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Applying Valuation Approaches: Sales Comparison, Cost, and Income
Chapter 4: Applying Valuation Approaches: Sales Comparison, Cost, and Income
Introduction
This chapter delves into the practical application of the three primary valuation approaches: Sales Comparison, Cost, and Income. Understanding these approaches is crucial for accurately assessing property value, especially concerning income-generating real estate. This course focuses on Direct Capitalization, and this chapter connects those approaches to that method.
I. The Appraisal Process: A Recap
Before applying the valuation approaches, a quick recap of the initial steps in the appraisal process is useful as a review and contextual aid:
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Defining the Appraisal Problem: Determine the purpose of the appraisal (e.g., loan, investment), the property rights to be valued (e.g., fee simple), and the effective date of valuation.
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Preliminary Analysis and Data Selection: Identify the types of data needed (general, specific, comparables) and potential data sources (market data providers, public records, MLS, Costar).
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Data Collection: Gather and verify relevant data related to the region, community, neighborhood, site, building, and comparables.
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Analyzing Highest and Best Use: Determine the most profitable, legally permissible, physically possible, and financially feasible use of the property.
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Valuing the Site: Estimate the land value using appropriate methods (covered in detail in this chapter).
II. Valuation Approaches: Overview
The three primary valuation approaches are independent methodologies that rely on distinct economic principles to arrive at a value indication. They are:
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Sales Comparison Approach (Market Approach): Values the subject property based on the sales prices of similar properties (“comparables”) in the market, adjusted for differences.
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Cost Approach: Estimates value by summing the land value and the depreciated cost of the improvements.
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Income Approach: Values the property based on its ability to generate income (emphasized in this course).
III. Sales Comparison Approach (Market Approach)
- Core Principle: The value of a property is directly related to the prices of comparable properties.
- Application: Identifying truly comparable properties and adjusting their prices to reflect differences from the subject property.
- Scientific Basis: Substitution Principle: A rational buyer will pay no more for a property than the cost of acquiring a similar substitute.
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Formula:
- Subject Value = Comparable Sales Price +/- Adjustments
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Steps:
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Identify Comparables: Locate recent sales of properties that are similar to the subject in terms of location, physical characteristics, use, and market conditions. Key Characteristics to consider in identifying comparables are:
- Location: Proximity to the subject, neighborhood characteristics.
- Physical Characteristics: Size, age, condition, construction quality, amenities.
- Use: Similar zoning and permitted uses.
- Market Conditions: Time of sale, financing terms, economic factors.
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Adjustments: Adjust the sale prices of the comparables to account for differences from the subject property. Typical adjustments include:
- Financing Terms: Below-market financing.
- Conditions of Sale: Sales between related parties.
- Market Conditions: Changes in market values over time.
- Location: Neighborhood amenities or disamenities.
- Physical Characteristics: Size, features, condition.
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Reconcile Adjusted Prices: Synthesize the adjusted prices of the comparables to arrive at a value indication for the subject property.
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Example:
A 1,500 sq ft home sold for \$250,000. The comparable has 2 bedrooms, but the subject has 3 bedrooms. The market value of an extra bedroom is \$10,000.- The comparableโs adjusted sale price will be \$240,000: \$250,000 - \$10,000 = \$240,000
- Application to Direct Capitalization: While the Sales Comparison Approach directly indicates value, it provides data to support the selection of a Gross Rent Multiplier (GRM) for the Income Approach.
- Experiment: Gather data on several recently sold rental properties, and record their sale prices and gross monthly rents. Calculate the GRM for each property, and compare them to the subject’s potential GRM.
IV. Cost Approach
- Core Principle: A buyer should not pay more for a property than the cost of building a new one (Substitution Principle).
- Application: Adding the estimated land value to the depreciated cost of the improvements.
- Scientific Basis: Based on the principle of substitution and the concept that a rational investor will not pay more for an existing property than the cost of constructing a substitute property with equivalent utility.
- Formula:
- Property Value = Site Value + Cost (New) - Depreciation
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Steps:
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Estimate Site Value: Determine the value of the land as if vacant and available for its highest and best use. This requires using methods like Sales Comparison to isolate the land’s value from comparable sales. As stated in the book, this requires a separate valuation of the site. This addresses the course description requirement to “accurately assess property value”.
