Real estate abstract
A real estate appraisal method in which the buyer of a property
assigns points to a subject property and each comparable property
based upon an Ideal Point System (IPS). The points assigned, or
IPS values, are based upon the desirability factors for each of
five categories of criteria. The total possible IPS value for any
property is 100, corresponding to 100 per cent desirability. Once
the buyer's IPS values are determined, the property may be subsequently
used as a comparable property. The appraiser need only select a
subject property and obtain IPS values for the subject property.
The sales price of each comparable property is then adjusted based
upon the relative difference between the IPS values for the comparable
properties and the IPS values of the subject property, by dividing
the total IPS value for each comparable property with the IPS value
for the subject property to obtain a composite adjustment ratio.
The adjustment ratio for each comparable property is then multiplied
by the sales price to obtain an adjusted sales price. Any greatly
divergent adjusted sales prices are discarded, and the average adjusted
sales price is determined. The average adjusted sales price is used
as the appraised value for the subject property.
Real estate claims
What is claimed is:
1. A computer system for appraising a subject property, comprising:
means for selecting at least one comparable property having a sales
price;
means for creating a plurality of categories, each category associated
with a feature of the subject property;
means for assigning an ideal value to each category;
means for selecting, for each said comparable property, an appraiser
value for each category, the appraiser value being no greater than
the ideal value;
means for selecting, for the subject property, a seller value and
an appraiser value based upon the seller value for each category,
the seller value and appraiser value each being no greater than
the ideal value;
means for determining the total appraiser value for each said comparable
property and said subject property;
means for determining an adjusted sales price for each said comparable
property which represents the relationship between each said comparable
property and said subject property based upon the determined total
appraiser value for each said comparable property and the total
appraiser value for said subject property; and,
means for determining an appraised value for the subject property
based upon an analysis of the adjusted sales price for each said
comparable property.
2. The computer system of claim 1, further comprising a database
for storing records, each record comprising information regarding
said comparable property and the appraisal value for said comparable
property.
3. The computer system of claim 1, wherein a computer processor
comprises each means for determining.
4. The computer system of claim 1, further comprising a display
screen for displaying information and a manually-operable input
unit for receiving commands and information.
5. The computer system of claim 1, further comprising means for
displaying the appraisal value.
6. The computer system of claim 1, wherein three to five comparable
properties are selected.
7. The computer system of claim 1, wherein the appraiser value
is based upon a typical buyer value.
8. A method for appraising a subject property comprising:
selecting at least one comparable property having a sales price;
creating a plurality of categories, each category associated with
a feature of the subject property;
assigning an ideal value to each category;
selecting, for each said comparable property, an appraiser value
for each category, the appraiser value being no greater than the
ideal value;
selecting, for the subject property, a seller value and an appraiser
value based upon the seller value for each category, the seller
value and appraiser value each being no greater than the ideal value;
determining an adjusted sales price for each said comparable property,
the adjusted sales price representing the relationship between each
said comparable property and the subject property based upon the
selected appraiser values for each said comparable property and
the selected appraiser values for the subject property; and,
determining an appraised value for the subject property based upon
an analysis of the adjusted sales price for each said comparable
property.
9. The method of claim 8, wherein the step of selecting an appraiser
value is performed at about a time said comparable property is sold
and the step of determining an adjusted sales price for each said
comparable property is performed after a subject property is selected.
10. The method of claim 8, further comprising the step of displaying
the determined appraisal value.
11. The method of claim 8, further comprising the step of determining
the total appraiser value for each said comparable property and
for the subject property and wherein the step of determining an
adjusted sales prices comprises the step of determining an adjusted
sales price for each said comparable property, the adjusted sales
price representing the relationship between each said comparable
property and the subject property based upon the determined total
appraiser value for each said comparable property and the total
appraiser value for the subject property.
12. The method of claim 8, wherein three to five comparable properties
are selected.
13. The method of claim 8, wherein the appraiser value is based
upon a typical buyer's value.
14. A method for appraising a subject property comprising:
selecting at least one comparable property, each at least one comparable
property having a sales price;
creating a plurality of categories, each category associated with
a feature of the subject property;
assigning an ideal value to each category;
selecting, for each said comparable property and the subject property,
an input value for each category, the input value being no greater
than the ideal value;
determining an appraised value for the subject property based upon
an analysis of the input values for each said comparable property
and the subject property.
Real estate description
BACKGROUND OF THE INVENTION
1. Field of the Invention
The present invention relates to a manual or computer-implemented
method for appraising real estate. More particularly, the present
invention relates to a computer-implemented method for accurately
appraising real estate based upon a uniform scale which measures
the desirability of the real estate to buyers and sellers.
2. Description of the Related Art
Property owners, prospective property purchasers, investors, insurance
companies and lending institutions heavily rely upon the current
value of a property to enact normal business operations. For real
estate, the assessment of value, or appraisal, is typically done
by a real estate appraiser. Real estate appraisers commonly base
their judgment on any number of factors, such as the condition of
the property, neighborhood reputation, and other considerations.
One common approach used to appraise real estate is called the
Market Data Approach (MDA). This approach is an appraisal technique
in which the market value estimate is based upon prices paid in
actual market transactions and current listings. The actual sales
prices operate to fix the lower limit of value in a static or advancing
market, or as an upper limit in a declining market. The current
listings, in contrast, set an upper limit in both advancing and
declining markets. The MDA involves the process of correlating similar
properties recently sold to determine the value of a subject property.
