE 5000 UBD: ADL4 B15 Ref Sec:PT TA 591 01/12/10 $542,500 1230 T/HSE CPK 3411.95 5.20 RA4 4 5166.67 AVERAGE BRICK TILED 1980 CONVENL Workbook Data: Address Overall Site Building Quantity Building Quality $ /sqm (site) $ /sqm (EQ area) 12A ADA ST ADELAIDE 5000 UBD: ADL4 L14 Ref Sec:PT TA 578  7129.63  ADELAIDE  1  FAIR  $106  $54 22 ALBERT ST ADELAIDE 5000 UBD: ADLA A10 Ref Sec:PT TA 126 4297.30  ADELAIDE  1  Like New  $184  $184 23 CAIRNS ST ADELAIDE 5000 UBD: ADL4 J14 Ref Sec:  4875.00  ADELAIDE  1  GOOD  $160  $160 25 CARDWELL ST ADELAIDE 5000 UBD: ADL4 H10 Ref Sec:PT TA 350  6861.70  ADELAIDE  1  GOOD  $94  $94 157 CARDWELL ST ADELAIDE 5000 UBD: ADL4 H10 Ref Sec:PT TA 593 7500.00  ADELAIDE  1  GOOD  $112  $112 64A CORRYTON ST ADELAIDE 5000 UBD: ADL4 K12 Ref Sec:PT TA 590  3437.50  ADELAIDE  1  FAIR $96.01  $54 12A DALY ST ADELAIDE 5000 UBD: ADL4 H9 Ref Sec:PT TA 283 4113.92  ADELAIDE    GOOD  $158  $158 304 GILLES ST ADELAIDE 5000 UBD: ADL4 B15 Ref Sec:PT TA 591 5166.67   ADELAIDE  1  AVERAGE  $158  $104  From this data, two main trends in the neighborhood property values can be seen. The first is in older homes from the 1880 period that are sold but likely need to be demolished and rebuilt or extensively renovated. These homes typically have twice the land area that is occupied, compared to modern homes built post 2000 that are fully occupying the urban lot space. The older properties go for almost half of the value of the new properties. The old properties are in the $320,000 - $380,000 range, while the new constructions range from $650,000 to $850,000 for roughly the same square footage per unit. Note that the new properties can depreciate as much as $200,000 over a period of less than 10 years based on sales data and re-sales, especially if these new units are not properly maintained. Similarly, smaller properties in the same area are more likely to sell for a higher price per square foot based on this limited data set, but may be cheaper when the empty area is factored. Detailed Valuation Analysis – Alternative Approach (Income or Cost) Similar properties of this value and size rent for $500 per week on average at the current market cost. From this, $1000 to $2000 monthly rental income can be expected. Borrowing $600,000 for a mortgage on the property at 7.25% interest would be around $4,133 p/month for a 25 year loan. Considering the same at a 4.5% interest rate would be a payment of $3,334 p/month on a 25 year loan. From this fluctuation, there is the importance of seeking the lowest rate mortgage. However, functionally a 20% down payment on the property would be required. This would place the borrowed amount at approximately $480,000. The $480,000 mortgage at 4.5% interest over 25 years is $2668 p/month over 25 years. At 7.25% interest the payments are $3,469 per month. From this perspective, an extra 5% in the down payment would assist in making the investment more immediately financeable as a rental income property, but the interest rate and choice of 20, 25, or 30 year loan will also be influential. However, this also relies on the expectation of rental rates rising over time, and also does not include the costs of maintenance, insurance, or other costs for the owner such as taxes. If $2000 is the upper range of the rental per month, there would have to be an additional investment in the property monthly to cover the cost of investment in the first years, or basic improvements and renovation in the interior could be used to boost rental value. The success of the property as an income generating and self-sustaining financed operation may require a down payment as high as 30% to be successful at current market rates. These calculations are from the Smartline Mortgage Calculator available online at: http://www.smartline.com.au/mortgage-calculators/calculate-your-repayments.html. Appendix A - Title Appendix B Appendix C Appendix d Property PRO1 A comment as to whether any heritage issues, either adverse or beneficial affect the property within the knowledge of the valuer. (comment on the form “Known” or “Not Known”). If ‘known, further comment required over page. This should record any significant/observable/visual and/or known defects or hazards or observable or known site contamination. Where a defect or hazard is recorded, further comment is required. Any identified matters may warrant a report by appropriately qualified experts or a certificate from an appropriate authority. The Valuer is not normally an expert in these matters. The Valuer’s role is to assist in identifying issues in the first instance and to recommend any further reports or certificates for confirmation or clarification. (Any issues or uncertainties should be explained more fully in ‘Additional Comments’). Should any issues be subsequently confirmed, the Valuer should be asked for further comment in view of any certificates or other experts’ reports (and their estimated costs of remediation or recommended work). Where no defect or hazard is identified the Valuer may comment ‘none readily apparent’ or ‘unlikely in this area’ or similar. The valuer should identify only those items observed by the valuer, and which, in the valuers opinion, if not attended to, could cause significant deterioration and loss in value or could have a significant adverse effect on marketability. The report is not intended as a structural or building survey report, though the Valuer may report on observed defects or other matters of concern. The ‘Existing Property’ value reflects the current condition. TBE will show and applies only where a building project is involved, i.e. a new building. A separate heading is available for an extension or substantial renovation. The valuation provided in each instance will be on the basis of ‘As if Complete’. In each case builder’s name and building contract or tender details should be shown. A Check Cost will only be provided by the valuer where the valuer has adequate cost indicators for that style of construction. The purpose is primarily to identify if the tender is broadly in line with market costs. It is not expected that a detailed costing will be conducted. If the Check Cost is significantly different to the tender then this matter will be drawn to the lenders attention. The Valuer should indicate what information has been supplied including an