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Estimate Replacement Cost Newโโ (RCN): Determine the current cost to construct a new building with equivalent utility as the subject property.
- Replacement Cost: Cost to build a property of equal utility using modern materials.
- Reproduction Cost: Cost to build an exact replica. (Less common)
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Estimate Depreciation: Quantify the loss in value due to:
- Physical Deterioration: Wear and tear (curable and incurable).
- Functional Obsolescence: Design or functional inadequacies.
- External Obsolescence: Negative impacts from external factors.
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Calculate Depreciated Cost: Subtract total depreciation from the RCN.
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Sum: Add the site value to the depreciated cost of the improvements.
* Example:
- Site Value: \$100,000
- RCN of Improvements: \$300,000
- Depreciation: \$50,000
- Value: \$100,000 + \$300,000 - \$50,000 = \$350,000
- Application to Direct Capitalization: The Cost Approach provides a check on the reasonableness of the value indicated by the Income Approach. It helps determine if the NOI supports the cost of replacing the asset.
- Experiment: Use Marshall Valuation Service or similar tools to estimate the cost of constructing a similar building.
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V. Income Approach
- Core Principle: The value of a property is based on its ability to generate income. (As noted in the book, the income approach assumes the greater the income, the greater the value.)
- Application: This course emphasizes Direct Capitalization, but other income methods include Discounted Cash Flow (DCF) analysis.
- Scientific Basis: The Principle of Anticipation: Value is based on the expected future benefits (income) to be derived from the property.
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Formula (Direct Capitalization):
- Value = Net Operating Income (NOI) / Capitalization Rate (Cap Rate)
- Steps:
- Estimate Potential Gross Income (PGI): Determine the maximum potential income the property could generate if fully occupied.
- Estimate Vacancy and Collection Losses: Calculate the expected losses due to vacancy and non-payment of rent.
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Calculate Effective Gross Income (EGI): Subtract vacancy and collection losses from PGI.
- EGI = PGI - Vacancy and Collection Losses
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Estimate operating expensesโโ: Determine all expenses necessary to maintain the property and generate income (e.g., property taxes, insurance, repairs, management).
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Calculate Net Operating Income (NOI): Subtract operating expenses from EGI.
- NOI = EGI - Operating Expenses
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Determine Capitalization Rate (Cap Rate): Find the appropriate cap rate by analyzing sales of comparable income-producing properties.
- Cap Rate = NOI / Sales Price
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Apply Direct Capitalization: Divide the NOI by the cap rate to estimate the property’s value.
* Example:
- PGI: \$50,000
- Vacancy: \$5,000
- EGI: \$45,000
- Operating Expenses: \$15,000
- NOI: \$30,000
- Cap Rate: 0.08 (8%)
- Value: \$30,000 / 0.08 = \$375,000
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Reconstructing Operating Statements:
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Appraisers may need to “reconstruct” operating statements. To do so, consider:
- Normalization: Adjusting expenses to reflect typical market conditions.
- Verification: Confirming expense data through independent sources.
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Calculating Pre-Tax Cash Flow:
- Pre-Tax Cash Flow = NOI - Debt Service
- Experiment: Identify several income-producing properties in your market. Research their income and expense data, calculate their cap rates, and use that information to estimate the value of the subject property.
VI. reconciliationโโ and Final Value Estimate
As noted in the book, each approach provides a separate indication of value for the subject property. Reconciliation is the process of analyzing the appraisal problem, selecting the most appropriate method of the three, and giving it the most weight in determining the final estimate of value. Reconciliation involves:
- Analyzing Reliability: Evaluating the strengths and weaknesses of each approach in the context of the specific appraisal assignment.
- Weighing Indicators: Assigning relative weight to each value indication based on its reliability and relevance.
- Exercising Judgment: Applying the appraiser’s experience and expertise to arrive at a final, well-supported value estimate.
In the case of an appraisal for an investor looking for income property, the income approach value estimate will receive the most weight.
VII. Conclusion
This chapter has provided an overview of the three primary valuation approaches and their application to income-generating real estate. A thorough understanding of these approaches, combined with sound judgment and analytical skills, is essential for accurately assessing property value and making informed investment decisions.
Chapter Summary
- list the threeโ basic activity zones of a house and describe their relationships to each other;
- describe the characteristics that affect functional utility in the various rooms of a
house, - identify the characteristics of various building components that can affect value, and
- understand the technical terminology used to describe residential construction.