Quite notably then, one of the most important considerations in
appraising real estate is the price of real estate of like design
and size that have recently been sold in the same or a similar neighborhood
as the "subject" property. These properties are referred
to as "comparable" properties and are heavily relied upon
by appraisers. For clarity then, the term "subject property"
refers to a property under investigation and for which an appraisal
value is to be determined. The term "comparable property",
on the other hand, refers to a property, other than the subject
property, that is used to assist in appraising the subject property.
In the market or sales comparison approach, the appraiser arrives
at an indication of value by comparing the subject property directly
with each selected comparable competitive property recently sold.
The appraiser compares each of the comparable property's important
attributes with the corresponding ones of the property being appraised,
under the general distinctions of time, location, and physical characteristics
considering all dissimilarities in terms of their probable effect
upon the sale price. If a significant item in the comparable property
is superior to, or more favorable than, a subject property a minus
(-) dollar adjustment is made, thus reducing the indicated value
of the subject; if a significant item in the comparable property
is inferior to, or less favorable than, the subject property, a
plus (+) dollar adjustment is made, thus increasing the value of
the subject.
The drawback in relying on recent sales of comparable properties,
however, is that the market or sales price merely indicates the
price paid for a property. Quite significantly, however, the market
price alone does not reflect the conditions existing at the time
of the sale, or the reasons a buyer had in purchasing the property.
Hence, the accuracy and reliability of appraisal techniques that
rely on sales price, such as the MDA system, is highly dependent
upon the degree of comparability of each property with the subject
property, the time at which the sale was made, the accuracy of the
sale data, and the absence of unusual conditions affecting the sale,
as well as other potentially influencing factors. Appraisers try
and select comparable properties that have the most similarity with
the subject property.
However, it would be extremely time consuming and inefficient for
the appraiser to inspect each comparable property and make an explicit
determination as to just how similar a comparable property is to
the particular subject property under investigation. This is especially
true where multiple comparable properties are involved.
In addition, an appraiser would need to re-analyze the sale value
of a comparable property for each subject property being investigated.
Thus, if a comparable sale is used with 10 different subject properties,
then 10 separate direct comparisons of the computer sale would have
to be made. Consequently, appraisers do not normally investigate
comparable properties in order to determine just how relevant the
sale price is to the subject property.
Nonetheless, appraisers attempt to base an appraisal on the price
a typical buyer and a typical seller would agree upon as a fair
value for the property. Clearly then, one drawback of these prior
appraisal systems is that the factors used to appraise the property
are subjective in nature. Thus, there will necessarily be a disparity
in appraisal values amongst appraisers having different skill levels
and biases.
Recently, appraisers have been making use of computer-generated
models to facilitate the valuation of a subject property. One common
computer-implemented system is referred to as Artificial Intelligence
or just AI. The AI system obtains sales data from a national database
and generally provides an analysis of public records data, recent
sales, and other proprietary information of real estate within the
zip code of the subject property.
Though the AI system is efficient time-wise, the computer system
in general does not take into consideration an inspection of the
subject property, or the opinion of an appraiser. Rather, the generated
appraisal value is based strictly upon property information such
as number of rooms, year constructed, and square footage. In addition,
without objective data gathered on-site, the AI system increasingly
relies on past predictions to generate the next series of predictions,
so that appraisals become progressively more inaccurate.
Consequently, the neighborhood, upgrades, view, condition, amenities,
and other important factors, are not worked into the appraised real
estate value. Hence, the current AI system is generally inconclusive
and unreliable, especially absent an inspection of the subject or
comparable properties. Accordingly, the AI system only has a limited
value where the subject property is in a substantially homogeneous
location. Hence, a subject property that is in very good condition
will tend to be under-valued. Likewise, properties that are in need
of work or have other difficulties, such as limited functional use,
will tend to be over-valued.
A computer-implemented real estate appraisal system is also shown
in U.S. Pat. No. 5,361,201 to Jost, et al. (herein, Jost). In Jost,
the computer is provided with property data describing the subject
property and the area in which the subject property is located.
Jost uses a neural-network approach to generate a report containing
an appraised value for the subject property based upon the property
data. Jost does not, however, use objective data gathered on-site
or otherwise adjust the prices of comparable properties in appraising
a subject property.
Accordingly, the prior appraisal systems and methods simply provide
a prioritized rank or ordinal scale of various comparable properties
in relation to the subject property. That is, the appraiser may
indicate that one comparable property is more valuable than another
comparable property or the subject property. However, this type
of ranking does not indicate how much better one property is than
another property. That is, there is no comparative valuation for
the comparable properties with the subject property.
Another computer-implemented method for determining comparative
values of comparable properties is shown in U.S. Pat. No. 5,414,621
to Hough. Hough determines values of comparable properties based
on an assessment of percentages and sales of the comparable properties,
and relying primarily on property tax rates of the respective properties.
The derived comparable property values are then used to determine
a value for a subject property.
As with other traditional appraisal methods, however, Hough does
not consider the values of the buyers or sellers in appraising either
the comparable properties or the subject property. This deficiency
is significant, especially when one considers that the price of
the property is highly dependent upon the demands of the prospective
purchaser.
SUMMARY OF THE INVENTION
In order to overcome the disadvantages of the prior art, the present
invention recognizes that the price of real estate is significantly
based upon the price a prospective buyer is willing to pay and the
seller is willing to accept. This price, in turn, is directly dependent
upon the benefits or advantages a subject property has to that individual
buyer. Clearly, any given property will have different advantages
to different purchasers.
