Data Collection, Market Areas and Neighborhoods

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Data Collection, Market Areas and Neighborhoods

• Basic Information Needed Before the Three
  Approaches

Wayne Foss, MBA, MAI, CRE Foss Consulting
Group Email wfoss_at_fossconsult.com
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Types of Real Property

• Fee Simple Estate
• Definition
• Absolute ownership unencumbered by any other
  interest or estate, subject only to the
  limitations imposed by the governmental powers of
  taxation, eminent domain, police power, and
  escheat.
• Application
• Appraisal of properties which are owner occupied.
  The owner has all of the bundle of rights.
• Can be any property type, but most often is a
  single family residence or condominium

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Types of Real Property, cont..

• Leased Fee Estate
• Definition
• An ownership interest held by a landlord with the
  rights of use and occupancy conveyed by lease to
  others. The rights of the lessor (the leased fee
  owner) and the leased fee are specified by
  contract terms contained within the lease.
• Application
• Appraisal of properties which are tenant
  occupied. The owner has given up the right of
  occupancy in exchange for the payment of rent
  from a tenant.
• Generally thought of as investment properties.
  i.e. Apartments, Industrial Parks, Office
  Buildings and Shopping Centers

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Types of Real Property, cont

• Leasehold Estate
• Definition
• The interest held by the lessee (the tenant or
  renter) through a lease conveying the rights of
  use and occupancy for a stated term under certain
  conditions.
• Application
• Created when the contract rent is less that the
  prevailing market rent. A leasehold estate has a
  finite life, the length of the lease contract.
• Generally found in investment properties. i.e.
  Apartments, Industrial Parks, Office Buildings
  and Shopping Centers when long term leases are
  involved.

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Information Needed beforeapplying the three
approaches

• These items are needed to know
• what you are appraising (physically legally)
• what problems are involved, and to
• estimate highest and best use
• Market Area Analysis
• Neighborhood,
• Identification of the submarket
• Site Analysis
• Improvement Analysis

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Data Collection

• Three Broad Categories
• General Data
• Includes information on the four forces that
  affect property value
• Specific Data
• Details about the property being appraised
• Competitive Supply and Demand Data
• Inventory of competitive supply
• Analysis of prospective demand

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General Data

• Economic Trends
• International
• National
• Regional
• Local
• Local Market Considerations
• Macroeconomic and microeconomic studies
• Macroeconomic studies are broad (cities and
  regions)
• Microeconomic studies are narrow and evaluate the
  factors that influence the market for a
  particular parcel of real estate
• Demographics
• Study of the changing population
• Government regulations and social attitudes
• Land Use regulations (i.e. zoning,
  transportation systems)

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General Data, cont...

• Local Market Considerations, cont..
• Purchasing power
• disposable income (the income that remains after
  deducting income taxes and all other payments to
  federal, state and local governments)
• Price levels
• rates of change (trends) in overall prices,
  rents, expenses
• Building fluctuations
• rates of change in the issuance of building
  permits
• Building costs
• rates of change in the prices of construction.
  Items such as labor rates, changes in
  construction technology, and public regulations
• Taxes
• trends in assessed value and real estate taxes
• Financing
• Cost, availability and terms of construction and
  take-out financing

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General Data, cont...

• Sources of General Data
• Government
• U.S. Dept of Commerce, Bureau of the Census
• U.S. Dept. of Labor, Bureau of Labor Statistics
• State and Local planning agencies
• Local University and College Research centers
• Trade Associations
• Appraisal Institute
• Urban Land Institute (ULI)
• Building Owners and Managers Association (BOMA)
• Private Sources
• Multiple Listing Services
• Computer databases
• Personal Appraisal Files

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Specific Data

• The subject property
• Description of the Land
• Description of the Improvements
• Zoning
• Potential legal uses allowed on the land
• Comparable Sales
• Comparable Rentals
• Improvement Cost Data
• Income and Expense Data
• Capitalization Rate Data
• Specific Data are used to
• Determine the highest and best use of the
  property
• Set the stage for the application of the three
  approaches to value

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Specific Data, cont...