I. Classification of Houses
Houses are generally classified on the basis of four characteristics: the number of units, whether the building is attached or detached, the number of stories and the architectural style.
The NUMBER OF UNITS refers to the number of separate households that the building is designed to accommodate. Although usage may vary in different areas, the term โhouseโ is most often used to refer to a SINGLE-FAMILY RESIDENCE. If a building has multiple units that share a common access and other common areas, it is usually referred to as an APARTMENT BUILDING.
A DETACHED HOUSE is one that is not connected to any other property. ATTACHED HOUSES share one or more walls, called โparty walls,โ that are jointly owned by the two adjoining properties. ROW HOUSES, common in many urban areas, are an example of attached dwellings. Ownership of an attached dwelling often involves a PARTY WALL AGREEMENT, which assigns responsibility for maintenance and repair of the party wall(s) (see Figure 7-1).
A. TYPES OF HOUSES
The โtype of houseโ refers to the number of stories or levels in the house, and their relationship to each other.
Although modern construction methods allow for all sorts of variations, the vast majority of houses fall into five basic โtypeโ categories (see Figure 7-2): - one-story,
- one and one-half story,
- two-story,
- split-level, and
- bi-level (also known as split-entry or raised ranch).
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Figure 7-1
Attached Houses
Multiples (Apartments)
Town House
Duplexes Row House
Illustrations courtesy of Marshall & Swift
Figure 7-2
Types of Houses
One Story
Bi-Level
One and One-Half Story
Two Story
Illustrations courtesy of Marshall & Swift
Split Level - One-Story House
A ONE-STORY HOUSE, often called a โranchโ or โrambler,โ has its entire living area on the ground floor. It may or may not have a BASEMENT, which is a room of full story height located below the first floor, at least partially below ground level, and primarily not used for living accommodations.
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The advantages of one-story houses include: ease of exterior maintenance, flexibility of floor plan design and the fact that there are no stairs to climb.
On the down side, this type of house is relatively expensive to build; by comparison, a two-story house with the same exterior dimensions has twice the living area, with essentially no extra costโ for roof or foundation. (Roof costs for a one-story house are often minimized by using a low pitched roofline.)
One-story houses also require a greater amount of lot space in relation to the amount of living area, so they may be inappropriate or impractical on small or narrow lots. - One and One-Half Story House
Also known as a Cape Cod, the ONE AND ONE-HALF STORY HOUSE has a steeply pitched roof that permits part of the attic area to be used for living space. Roof dormers, which add to the amount of usable upstairs space, are a common feature of this type of house. As in the case of one-story houses, the foundation may or may not include a basement. Construction costs per square foot tend to be lower for one and one-half story houses than for one-story houses.
One and one-half story houses are often built with expandability in mind. Because the ground floor normally has at least one bedroom (and sometimes two), the upstairs level can be left unfinished until the extra space is needed. However, ease of expandability will depend on the quality of the original design and construction, which should allow for adequate access (stairs), ventilation (windows) and plumbing (bathrooms) on the attic level. - Two-Story House
Compared to a one-story or one and one-half story house, the two-story house is more economical in terms of construction cost per square foot of living space.
The reason for the economy is that square footage can be doubled without doubling foundation and roof system costs. This design also allows for the most living space on a given size of lot. Bedrooms are normally located on the upper floor, providing a natural separation between the public and private areas of the house.
A concern with all multi-level houses is the design and efficiency of heating and cooling systems. Because heat rises, a poorly designed system will make it difficult to keep the lower level warm in winter, and the upstairs cool in the summer.
With a well designed system, however, heating and cooling efficiency may actually be greater than for single-story houses, since the building has less exterior surface area relative to the amount of heated or cooled interior space. - Split-Level House
A SPLIT-LEVEL HOUSE has three or four different levels, which are staggered so that each level is separated from the next by half of a flight of stairs. Bedrooms and baths are located
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on the top level. Half a flight down are the main entry, living room, dining room and kitchen. Down another half-story, beneath the bedroom level, is space for a family room, den or spare bedroom; the garage is often located on this level as well. A fourth level, equivalent to a basement, may be located below the living/dining/kitchen space.
The design of a split-level home lends itself to a sloped lot, where the garage and main entry can both open out at grade level. On a flat site, the main entry will be raised one- half story above the finished grade.