Unfortunately, the purchaser "values", or competitive
desirability factors, are often unknown to appraisers. Thus, consumers
are likely to have purchased property for reasons that differ greatly
from the grounds for which the property has been appraised. Moreover,
each comparable property will necessarily have different competitive
desirability factors than the subject property. Thus, price is directly
dependent upon benefits to a particular buyer, whereas value is
based upon desireability factors of typical buyers and sellers.
Without knowledge of the desirability factors for the subject and
comparable properties, it is difficult to accurately appraise real
estate. The listed purchase price for a given property will not
alone be useful in determining the true market value for the subject
property. Rather, the appraisal system must indicate why one property
differs from another in order to accurately determine an appraised
value for a subject property.
For instance, consider a family of a certain size looking for a
three-bedroom house. The buyer is not interested in four-bedroom
houses. Nonetheless, appraisers typically consider four-bedroom
houses to be comparable properties in setting the price of the subject
property. Yet, the buyer would not consider the four-bedroom house
to be comparable and would not be willing to pay the price for the
extra room. Thus, to set a realistic appraised value for the subject
property, the price of four-bedroom houses should be adjusted in
accordance with the buyer's "values" and to take into
consideration the buyer's desirability factors to derate the fourth
bedroom to reflect the fact that the typical buyer won't pay for
it. If typical buyers want three-bedroom houses then the appraiser
usually makes a large adjustment for the fourth bedroom which is
considered an over improvement of this property when compared with
the typical three-bedroom house.
Accordingly, the present invention adjusts the sales prices of
each comparable property prior to deriving an appraised value for
the subject property. The adjusted value of each comparable property
is based upon DUPAACS (Dugan's Pre-Adjusted Appraised Comparable
Sales Method for Standardizing Real Property Market Analysis) an
Ideal Point System (IPS) for various groups of desirability factors.
Points are assigned to each of the comparable and subject properties.
An adjusted sales price for each comparable property is determined
based upon the points allocated the comparable property in relation
to the points assigned to the subject property. The adjusted sales
price of each comparable property is then used to determine an appraised
value for the subject property.
Once points have been assigned, the adjusted sales price is readily
established for the comparable properties. This is highly unlike
traditional valuation methods, where sales prices of comparable
properties are typically compared directly with the subject property,
without first adjusting the sale price, and despite the comparable
properties not being newly appraised and not reflecting the desirability
factors of the buyer. The Ideal Point System also makes it easier
for the appraiser to determine which properties are comparable to
the subject property without having identified the subject property
at the time of valuing comparable properties.
Accordingly, it is a primary object of the present invention to
provide a real estate appraisal method that is highly efficient
and trustworthy and can be relied upon by sellers, buyers, appraisers,
bankers, investors and the like.
It is another object of the invention to provide a real estate
appraisal method based upon the value a potential buyer places on
the property.
It is a further object of the invention to provide a real estate
appraisal method that is unbiased and based upon independent information.
Another object of the invention is to provide a computer-implemented
appraisal method that generates standard appraisal reports.
Another object of the invention is provide an appraisal method
that is implemented on a computer and can be interfaced with standard
databases providing sales data, and that can download appraisal
reports to other computer systems.
It is yet another object to provide an appraisal method that can
be used for all real estate markets, including commercial or retail
space, office space, and residential housing.
It is another object of the invention to provide a real estate
appraisal method that sets standardized, objective, and well-defined
factors used to appraise property so as to be easily understood
and applied.
It is another object of the invention to adjust the market price
of a comparable property against ideal standards of a buyer to more
accurately compare subject properties by standardizing the analysis
of pre-adjusted comparable sales.
It is another object of the invention to provide objective values
for a comparable property so that the sales price of a comparable
property may be easily adjusted for various subject properties and
to provide repeatable standards.
In accordance with these objectives, a real estate appraisal method
is devised in which the appraiser and the prospective buyer of a
property assign points based upon an Ideal Point System (IPS). The
points assigned, or IPS values, are based upon the desirability
factors for each of five categories of elements. The total possible
IPS value for any property is 100, corresponding to 100 per cent
desirability.
Once the IPS values are determined, the property may be subsequently
used as a comparable property. The appraiser need only select a
subject property and obtain the IPS values for the seller of the
subject property. The sales price of each comparable property is
then adjusted based upon the relative difference between the total
IPS value for the comparable properties and the total IPS values
of the subject property.
In order to adjust the sales price of the comparative property,
the comparative difference between the comparable property and the
subject property is first assessed. This is done by dividing the
total IPS value for each comparable property by the total IPS value
for the subject property to obtain a composite adjustment ratio.
The adjustment ratio for each comparable property is then multiplied
by the sales price to obtain an adjusted sales price for that comparable
property. Any greatly divergent adjusted sales prices are discarded,
and the average adjusted sales price is determined. The average
adjusted sales price for all of the comparable properties is used
as the appraised value for the subject property.
These together with other objects and advantages which will become
subsequently apparent reside in the details of construction and
operation as more fully hereinafter described and claimed, reference
being had to the accompanying drawings forming a part hereof, wherein
like numerals refer to like parts throughout.
BRIEF DESCRIPTION OF THE DRAWINGS
FIG. 1 is a block diagram of the preferred embodiment of the overall
system of the present invention.
FIG. 2 shows an evaluation slide having categories and selectable
Ideal Point System (IPS) values in accordance with the preferred
embodiment of the present invention.
FIG. 3 is a general flow diagram of the overall operation of the
system of FIG. 1.
FIG. 4 is a flow diagram to appraise a subject property in accordance
with the preferred embodiment of the present invention.
FIG. 5 is a flow diagram to revise a record stored in the database
of FIG. 1.