• Investigation of Market Transactions
• the degree of comparability with the subject
  property
• the quantity of information available
• the reliability of the data
• Sources of Specific Data
• Public records
• examples are recorded deeds, assessors records,
  zoning ordinances
• Published news
• trade publications, local business journals
• People in the industry
• brokers, bankers, property managers, developers,
  appraisers
• Multiple listing records
• sources of information on specific property
  transactions and details

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Supply and Demand Data

• Supply Data
• inventory includes all properties like the
  subject property that is for rent, rented, sold,
  on the market, and properties that will likely to
  be developed.
• Demand Data
• analyze the prospective demand for property like
  the subject
• analysis of population trends
• residential and retail properties
• analysis of employment trends
• office and industrial properties
• Sources of the Data
• Interviews
• Public Records
• Building permits, development plans
• Demographic data

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Neighborhood - Market Area

• Why Analyze The Market Area?
• To identify the submarket in which the subject
  competes for buyers and tenants.
• The property appraised is fixed in its location
  and subject to location influences (External
  forces)
• To help identify which sales are comparable
• To help forecast conditional sales price of
  subject an appraisal is a conditional forecast,
• To help establish the submarket
• Helps to determine the stability of an area. May
  also indicate future land uses and value trends.

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The Market

• A Submarket may be described in terms of
• Potential users
• Potential buyers
• Price or rental amount range
• Product type
• Geographic Area
• Market Area defined
• The defined geographic area in which the subject
  property competes for the attention of market
  participants the term broadly defines an area
  containing diverse land uses.

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Neighborhood aka Market Area

• Definition
• A group of complementary land uses a related
  grouping of inhabitants, buildings, or business
  enterprises.
• Concepts
• An area of similar or compatible land uses
  (zoning)
• An area of similar building types, ages or styles
• An area within which any change has an immediate
  direct influence on the value of the appraised
  property.
• The area within which the subject competes with
  other properties.
• Population characteristics, in habitants of
  similar age or economic profile
• These concepts apply to any property type

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Neighborhood aka Market Area

• Definition
• District A type of neighborhood characterized
  by homogeneous land use.
• Distinctions between Neighborhoods and Districts
• A neighborhood may contain several uses that
  complement one another.
• Example a neighborhood may contains single
  family homes and commercial properties that
  provide services to local residents.
• A district contains one predominant land use
• An apartment or industrial district, or office
  park

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Neighborhood Boundaries

• The area in which the forces that influence value
  operate on all surrounding properties in the same
  way that the forces operate on the property being
  appraised.
• Boundaries may be
• Physical
• Natural - rivers, lakes, mountains, ocean
• Man-Made - streets, highways, different uses,
  railroads
• Political - city, county, district
• Use
• Change from Single family to multifamily
  residential use.
• Change from residential to commercial, industrial
  or agricultural use.

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Identification of Neighborhood Boundaries

• Examine the physical characteristics of the area
• Look for type of structures, land use,
  topography, access, etc.
• Draw preliminary boundaries on a map.
• Test the preliminary boundaries against
  demographic data
• obtains information about the people living
  within the area
• Ask people who know the area
• Such as residents, brokers, businesspeople, other
  appraisers
• The people who live and work in the neighborhood
  have the best understanding of the market area.

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Neighborhoods and Districts

• Are constantly changing (principle of change)
• Questions to ask regarding the changes
• Are there new Uses?
• Are there changes in density?
• Is there an increase in commercial influence in a
  residential neighborhood?
• Are many properties on the market?
• Relationship between owner and tenant occupancy.
• Rapid changes in one neighborhood may impact
  another.