A split-level house has some of the same benefits as a two-story house in terms of construction, cost efficiency and natural separation of the various functional areas of the home. - Bi-Level House
A BI-LEVEL or SPLIT-ENTRY HOUSE has two main levels, one atop the other, with an entry or foyer located on a level halfway between. The lower level is sunk about halfway below ground, so the entry is even with the grade level. This design is sometimes called a โraised ranch,โ since it is essentially a one-story home with a finished basement that has been raised partially out of the ground. The main rooms of the house are all on the upper level, with the lower story used for a family room or rec room, and perhaps a spare bedroom.
Since the lower level of a split-entry house is partly below ground, special care must be taken to provide adequate insulation and moisture proofing. Another drawback to this design is the lack of a basement or crawlspace in which to run pipes and ductwork.
Nevertheless, split-entry homes are cost-effective to build, and the finished lower level space is considered part of the โgross living areaโ for appraisal purposes in many parts of the country.
II. Architectural Styles
ARCHITECTURAL STYLE is the character of a buildingโs form and ornamentation.
If homebuyers in a particular area do not find a particular architectural style desirable, homes of that style are likely to sell for less than similar size homes having architectural styles which are more desirable within that community.
Architectural styles have traditionally been influenced by local factors such as climate and the availability of different building materials.
There are many examples of traditional architectural styles that are adapted to a particular location: Spanish style houses with thick adobe walls and tile roofs in the southwest desert, Southern Colonial houses with deep shaded porches in the hot, humid South, or Cape Cod style homes designed for protection from cold northern winds in New England (see Figure 7-3).
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Figure 7-3
Examples of Different Architectural Styles
Colonial Cape Cod (1) Cape Cod (2)
Cottage Victorian Mediterranean
Southern
Saltbox
Ranch
Chalet โAโ Frame Contemporary
Illustrations courtesy of Marshall & Swift
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Local traditional styles can still be found in many areas, but location is much less of an influence on architectural style than it used to be.
Builders are no longer limited to using local materials, since modern transportation systems make different building materials widely available at reasonable costs. The invention of central heating and cooling, as well as improved insulating materials, has broadened the range of architectural styles that can be adapted to local climates.
A. COMPATIBILITY
COMPATIBILITY means that a building is in harmony with its use or uses and its environment. In terms of value, one type or style of house is not inherently better or worse than any other. What is most important to value is the compatibility of the design. Compatibility has several different aspects. To maximize value, the design of a house should be compatible with the designs of other homes in the area, with the physical and environmental characteristics of the building site, with the materials used in the construction, and with the preferences of the local market.
First of all, the design of a house should be compatible with the styles of other houses in the local neighborhood.
The market may welcome a limited degree of uniqueness in design, but value will generally suffer if the design contrasts too radically with surrounding houses.
Subdivision developers often impose design restrictions on their developments, because they know that compatibility of design will have a positive impact on property values in the subdivision.
Case/Example: A contemporary style house located in a neighborhood of other contemporary style houses is likely to be viewed positively by the market. But the same house located in a neighborhood of traditional style homes might seem โout-of-place,โ and its value could suffer as a result.
Compatibility of design also refers to the suitability of the design for the particular building lot and location. Value is enhanced by a design that takes advantage of physical site characteristics, such as views. The design should also be appropriate for the topography of the site. For example, split-level designs often work well on hilly sites, while colonial style houses do not. Finally, the design should be appropriate for the local climate. A design that is specifically adapted to a hot desert climate, for example, would be inappropriate in an area with cool, rainy weather.
A buildingโs architectural style is often defined at least in part by the materials used in its construction. Spanish style homes have clay tile roofs, Tudorโs utilize timber framing, contemporary designs incorporate large areas of glass. A compatible design is one where the materials are appropriate to the style.
Case/Example: A clay tile roof on a Cape Cod house would look ridiculous to most potential homebuyers.
The final aspect of design compatibility is perhaps the most important: the design must be compatible with the demands of the market.
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The popularity of any given design is influenced by the economic and social forces that affect value. As lifestyles and demographics change, so does the demand for different design features in housing.
Ultimately, it is the local market that determines what is a โgoodโ design, and what is a
โbadโ one.