FIGS. 6a-6j are Pre-Adjusted Comparable Sale Analysis Forms used
in the implementation of a first illustration of the preferred embodiment
of the present invention having five comparable properties.
FIGS. 6k-6l are Pre-Adjusted Comparable Sale Analysis Forms used
for the subject property in the first illustration of the invention.
FIG. 6m is an appraisal report based upon the Analysis Forms of
FIGS. 6a-6l.
FIGS. 7a-7f are Pre-Adjusted Comparable Sale Analysis Forms used
in the implementation of a second illustration of the preferred
embodiment of the present invention having three comparable properties.
FIGS. 7g-7h are Pre-Adjusted Comparable Sale Analysis Forms used
for the subject property in the second illustration of the invention.
FIG. 7i is an appraisal report based upon the Analysis Forms of
FIGS. 7a-7h.
FIGS. 8a and 8b are a table serving as a guide for the weights
to be assigned each of the categories shown in the slide of FIG.
2, as dependent upon the use classification of the property being
appraised.
DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENTS
In describing a preferred embodiments of the invention illustrated
in the drawings, specific terminology will be resorted to for the
sake of clarity. However, the invention is not intended to be limited
to the specific terms so selected, and it is to be understood that
each specific term includes all technical equivalents which operate
in a similar manner to accomplish a similar purpose.
Now turning to the drawings, FIG. 1 shows the system 10 according
to the present invention. The system 10 generally comprises a computer
having a processor 12 connected with a display 14, keyboard 16,
color printer 18, mouse 20 and modem 22. In addition, the processor
12 may be connected with a digital camera (not shown), so that photographs
may be stored with an appraisal record and incorporated into appraisal
reports.
The processor 12 is connected to a database 24. In the preferred
embodiment, database 24 is a national database that provides sales
data for real estate. Thus, the database 24 is maintained by an
independent source, and therefore is located remote from processor
12. The database 24 is accessed via a communication medium, such
as modem 22 or an Integrated-Service Digital Network (ISDN) connection
(not shown). The connection may either be a direct modem connection
or through the internet, such as by File Transfer Protocol, the
World Wide Web, or by telnet.
In an alternative embodiment, however, database 24 may be located
local to, and directly connected with, processor 12 in a stand-alone
computer, such as by a CD-ROM. Still yet, the database 24 may be
integrated with processor 12 in accordance with well-known computer
processing configurations. In these alternative embodiments, the
modem 22 connection is eliminated.
The display 14, keyboard 16 and mouse 20 are used to enter data
and commands concerning the subject property and any comparable
properties as becomes necessary. The entered data and commands are
processed and implemented by processor 12, which then accesses information
stored in database 24 via modem 22.
The system and method of the present invention is implemented by
computer software which permits the accessing of data from computer
database 24. The software is preferably stored within processor
12, though may be located at a remotely located processor (not shown),
such as a processor that also retains database 24. Accordingly,
the system 10 may be a single free-standing computer or a group
of computers networked together, such as via the internet or by
local networking.
The accessing of data from database 24 in accordance with the software
instructions that implement the invention is performed in accordance
with well-known processing techniques. In addition, the appraisal
information generated by the system 10 may be downloaded to other
remote computers through established communication protocols, such
as by the nation-wide EDI (Electronic Data Interchange), for use
by lending institutions and other establishments. This has particular
use for underwriting systems, so that an appraisal report can be
generated and electronically exchanged after an electronic credit
analysis has been performed.
The analysis form provides a simple process for an appraiser to
ascertain a buyer's values and desires in a subject or comparable
property. As will become more apparent below, an analysis form is
completed for each comparable property and placed into the database
24 for use with similar properties. The database 24 stores each
property as a separate searchable record. The sales data for each
property can then be compared with other sales for an ongoing indication
of market values by each property, class, size, category, or other
similar factors.
As shown in FIG. 2, a slide 26 is provided to present all the different
categories 110, and respective points that may be assigned under
the Ideal Point System (IPS) in a clear manner. The slide 26 assists
in the assignment of points during evaluation of a comparable or
subject property.
The weights or preferences are preferably arranged into five categories
110, including Location 112, Neighborhood 114, Facilities 116, Improvements
118, and Utility and Appeal 120. The first category, Location 112,
reflects the location of the property, nearness to mass transportation
services and major roadways, quality of schools and shopping, and
so forth. In the preferred embodiment, Location 112 is assigned
an IPS point value range of 1-10. The second category, Neighborhood
114, reflects the surroundings of the subject property, and the
purchaser must select an IPS value from 1-15. The next category,
Facilities 116, reflects such items as water mains, sewers, services,
and similar items, and has an IPS value range from 1-15. The fourth
category, Improvements 118, reflects things that are replaceable
to a buyer at a cost, and has an IPS value range from 1-35. The
last category, Utility and Appeal 120, reflects the contemplated
uses of the property (that is, the motive for purchasing the property),
and has an IPS value range from 1-25.
The five categories 110 represent the desirability for a subject
property, for a possible total of 100 IPS value points. The buyer
is able to indicate the relative values by selecting amongst the
range of allowed IPS values for each category 110. Although the
preferred embodiment uses five categories 110, additional categories
may be factored in as well, such as external influences or pressures
exerted on the buyer.
Referring now to FIG. 3, the operation of the system 10 will now
be described. The system 10 starts off at block 30, where the processor
12 formats itself, such as by booting up. Once the system 10 is
formatted, step 30, the operator, here an appraiser, will have two
options. The operator may appraise a subject property, step 32,
or revise a record stored on the database 24, step 36. If the operator
decides to appraise a subject property at step 32, the system 10
will proceed in the manner of the flow chart in FIG. 4, step 34.
