Assignment 2 - available after Lyrics

a__ignment 2 - available after completing Module 2, Session 2, Exercise 5

a__ignment

Welcome to the a__ignment segment of the course.

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.
1.
Mr. and Mrs. Dietrich have asked you, as a representative of ABC Realty Inc., to discuss the listing of their property. The Dietrich home is an older, 1,400 square foot frame bungalow with a double-car garage on a large, treed ravine lot measuring 100' x 175' in Orchard Lagoon. The sellers have lived in the home for over 40 years and raised a family, but are now contemplating a retirement condominium. A great deal has happened in Orchard Lagoon since their arrival. Once a quiet neighbourhood consisting of fewer than 20 homes scattered along a township road near the river, Orchard Lagoon now boasts some of Anycity's largest residences.
Vacant lots sell in the $220,000 to $275,000 range, and a ravine lot will command $300,000 and up. Demand is strong and supply is limited, as practically all prime vacant sites are sold. Buyers must demolish or substantially renovate older residences. Only three vacant sights remain which are controlled by a builder and prices range from $540,000 to $625,000 for homes now under construction. The Dietrich home, in other neighbourhoods of comparable homes, would probably be valued between $175,000 to $195,000. However, this situation is unique.
Outline which principles of value come into play when estimating market value for this property.

Solution

The Dietrich home can be a challenge even for an experienced appraiser. New salespeople should always seek guidance on such matters. The lot is obviously worth more than the existing structure. However, the issue centres on informed purchasers, apparent lack of supply, and significant demand. The question was deliberately structured so that a decision would not be easy. In today's urban markets, this situation is commonly encountered. Consider most older residential neighbourhoods. Some homes are demolished; others are modernized with structural and cosmetic modifications while maintaining the original outward appearance; still others are fully enclosed in a new exterior design.
Your answer should include a discussion of the following principles of value:
Principle of Consistent Use
The seller cannot simply apply one value to the land and another to the house as the two in combination would be inconsistent with the premise of consistent use. In all probability, an experienced appraiser would have to look at other comparable sales in which homes were demolished or substantially renovated to obtain additional information. This issue will be difficult to explain to the Dietrichs (as is the case for most sellers). Remember, they have spent most of their lives in this home. The appraisal process will be driven by a pragmatic as opposed to an emotional perspective.
Principle of Change
This neighbourhood is undergoing substantial change.
Principle of Substitution
This principle is always a factor, as a typical purchaser will compare this property to other properties in the marketplace.
Principle of Supply and Demand
There is no question that the market forces of supply and demand will play a major role in the valuation and ultimate sale of this property. With few available lots and a significant demand, Mr. and Mrs. Dietrich are in a fortunate position.
Principle of Conformity (Principle of Progression)
Larger adjacent homes enhance the value of smaller homes. In this instance, there is no question that the Dietrich property is positively impacted by surrounding residences.
Principle of Highest and Best Use
The highest and best use for this property, while still under the general classification of residential, is a larger home consistent with other adjacent, executive-level residences in an area zoned rural estate residential.

Mr. and Mrs. Dietrich are concerned about timing and demand for their particular property. Capital flowing from the sale is vital as part of their retirement strategy. This Orchard Lagoon home represents their nest egg, over and above regular pension income.
Based on the graphs provided below, combined with your knowledge of unique factors and forces that affect the real estate market, briefly outline major trends and factors that Mr. and Mrs. Dietrich should a__ess in making a decision to sell at this time.
Click here to open the charts in a new window. From there, you may print a copy for ease of reading.

Solution

The Anycity marketplace is enjoying an upswing in real estate market activity. Sales volume has increased year-on-year with average and median prices increasing for the entire area. Similarly, listing inventory is stable. The important message to Mr. and Mrs. Dietrich is that the real estate market is difficult to predict. Your answer should briefly outline the major forces that can affect both supply and demand, e.g., significant changes in demographics, consumer attitudes and abilities to purchase real estate, availability of financing, overall government legislation, changes in costs, availability of land, etc.
Your answer should also reference certain unique characteristics that relate to the Dietrich property. First, this property is being offered in a local market and driven by local needs and demands. Orchard Lagoon appears as the 'place to be'. Clearly, motivated purchasers are in the market today. Will they be there tomorrow?
The home is located on a ravine lot and consequently possesses a uniqueness that increases demand. Further, informed purchasers may be prepared to pay a significant premium in order to secure such a site. However, supply issues must also be addressed. Are there other estate developments at the planning stage? Is Orchard Lagoon an overheated market? What about the possibility of the bursting bubble?
What is the right time? Real estate practitioners can investigate the market, provide relevant information, and a__ist in discussing factors leading to a final decision. Ultimately, however, the sellers must decide on their strategy.