Nate Wilding

Smeal College of BusinessThe Pennsylvania State UniversityDepartment of Risk Management

Risk Management 450 Instructor: Lily ShenContemporary Issues in Real Estate MarketsSpring 2014

Appraisal Project

State College Market Condition Analysis:

The subject property is located in the town of State College, Pennsylvania within

Centre County. While being on a fraction of a percentage of a decline, State College’s

population is relatively stable around 42,000 people. This population breaks down further

with a majority (83%) white residents and an almost an even gender split. These residents

experience high turnover in living conditions, with only 40% living in the same house for

over a year. This is compared to the much higher state average of 88%. This excessive

level of yearly movement can be attributed to the high concentration of student residents.

State college is a very dense, populated environment. The city has 9,224.1 people per

square mile, as opposed to the state average of 283. These people also have a shorter

average distance to work (15.5 minutes), placing an emphasis on a property’s location.

There are some 13,000 housing units in the area, 70% of which are in multi-unit

structures. Full home ownership is only around 19%; 50 points lower than the state

average. Of these owner occupied housing units, the median value is around $259,100.

This is almost $100,000 higher than the state average, showing that while fewer houses

are fully owner-occupied, those that are cost significantly more. Despite the higher

average price of these housing units, per capita income is half the state average and 52%

of residents lie below the poverty line. There are 2,421 firms in the area and over $363

million in annual retail sales. Wholesaler sales are around $10 million, and

accommodation and food services around $100 million. As previously stated, State

College’s 40,000 residents reside on only 4.56 square miles, making for over 9,000

persons per square mile.

Appraisal Subject Property:

The appraisal subject property to be valued is located at 234 Fry Drive, State

College, PA 16801. The property is 1901 square feet, with four bedrooms and two

bathrooms. The property was built in 1960 on .33 acres of land. Inside, there are new

kitchen cabinets and countertops with two-year-old kitchen appliances. A hot tub is also

included outside. The house is a rancher with a finished basement that is included in the

square footage, so it will be considered equal to a standard two-story home for appraisal

purposes. The seller currently lists it at $230,000.

Comparable Property Analysis:

Properties to be examined as substitutes to the subject property will be analyzed

according to a number of attributes. These attributes include number of bedrooms,

number of bathrooms, size of the home (sq.ft.), size of the land (acres), year built,

parking, previous transactions, and general location (distance from CBD). Basically, the

properties should be close in size and layout while residing in the same general location.

While each of these properties were not perfectly met by each comparable property, the

properties that were chosen showed strong correlation to one or more attributes or were

included to balance out each factor. Additionally, all properties had to be sold in standard

environments, not under duress or upon foreclosure. All properties are located in State

College, PA. The comparable properties are as follows:

1) 1221 William Street - Located in a similar residential neighborhood to the

subject property, this house has similar size (1972 sqft on .36 acres),

bedrooms (4), and age (59). It was also sold within the last two months.

2) 202 E McCormick Ave- This property also has the same bedrooms (4) and

almost the same bathrooms (1.5) as the subject property. It is also close in age,

in a similar neighborhood, and is close in house size (1841 sqft).

3) 236 Ellen Ave - This site has a similar lot size (.38 acres), is located in a

similar neighborhood, and is off by only five years in age. There are some

differences, but only minor (extra bathroom, one less bedroom).

4) 241 Bradley Ave- This property is close in age and lot size. It has slight

differences in bedrooms, bathrooms, and square footage but is still

comparable.

5) 111 W Marylyn Ave- This property is almost identical to the subject property

in bed and bathrooms, age, and square footage. The only minor difference

comes in lot size (.23 acres). It was sold a little farther back than most of the

other properties, but is still within the past two years.

6) 1125 William Street- This property has minor differences in most areas, but

still remains comparable to subject property. It is still similar in lot size,

location, age, and layout.

Assumptions made regarding sale comparison adjustment grid:

Due to Zillow.com not having an up-to-date sale price regarding

past transactions/home sales, repeat sale analysis could not be

used. Instead, because Zillow stated that home sale prices in State

College had decreased by 2% in the past year, each property was

decreased by a standard adjustment of 2%. Most of the properties

had been sold within the past year, and all in the past two.