On the other hand, if the operator chooses to revise a record at
step 36, the method described in the flow chart of FIG. 5 will be
followed, step 38. The system 10 will await for the operator to
choose one of these two options before continuing on.
Assuming first that the operator selects to appraise a subject
property, step 32, at which point the system 10 continues, at step
34, to step 40 of FIG. 4. At step 40, the operator must first select,
by use of keyboard 16, mouse 20 and/or display 14, the comparable
properties to be used in the appraisal. Here, the system 10 is preferably
configured to require the operator to select a minimum of three
comparable properties, but no more than five comparable properties.
Alternatively, the system may be configured to suggest comparable
properties based upon preferences of the subject property, such
as location, facilities, or other information.
Once the comparable properties have been selected, step 40, the
system 10 prompts the operator to select the subject property, step
42. Once both the subject property and the comparable properties
have been selected by the user, the processor 12 will transmit,
at step 44, the request to the database 24 via modem 22. Of course,
the order in which the comparable properties and subject property
are selected can be varied to any suitable manner. Preferably, however,
the comparable and subject properties are selected prior to transmitting
a request to the database, step 44. However, the subject property
need not be selected until after comparable properties have first
been received and displayed.
Once a request is received by the database 24, the records stored
in the database 24 are searched, step 46. The results of the search
are then transmitted from the database 24 back to processor 12,
where they are received and displayed on monitor 14, step 48. Preferably,
the records for each comparable property and the subject property
are viewed independently and the operator may scroll from one record
to the next.
Once the records for the subject and comparable properties are
displayed, the operator has the option of revising the record, step
50. This may be done, for instance, if the record contains incorrect
information. However, the record may also be revised to input a
new set of IPS values, particularly geared to the subject property
presently under analysis. As indicated above, and will be discussed
more fully below, the IPS values are point values selected by a
buyer, appraiser, or seller indicating the score of a property in
accordance with an Ideal Point System (IPS).
Proceeding to step 54, once having displayed the different records,
step 48, the operator may decide to revise the list of selected
comparable properties. If the operator is satisfied with the comparable
properties selected, the system will proceed to determine an appraised
value, step 62. If, however, the user wishes to revise the comparable
properties selected, the system proceeds instead to step 56. At
step 56, the user may decide to delete one or more new comparable
properties. The user selects the property or properties to be deleted,
and the properties are then removed from the list, step 58. The
omitted record, however, is not removed from the database 24, only
from the current appraisal evaluation. The system then inquires
whether the list is to be further revised, step 54.
If the user does not want to delete new properties, step 56, but
instead wants to add a comparable property to the list, this may
be done at step 60. If a new property is to be added, the system
returns to step 40, where the user may select additional properties.
Otherwise, the system returns back to step 54.
Once the selected records are to the appraiser's satisfaction,
steps 50 and 54, the system 10 will determine the appraised value
of the real estate, step 62. This appraisal is based upon a comparison
of the total IPS value for each comparable property and the total
IPS value of the subject property. The appraised value is displayed
on monitor 14, along with a high and low appraised value, step 64.
Once these values are displayed, the system returns, at step 66,
to step 34 of FIG. 3. The operator will then again have the option
to perform another appraisal, step 32, or revise a record, step
36.
Continuing with FIG. 3, now assume that the operator selects to
revise a record, step 36. The system then proceeds, at step 38,
to FIG. 5, where it continues at step 68. At step 68, the system
10 inquires whether the operator wishes to revise an existing record,
or input a new record. As with steps 40-48, if the operator selects
to revise an existing record, the operator selects the record. The
request is transmitted by processor 12 to the database 24. The database
24 is searched, and the retrieved record is returned to processor
12, where it is displayed on monitor 14.
Once the record is displayed, the operator may decide not to revise
the record, step 70, in which case the system 10 returns, at step
72, to step 38 of FIG. 3. If, however, the operator selects to revise
the record at step 70, the revisions are entered, step 74. Once
the revisions are complete, the program proceeds to step 78.
Likewise, if the operator decides to enter a new record into the
database 24, step 68, the data is received by processor 12 at step
76. Essentially, the data input by the operator, at steps 76 and
74, will be information about the property, such as best use (for
example, residence or business), location and size, information
about the sale, such as sale price and date of sale, and the IPS
values of the buyer, seller and/or appraiser involved in the sales
transaction. Once the information has been input, the system proceeds
to step 78.
At step 78, the processor 12 will add the individual IPS values
for the property to derive a total IPS value. At this point, the
system 10 cannot provide an adjusted sale price, since an adjusted
sale price can only be determined after a subject property has been
selected to be appraised. Thus, once the total IPS value has been
determined, it is appended to the record, which is then transmitted
by processor 12 to the database 24 via modem 22, step 80. The database
24 stores the record, step 82, and the system 10 returns to step
38 of FIG. 3, step 84.
A first example of an appraisal, for a single family residence
in Thibodaux, La., is shown in FIGS. 6a-6m. Starting with FIG. 6a,
a Pre-Adjusted Comparable Sale Analysis Form 130 is shown for a
first comparable property. At the top of the Sales Analysis Form
130 is the date of inspection 132, the property sales price 134
and the highest and best use 136. The address (not shown) of the
property may also be printed at the top of the Sale Analysis Form
130.
After the heading information, six categories 110 are listed, including
the five categories previously described with respect to evaluation
slide 26: Location 112; Neighborhood 114; Facilities 116; Improvements
118; and Utility and Appeal 120. Next to each category 110 is a
list of illustrative competitive desirability factors 125. These
desirability factors 125 allow the appraiser or buyer that is filling
out the form, to have some indication as to what attributes of the
comparable property is to be assessed for each particular category
110.