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Neighborhood Life Cycles

• Four Stages
• Growth
• A stage in a neighborhoods life cycle in which
  the neighborhood gains public favor and
  acceptance
• Stability
• experience equilibrium without gains or losses
• Decline
• diminishing demand
• Revitalization
• renewal, modernization, increasing demand

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Neighborhoods and Districts

• Four Broad Categories for Analysis
• Physical (Environmental)
• Consideration of any natural or man-made features
• Location within the community
• Linkages
• Transportation systems
• Proximity to employment, shopping schools,
  recreation
• Topography, soil, climate, view
• Land use patterns
• Age, type, condition and appearance of structures
• Adequacy, cost and quality of services

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Neighborhoods and Districts

• Legal-governmental
• Taxation and special assessments
• Public and Private Restrictions
• Schools
• Police and Fire Protection
• Planning and Development Activities
• Economic - financial
• Profile of the Residents
• Type of financing (and terms) available
• Price and Rent Levels
• Construction, conversion, and vacant land
• Extent of Owner Occupancy
• Vacancy Rates
• Changes in use or economic base

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Neighborhoods and Districts

• Social - market
• Relates to the status, physical environment,
  services affordability and conveniences of a
  location
• Population Density
• Age and Income Levels of occupants
• Crime Rate

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Districts

• Apartment districts
• generally subject to the same influences as
  single-family residences
• emphasis on parking and vacancy rates
• Commercial districts
• 1. Central Business District (CBD)
• Definition The core, or downtown area, of a city
  where the major retail, financial, governmental,
  professional, recreational, and service
  activities of the community are concentrated.
• Transportation in most communities oriented to
  CBD
• Many of the CBDs are undergoing changes
• Revitalization
• Changes in Land Use from commercial to office
  or entertainment
• Decline lose business to suburbs

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Districts

• 2. Regional Shopping center
• Definition A shopping center that offers a
  variety of general merchandise, apparel,
  furniture, home furnishings, services, and
  recreational facilities and is built around one
  or more full (anchor) department stores of at
  least 100,000 square feet each.
• Analyze Trade Area and Competition (both existing
  and proposed)
• 3. Community Shopping center
• Definition A shopping center of 100,000 to
  300,000 square feet that usually contains one
  junior department store, a variety store or
  discount department store, a supermarket, and
  specialty stores.
• Trade area generally 10 to 20 minutes driving
  time
• 4. Neighborhood Shopping Center
• Definition The smallest type of shopping
  center, generally with a gross leaseable area of
  less than 100,000 square feet. Anchors are
  generally a supermarket and drug store, and
  possibly a bank
• Trade area generally 5 to 10 minutes driving time

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Districts

• Office Districts
• Include planned office parks and strip
  developments on major arteries
• Sensitive to access and support services
  (restaurants, hotels and convention facilities
• Industrial Districts
• Many forms
• large old complexes with heavy industry
• modern new complexes with light manufacturing or
  distribution warehousing
• Availability of Labor
• Availability of Raw material
• Distribution facilities
• Linkages such as highway system, rail, water, air

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Districts

• Agricultural Districts
• Soil type, land use, crops grown and water supply
• Specialty Districts
• Medical
• hospitals, health care facilities, medical
  buildings
• Research and Development Parks
• Universities, departments of large companies
• High Technology Parks
• electronics and computer firms
• Education Districts
• Colleges, Universities, or community colleges
• supporting housing and services
• Historic Districts

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Neighborhood aka Market Area example items to
know
Example items to consider, understand, and know
about a neighborhood
Age Income Levels Rents typical
equity cleanliness reputation property
condition, repair status typical time on the
market to sell (or lease) the property
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Neighborhood aka Market Areaexample items to
know, cont

• Prices, rents
• Vacancy
• Turnover
• Parks
• Schools
• Government services
• police, fire, trash, etc.
• Occupant attitudes

• Proximity to employment, recreation, shopping
• Views
• Design, layout
• Zoning, use restrictions
• Common areas
• Homeowners association cost and benefits
• Crime
• Relative direction of growth

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So ThatsData Collection, Market Areas and
Neighborhoods
Are there any Questions?
Wayne Foss, MBA, MAI, CRE, Fullerton, CA
USA Phone [phone] Fax [phone]
Email wfoss_at_fossconsult.com