Living area adjustments were based off of the Zillow.com

statement that the median transaction price per square foot in State

College was $158.

Based on an assumption made in the cost approach, the subject

property hot tub was valued at $3000. This cost was then used for

adjustments in the pool parameter.

Inconsistent porch and patio information caused the parameter to

be removed entirely.

Because the subject property was a one-story building with a

finished basement, any property fitting that description was

considered a standard two-story building. Adjustments were only

made for two story buildings with finished basements, or one-story

buildings with no basement.

Any other assumptions not listed in public State College

information were taken from the book and are as follows:

o Lot size: $100,000/acre

o Effective age: $1,250/year

o Bathroom: $4000/room

o Bedroom: $8000/room (doubled from bathroom)

Through the sales comparison adjustment grid, market value of the subject property was

found to be $259,398.67. This figure was taken from the equally averaged final

adjustments of all six comparable properties.

See appendix for sales comparison adjustment grid (Item A) and comparable

property breakdowns (Item B)

Cost Approach:

The cost of construction of a 1901 square foot home with 8-foot high walls would

be $214,128.64. This calculation does not include additional improvements to the

property. This site has new kitchen cabinets and countertops, with two-year old kitchen

appliances, and a hot tub. The average cost of a new kitchen according to Today.com is

around $15,000. Market value for a brand new kitchen appliance set is $2,500-$3,500, so

a safe value for a slightly older set is estimated at $2000. Finally, the value of a brand-

new hot tub stands anywhere from $2000-$8000. Because the age and model of the hot

tub was unspecified, a safe estimate was placed at $3000, assuming the hot tub was at

average quality and slightly aged. These additional costs bring the total appraisal using

the cost approach to $234,128.64.

Income Approach:

Average monthly rent in State College is at $600/bedroom with $2000 in total

annual maintenance costs. Thus, $600 times four bedrooms times twelve months equals

$28,800 in potential gross income. Subtracting out $2000 in operating expenses takes the

property to a net operating income of $26,800. The closest capitalization rate listings to

single-family residential in the CBRE Report was Multihousing Class A, and the closest

market area to State College was Pittsburgh. Accordingly, a capitalization rate of 6% was

chosen (Pittsburgh stabilized Class A Multihousing). With dividing NOI by the 6% cap

rate, a valuation for the subject property was found to be $446,666.

Final Valuation:

After reconciling the values determined from the comparable sales approach, the

cost approach, and the income approach, a final valuation of the subject property has

been determined. The comparable sales valuation was weighted the highest, as residential

homes have the highest turnover rate, transaction volume, and overall most comparable,

similar properties. There was a wealth of data to choose from when looking at past

transactions, with most properties being very similar to the subject property. The weight

of the comparable sales approach was 60%. The next highest weight was the cost

approach. While single-family homes are typically not specialty buildings and this

property was not new, the cost approach still made more sense than the income approach.

Re-creation was not impossible to calculate, and most improvement and appliance values

were able to be determined through research. Still though, the cost approach was

weighted at only 30%. Finally, income approach was weighted the lowest at 10%.

Single-family homes are typically not viewed or bought as income-generating properties,

and to value the site like that would only serve to skew the data. Additionally, I did not

agree with the method used to find the property’s capitalization rate. Instead of applying

a forced, imperfect rate from CBRE (Pittsburgh Multihousing), it could have been more

accurate to find the cap rates of comparable local residential properties and average them.

Using the transaction price of previously sold houses; a new cap rate could be found by

dividing the NOI (based on the provided assignment information) by the listed value of

the property. Regardless, the weights of the different approaches combined to result in a

final valuation of $270,544.39.

See appendix for full calculation (Item C).

This value was higher than Zillow’s sale listing price and value estimate. This

could possibly be attributed to the slight influence of an unreasonably high income

approach value and a slightly inflated comparable property approach from a higher

adjustment cost per square foot ($158). Even so, the property is not unreasonably priced

as compared to others similar houses in the State College market.

FINAL VALUATION FOR 234 FRY DRIVE, STATE COLLEGE, PA 16801:

$270,544.39

Appendix:

Item A: Sales Comparison Adjustment Grid:

Item B: Comparable Property Breakdown

Item C: Final Valuation Calculation