TextAloud: AT&T Mike Market Value Review Questions. Lyrics

Review Questions Market Value

This is a Self-a__essment; your answers will not be scored.

Click your mouse inside the text box and then type in your answer. The "Solution" b___on will appear. When you have finished, click on the "Solution" b___on to compare your response to the model answer.

Broker Johnson placed a value on Smith's property approximately two years ago. At that time, based on comparables available, the market value was $255,000. However, during the two years, the general neighbourhood has suffered from noticeable decline.
While most residential areas in the west end have been stable, this particular locale has deteriorated due to poor maintenance of properties and a number of vacant buildings. Johnson now feels that the home, according to recent sales, will bring approximately $235,000.
Identify the main principles of value that apply along with reasons.

Solution

Principle of Change: Value changes over time. Neighbourhood is going through a declining cycle which impacts Smith's property.
Principle of External Factors: Factors beyond the control of the property owner are influencing value.

2.
Mr. and Mrs. Jones are seriously contemplating purchasing the Williams property. The property has a large fieldstone fireplace dividing the kitchen and living room areas. Originally built in 1988 for $15,500, the current cost for this fireplace could well exceed double the original cost.
Several comparable properties inspected by the Joneses are in the $230,000-240,000 range (each containing smaller, exterior wall fireplaces). Williams's property at $259,900 is remarkably similar to the others except for this unique feature.
Interestingly, the home has been on the market for over six months with no takers, despite fairly brisk sales activity in that price range, particularly homes with fireplaces. The Joneses are seriously debating how much to offer Williams.
What principles of value are at work? Specifically reference individual principles, along with explanations for your selection(s).

Solution

Principle of Contribution: What is the real value of a large fireplace in the eyes of the buyer versus the cost of building the fireplace?
Principle of Conformity: The fireplace is an over improvement that has increased the asking price beyond the values in the area.
Principle of Anticipation: Perhaps buyers cannot see the benefits accruing from this massive fireplace but instead perceive problems, i.e.dominates the room, difficult to decorate area, awkward placement of furniture.
Principle of Substitution: Buyers are selecting other homes because they are quite similar to Smith's property and also include fireplaces. Smith's price is apparently too high and being passed over for an equally desirable property at a lesser price.