Under an Ideal Point System (IPS), each of the categories 110 are
assigned a maximum percentage or maximum IPS value 138. The total
of all the maximum IPS values 138 should preferably add up to a
total of 100 percent. Thus, if the user were to rate the particular
property as having the maximum IPS value 138 for each category 110,
a total score of 100 points would be awarded that property.
An additional category 110, Influenced 122, is also included in
analysis form 130. In the preferred embodiment, the category 110,
Influenced 122, is assigned a maximum IPS value of zero since this
category is not a common factor in the purchase of a house. However,
points could be assigned under Influenced 122, giving a comparable
property the potential of exceeding 100 total points.
Accordingly, a buyer assigns buyer IPS values 140 to each of the
categories 110. This is preferably done at the time a buyer actually
purchases the property. In order to eliminate bias of the buyer,
the buyer IPS values 140 may be obtained prior to execution of a
purchase agreement. At that time, the buyer would not want to falsely
raise or lower his/her IPS values 140 since the appraised value
of the property would be influenced prior to the sale. After purchasing
the property, however, the buyer would stand to gain a higher appraised
value without driving up his own purchase price.
Similarly, an appraiser assigns appraiser IPS values 142 to each
of the categories 110. Preferably, the appraiser and buyer review
the property together, and assign respective IPS values 140, 142
at the same time. The appraiser IPS values 142 are preferably based,
at least in part, upon the buyer IPS values 140 in order to provide
a basis for the sales price of that property.
After all of the buyer and appraiser IPS values 140, 142 are assigned,
they are placed into the database 24 in accordance with the procedure
of FIG. 5. Pursuant to step 78, the computer processor 12 sums the
IPS values 140, 142 to derive a total competitive standard's ratio,
or total buyer IPS value 144, and a respective total appraiser IPS
value 146. The record is then transmitted to the database, step
80, where it is then stored, step 82, for later retrieval.
Preferably, on the reverse side of the Sale Analysis Form 130,
or here shown in FIG. 6b, are further details of the comparable
property. Preferably, the information provided includes date of
sale, address or location, vendor, vendee, sale price, square footage
of the living area, unit price of each square foot, land size, and
a space for other remarks and photographs. The photographs are preferably
created by a digital camera and may then be digitally stored in
a record of the database 24. The unit price for each square foot
is calculated by dividing the sales price by the total square footage
of the living area.
The total buyer and appraiser IPS values 144, 146 are assessed
for each of the comparable properties to be used in an analysis
of the subject property. In the present example, five comparable
properties are being used, and a Pre-Adjusted Comparable Sale Analysis
Form 130 is completed for each of the comparable properties, as
shown in FIGS. 6c-6j. All the information contained on the front
and back of each Analysis Form 130 is stored in a single database
record, each record corresponding to one property.
Similar to the Analysis Form 130, a Subject's DUPAACS (Dugan's
Pre-Adjusted Appraised Comparable Sales method) Analysis form 131
is completed for the subject property, as shown in FIGS. 6k and
6l. Here, since the purpose of the analysis is to derive an appraised
value for the subject property, the property sales price 134 is
left blank or "To be estimated". Likewise, the unit cost
of square footage living space is omitted. However, as with the
Sale Analysis Forms 130 for the comparable properties, the appraiser
total IPS value 146 is obtained.
In addition, the seller of the subject property completes the Analysis
Form 131, indicating seller IPS values 148. The seller IPS values
148 are combined to form the total seller IPS values 149. The seller's
IPS values 148 are obtained to provide an indication as to why the
seller had purchased the subject property. And, the appraiser IPS
values 146 are based, in part, upon the seller IPS values 148.
In practice, the analysis forms 130 for the comparable properties
have been previously stored in the database 24. Thus, when a property
is placed on the market, the appraiser need only review the property
with the seller. The appraiser and seller together complete the
subject property analysis form 131.
Once the Sales Analysis Form 131 has been completed for the subject
property, the appraiser selects comparable properties to be used
in the valuation of the subject property, step 40. In addition,
the appraiser may also check the database 24 for a record containing
the subject property, step 42. The appraiser and seller IPS values
146, 149 for the subject property can then be updated to reflect
the current seller's IPS values, steps 50, 52.
After the subject and comparable properties are selected and retrieved,
a DUPAACS Reconciliation and Subject's Value Estimate Conclusion,
or Appraisal Report 150 is generated, as shown in FIG. 6m. Each
of the comparable properties is listed, along with each category
110 and respective total appraiser IPS values 142 and appraiser
IPS values 146.
Continuing at step 62, the appraised value of the subject property
is determined. The total appraiser IPS value 146 of the subject
property is taken to be the subject property's grade 152. The subject
property's grade 152 is then independently divided by the total
appraiser IPS value 146 for each of the comparable properties to
derive a composite adjustment ratio 154 for those comparable properties.
In the present example, for instance, comparable properties 1-5
have composite adjustment ratios 154 of 1.11, 1.00, 1.00, 1.00 and
1.09, respectively. The composite adjustment ratio 154 represents
the relative value of the comparable property in respect to the
other comparable properties.
After all of the composite adjustment ratios 154 have been determined,
each individual composite adjustment ratio 154 is multiplied by
the price for which the comparable property was actually sold. The
product of these two values represents an adjusted sales price 156
for the comparable property. That is, the sales price adjusted to
reflect the desirability factors 125 for the buyer and appraiser.
