Today I learned about 2 of the 3 different approaches to appraise different types of properties; the Sales Comparison Approach and the Cost Approach. Next week we’ll learn about the third approach, the Income Approach. Really fascinating stuff to the lay person, I know.
But now I know that if I want to appraise a house, I would use the Sales Comparison Approach and use sales of similar type properties to arrive at a value. Adjustments are made here and there to take into consideration various attributes. It’s really not that different than what I would do for a market analysis for a seller or buyer.
I also know that if I want to appraise some unique building, that the Cost Approach would be the best way to go. For example, if I want to appraise the new Yankee Stadium (boo, hiss!), this would be the correct approach. Essentially you determine the depreciated reproduction cost of the building (how much it would cost to rebuild from the ground up, using the same materials) and add it to the underlying value of the land on which it sits. Fun!
Much of what I’m learning in class isn’t necessarily relevant to my area of practice in real estate, but it does give me an understanding of the bigger picture, which is always helpful.
At the beginning of today’s class, we were given the chance to talk about our local markets and the trends that we’re seeing. Here were some of the revelations…
Litchfield County- Land purchases seem to be moving. Buyers aren’t developers, but “regular” people. For example, someone will buy 18 acres at $20,000/acre with the hopes of eventually building a house on a large tract and then maybe spinning the rest off in the future to a developer. These “regular” people are hedging that land in Litchfield County will continue to be desirable to city folk.
Also, developers like Pulte and Toll Brothers are starting to explore the market again, anticipating that things will rebounding in the next few years, so they will be poised to react.
Greenwich- Houses in the $5-$8 million range are still selling very well. Huh. Must be nice.
Lower Fairfield County- Houses with a first floor bedroom are highly desirable and commanding premiums, as they are in low supply. The baby boomers are looking to downsize, but don’t want to move far, so they’re fighting over homes with a one-floor living option. I believe this will become more prevalent in all areas, particularly if boomers don’t want to live in 55+ communities.