indication as to whether the plans and specifications sighted have been ‘Council approved’. The lender client cannot expect that the valuer brings to the task any greater level of common knowledge or ability to foresee events than can be expected of persons experienced in the market for that class of property in its market place (which may be local or broader). The risk analysis is the product of the current experience of the valuer based on information that is common knowledge and /or readily ascertainable in the market for that class of property in its market place. The risk analysis does not reflect information that is privileged or to which the market for that class of property in its market place does not have ready access and it does not reflect decisions, announcements, releases, articles and the like that the valuer has not had reasonable time and opportunity to assess and consider. Subject to these limitations, the Risk Analysis indicates the level of adverse impact each stated aspect has, or in the near future, might have, on the property’s value and marketability. In the case of higher level ratings, it can also provide an indicator of the presence of relevant comments in the ‘Additional Comments’ section on the following page. Risk Ratings focus on four property-specific aspects and four market-related aspects. Each of these aspects can involve consideration of a range of elements relative to it. It is accepted that each aspect is likely to have some possibility of adverse impact or risk, however low or nominal. The assessment of the level of adverse impact or risk includes assessment of both the probability and consequence of the risk. A Risk Rating of 1 equals normal or no influencing factors and risk factors elevate from that point. The ratings which are outlined below the bar graphs are: ‘1’ - Low ‘2’ - Low to Medium ‘3’ - Medium ‘4’ - Medium to High ‘5’ – High Any Risk Ratings of 4 or 5 or the existence of three or more ‘3’ Risk Ratings MUST BE COMMENTED UPON in the ‘Additional Comments’ section. For the purpose of these reports, the risk rating reflects thevaluers assessment of: the level of adverse impact the stated aspect has upon the current value and/or marketability of the security property, and/or the currently perceived level of adverse impact the stated aspect could have on the value or marketability of the security property within the initial 2-3 year period of the security. The rating adopted for each of the listed aspects requires a balanced overview for that aspect. Properties often have many beneficial features. Adverse impacts need to be weighed against strengths or favourable impacts under the same aspect. While there can be offsets in the overall rating for an aspect heading such as the above, there may also be cumulative effects from several adverse impacts. The basis of any ‘forward-looking’ element of a rating is restricted to information that is currently common knowledge and/or readily ascertainable in the market and to events that are reasonably foreseeable. Information which is ‘privileged’ in the valuer’s hands or to which the market itself does not have ready access cannot be reflected in the rating. The elements of the Risk Analysis are: This Risk Rating reflects an overall rating for these two aspects. Land in this instance refers not only to the land physically, but also to access, services, planning and title. This aspect of the Risk Analysis covers a range of environmental issues including contamination (refer Environmental Issues heading above). This aspect refers to all improvements, whether the main building or ancillary improvements (and for a TBE - Proposed Dwelling, Extensions or Renovations, would include concerns about aspects of the project or tender). This Risk Rating is an indication of the level of risk of this property reducing in value over the next 2-3 years. It is a forward-looking summary rating taking into account aspects affecting, or likely to affect, the value of the property. The assessment is made on the basis of information that is common knowledge and/or readily ascertainable in the market and having regard to reasonably foreseeable events as at the date of the assessment. The rating cannot be expected to reflect information that was not common knowledge, or conditions, events or circumstances that occur subsequently or unexpectedly. This aspect reflects the risk of significant adverse impact on the value of the property of the market changing direction rapidly. While this will reflect historical performance, reasonably foreseeable events should also be taken into account. This aspect reflects the extent to which a significant change in the local economy is impacting adversely and/or the risk that it may impact adversely on the value of the property in the 2-3 year time frame. This aspect reflects the extent to which the condition of the market in this particular market segment is impacting or may impact adversely on the property. 379 A single figure amount is recorded for the Market Value in line with traditional valuation practice. The figure will normally be arrived at after consideration of several valuation approaches such as Sales Comparison and Summation. The Capitalisation approach may be used for investment property that is subject to a long-term lease. Immediately above the Market Value is an apportionment of that value into its main components - the value of the land and the added value of the improvements. For Strata Title property a single value only is recorded, as an apportionment is inappropriate. As an additional security measure, the ‘Market Value’ is also provided in words. The Market Value assessed by the Valuer relates to the market conditions existing at the date of valuation (which will normally be the date of inspection). RESTRICTED VALUATION - Residential Property RISK ANALYSIS Property Risk Rating: 4 – Medium Risk. Concern due to market price valuation and depreciation risk. Market Risk Rating: 3 – Medium Risk. Property value dependent on neighbourhood standards & security. VALUATION & ASSESSMENTS SUMMARY Market Value: $600,000 Valuer: PropertyPRO Residential Valuation & Security Assessment Firm/Address: Level 3, 60 York Street, Sydney NSW 2000 Inspection & Valuation Date: 05/01/2011 Phone: 02 9879-4468 Signature: Mobile: Email: nsw@api.org.au Read More