Finally, the high, low, and average adjusted sales price 157 for
the comparable properties is determined. An appraised value 158
for the subject property is then based upon the calculated average
adjusted sales price, keeping in mind the high and low adjusted
sales prices. That is, any extreme value for the high and low adjusted
sales price indicates that the property may not be comparable, and
the value should be discarded or ignored. The system 10 may also
compute the percentage spread between the high and low adjusted
sales prices. The information is then displayed in the appraisal
report 150, step 64.
As indicated in the description of FIGS. 6a-6m, the appraiser IPS
values 146 were used to appraise the subject property. However,
the IPS values for the prospective purchaser may be substituted
for any of the buyer or seller IPS values 140, 148 in order to adjust
the value of the actual sale to reflect the inclination of the prospective
purchaser of the subject property. Thus, the value the prospective
purchaser places on each of the comparable properties can be obtained,
so as to determine the relative value the buyer has for the subject
property.
FIG. 6m illustrates a standard appraisal report that is generated
by the system 10. The appraisal report may show additional information,
such as any property and report identifying numbers and the like.
However, the system 10 may also generate Summary Appraisal Reports
(SAR), which provide more limited information than the standard
report. The SAR should provide at least the following information:
(1) the property identification and summary description of the property;
(2) the real property interest being appraised; (3) the purpose
and intended use of the appraisal; (4) the value being estimated;
(5) the effective date of the appraisal and date of report; (6)
the extent of the process of collecting, confirming and reporting
data; (7) all assumptions and limiting conditions that affect the
analyses, opinions, and conclusions; (8) a summary of the information
considered, appraisal procedures followed, and the reasoning which
supports all the analyses, opinions and conclusions; (9) summary
of the appraiser's opinion of the highest and best use of the real
estate (when useful); (10) explanation of whether any of the usual
valuation approaches have been excluded and reasons for the exclusion;
(11) any additional information that may be appropriate to show
compliance with, or permitted departures from, the specific guidelines.
Another example of the appraisal method is shown in FIGS. 7a-7j,
for the appraisal of one acre of land at a rural site in LaFourche
Parish, La. Here, three comparable properties, sales A, B, and C,
are being used to assess the appraised value of the subject property.
In addition, since the real estate to be appraised is land, the
category Improved 118 is assigned a maximum IPS value 138 of zero.
The points from Improved 118 are then distributed to the remaining
categories 110, so that Location 112 has a maximum IPS value 138
of thirty (30) points, Neighborhood 114 has a maximum IPS value
138 of ten (10) points, Facilities 116 has a maximum IPS value 138
of thirty (30) points, and Utility and Appeal 120 has a maximum
IPS value 138 of thirty (30) points.
In adjusting the sales price of the comparable properties, properties
that are lower in value than the subject property are generally
adjusted upward. This is because the total IPS values are likely
to be depressed for the cheaper properties. The depressed total
IPS values are indicative of the degree of similarity between the
comparable properties and the subject property. If the subject property
is similar in total IPS value to a comparable property, the adjusted
sales price of the comparable property will be close to the actual
sales price. As the total IPS values of the subject and comparable
properties diverge, a greater adjustment will have to be made in
the sales price of the comparable property.
Similarly, properties that are higher in sales price than the subject
property generally are adjusted downwardly. This is because the
comparable properties will be more desirable and have a higher total
IPS value, though perhaps a comparable property is not affordable
or otherwise available. In adjusting more desirable comparable properties
downward and less desirable comparable properties upward, the adjusted
sales prices tend to converge to within about 5% of each other,
and usually to within 3% of each other.
The present invention mainly considers the productive attributes
of real estate, such as physical, legal/regulatory, location and
amenity characteristics. Other values that may be incorporated into
an appraisal analysis include property productivity, market definition
and cycles, demand analysis, supply analysis, comparison of supply
and demand, and development of subject capture estimate.
Market analysis seeks to identify the highest and best use of a
property in terms of market support (demand), timing (absorption
rates), and market participants (probable users and buyers). For
instance, where an analysis of market absorption reveals that a
large number of properties are available in a market characterized
by relatively stable demand, this circumstance indicates that there
should be a reduction in the probable selling price of a subject
property.
The adjusted sale price 156 for a comparable property is not, however,
the same for all subject properties. Rather, the adjusted sale price
156 is a function of the total appraiser IPS value 142 for the subject
property as related to the total appraiser IPS value 144 for each
comparable property. As different subject properties come to the
market, the appraisal IPS values 142 will also change.
In this manner, the adjusted sale price 156 for a given property
is particular to the subject property being appraised. Hence, each
time a new subject property is selected, a new adjusted sale price
156 will have to be determined for that comparable property. Thus,
a comparable property will have a different adjusted price depending
upon the similarity with a chosen subject property.
Yet, the appraiser will not have to re-investigate a comparable
property in order to calculate an adjusted sales price as related
to the new subject property. Rather, a standard "ideal property"
is determined, against which each subjct property is measured. An
ideal property is considered to be 100% desirable in each category.
Thus, once the values of a comparable property are determined, those
values may be used for different subject properties. Therefore,
only the subject property has to be analyzed and appraised and the
prior analysis of a comparable property is readily used for valuing
each new subjet property.
By incorporating the buyer's value system directly into an appraisal
of the comparable properties, the present system is able to provide
an "interval-type" listing of properties. That is, not
only can the comparable properties be ranked by priority, but there
is an indication as to how much better one property is than another
based upon the total IPS values 140, 142, 148. In so doing, the
appraiser is able to immediately determine exactly how comparable
a prior sale is to the subject property. Thus, the appraiser may
adjust the price of comparable properties prior to deriving a value
of the subject property so that a more realistic valuation can be
determined.
The present invention preferably relies upon the appraiser's IPS
values 142 from the comparable and subject properties. The appraiser
evaluates the property based, in part, on the seller or buyer's
IPS values, 140, 148 in order to best estimate the IPS values of
a typical buyer or seller. Clearly, the actual buyer and seller
IPS values 140, 148 could be used to calculate an adjusted sales
price 156 and appraised value 158.
However, the buyer and seller IPS values 140, 148 only represent
the values for that particular buyer and seller, and not necessarily
the typical buyer and seller. As the property is repeatedly sold,
a record of the seller IPS values 140 may be retained, and the average
of these values could be used instead of the appraiser IPS values
142. Thus, the property value may be adjusted by, or measured against,
ideal or objective standards before comparing one property to another.
In addition, the system 10 stores the seller IPS values 148 in database
24, which may likewise be substituted for the appraisal IPS values
142 in appraising a subject property.
In the preferred embodiment of FIGS. 6a-6m and 7a-7i, there are
generally five preferred categories 110, each having a predetermined
weight. This system best accounts for the majority of properties
classified as a residence (for FIGS. 6a-6m) or as a rural residential
acreage (for FIGS. 7a-7i). However, the categories 110 and weights
may be adjusted to better account for the various real estate markets,
such as commercial, retail, and residential properties, as well
as for various locations, such as rural, suburban, and urban properties.
Moreover, any undesirable attributes may be accounted for by providing
a category 110 and assigning negative points for those traits. Other
attributes may be included such as age and condition of property.
However, these factors typically are accounted for in the sale price
of the property.
An example of an alternative embodiment is to have seven categories
110, weighted as follows: Location, 1-15; Surroundings, 1-15; Zoning,
1-10; Traffic, 1-10; Street Improvements and Services, 1-15; Lot
Features, 1-15; and, Amenities and Trends, 1-20. Surroundings refers
to the level of development for the area, age and price range of
the homes, quality of neighbors, and the like. Zoning reflects any
relevant land uses. Traffic accounts for safety, parking and accessibility.
Street Conditions and Services reflects quality of gutters, curbs,
sewer, water, fire protection, and the like. Lot Features include
the size, topography, shape appeal, and landscaping. And, Amenities
include, for instance, prestige, popularity, and competitive position.
A more complete listing of weights to be attributed to a variety
of different use classifications 136 is shown in the table of FIGS.
8a and 8b. Each use classification 136 is associated with a classification
code 160. The various categories 110, are listed along the top,
and the classifications 136 are listed down the left column. The
classification 136 used in the example of FIGS. 6a-6m, Residence,
Urban, is listed as the last entry for FIG. 8a and has a code 160
of R/U. Finally, the chart shows the units of comparison 162 used
for each classification 136. Suitable codes 160 can be used for
the units of comparison 162. As illustrated, A stands for acreage,
SF represents square footage, U represents unit, S stands for Site,
WFF represents Water Front Footage, and FF represents Front Footage.
The classification 136 used in the illustration of FIG. 7a-7i; Acreage,
Residential, Rural, is the fifth line down from the top and has
a code 160 of A/RR.
The code 160 may be stored in processor 12 in the form of a table
having the code 160, classification 136, and weighted values. Thus,
when making a data entry to a record, only the code 160 need be
entered, and the classification 136, units of comparison 162, and
the weighted values will be entered automatically.
Preferably, the appraisal of a subject property is based upon the
analysis of from three to five comparable properties. Of course,
more or less comparable properties may be used. Accuracy is lost,
however, when too few or too many comparable properties are used.
For too few comparable properties, there is an insufficiently broad
spectrum to account for variation in properties. In contrast, where
a large number of comparable properties are used, there is a greater
probability that more of the properties will have few similarities
with the subject property.
It is also recognized that the system 10 may be configured so that
an appraiser is unable to modify records that are stored in database
24. Thus, any records stored at a national database 24, for instance,
cannot be tampered with, so as to prevent appraisers from intentionally
providing an inaccurate appraisal. Thus, steps 50, 52, 70 and 74
would have to be omitted or modified accordingly. Moreover, after
a new record is transmitted to database 24, step 80, the system
may be configured to include an approval process by an authorized
agent prior to the record being stored in the database 24 at step
82.
The present invention simplifies the comparison of properties in
order to assist buyers in locating and valuing subject properties.
Properties may be compared that are within a neighborhood or that
are in different cities or countries. In addition, appraissals are
more uniform since the values are objective and different appraisers
will be using the same values when appraising different subject
properties. Hence, appraisals are more reliable, cost-effective,
and accurate. The system may be used independently, or in conjunction
with other appraisal techniques, such as Fannie Mae Forms 2055,
2065 and 2075, Uniform Residential Appraisal Reports, Individual
Condo Unit Appraisal Report, and/or Small Residential Income Property
Appraisal Report.
The foregoing descriptions and drawings should be considered as
illustrative only of the principles of the invention. The invention
may be configured in a variety of shapes and sizes and is not limited
by the dimensions of the preferred embodiment. Numerous applications
of the present invention will readily occur to those skilled in
the art. For example, the objective valuation method may be used
for any tangible asset, such as for vehicles and specialized commercial
equipment. Therefore, it is not desired to limit the invention to
the specific examples disclosed or the exact construction and operation
shown and described. Rather, all suitable modifications and equivalents
may be resorted to, falling within the scope of the invention. |