Case/Example: A development of new contemporary style houses is built in an older community with mostly traditional style housing. If the market places an emphasis on the historic character of the community, the contemporary homes will be viewed as incompatible, and their value will suffer. On the other hand, if market forces are creating a demand for more modern housing in the community, the contemporary homes may not be incompatible at all, but may simply represent a new trend in community standards.
III. Elements of House Design
An appraiser must be able to identify the various elements of house design and evaluate any defects in those elements. The elements of house design include siting, interior functional zones, and room characteristics.
He or she may use mobile apps to reproduce accurate renderings to use for comparison purposes.
A. SITING
SITING refers to the placement of the house on the building lot. Placement is normally limited to some extent by building code set-back requirements, which call for minimum distances between the house and the propertyโs boundaries. Topographic considerations such as slopes or poor soil conditions may also limit where the house may be placed on the lot. Within these limits, however, careful placement of the house on the lot can have a significant impact on value.
There are four basic considerations in designing the placement of a house on its lot: orientation to the sun, orientation to prevailing storm winds, orientation to views, and the division of the lot into functional zones (see Figure 7-4).
Appraisers can create figures like the one above by using appropriate mobile apps.
Orientation to the sun affects the amount of light and heat that can enter the house. In most areas, a design where the living areas of the house face south is considered optimum. This orientation takes bestโ advantage of natural lighting in the most used areas of the home, and helps maximize solar heat gain in the winter. Excessive summer heat gain can be avoided by using wide roof overhangs, which shade the house in summer when the sun is high in the sky, but allow light and heat to penetrate in the winter when the sunโs path is lower.
Screening with deciduous trees is another effective way to block the summer sun but still allow it to shine through in the winter when the trees are bare.
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Figure 7-4
Exterior Functional Zone Example - Windbreak Layout
Cold Winter Wind
7 P.M. Sun
(low)
4 P.M. Sun
(high)
Morning
Sun
Cooling Summer Breeze
Noon Sun
(high)
In some areas, orientation to prevailing storm winds is an important siting consideration. In areas that are subject to frequent or heavy storms from a particular directโion, it is best to minimize the amount of window area that is directly exposed to the winds, in order to cut down on heat loss. Entries should also be sheltered from the direct path of the storms.
An attractive view can add significantly to the value of a house. Views should be visible from the most used areas of the house. Even if the site does not have an attractive territorial view, careful landscaping can provide a pleasant view of the lot from the living area.
The last aspect of house siting is the division of the lot into functional areas or zones, the so-called public, private, and service zones. The area that can be viewed from the street frontage is the public zone. Areas shielded from the street by the house, or by fencing or other landscaping, constitute the private area. The service area includes access ways (driveway, walkways, etc.) and outdoor storage areas. Good design maximizes the amount of private area available for household activities.
B. INTERIOR FUNCTIONAL ZONE
An appraiser cannot underestimate the importance of FUNCTIONAL UTILITY, which concerns a buildingโs ability to perform the function for which it is intended according to current
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market tastes and standards; as well as the efficiency of use in terms of architectural style, design and layout, traffic patterns, and the size and type of rooms.
A well-designed house should provide space for three basic activities: living, working, and sleeping.
Ideally, the spaces provided for each of these activities should be separated, so that one activity does not interfere with another. For example, bedrooms should be located where they will not be disturbed by activities in the living and working areas of the house.
Figure 7-5 shows how the spaces for the three different activities can be separated into zones. The LIVING ZONE includes the public areas of the house: the living room, dining room, family room and guest bath. The WORKING ZONE is comprised of the kitchen and laundry/ utility room. Bedrooms and private baths are located in the SLEEPING ZONE.
Figure 7-5 Interior Functional Zones
LIVING ZONE
Family
Room
Living
Room
Master
Bedroom
Fireplace
Ba.
Ba.
WORKING ZONE
Kitchen
Laundry Ba.
Dining
Area
Ent.
Bedroom Bedroom
SLEEPING ZONE
Garage
(Appraisers can create similar figures by using floorplan apps online.)
The separate activity areas of the home are connected by hallways, stairs and entry ways, which are sometimes referred to as a fourth zone of the house, the CIRCULATION ZONE. While the three activity zones should be designed to provide separation of the activities, they should also allow for easy circulation between and within zones.
Design features that affect desirability affect value because value is determined by supply and demand features of the marketplace.
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A houseโs value is affected by the buildingโs FLOOR PLAN, which is an architectural drawing indicating the exact layout of rooms and illustrating the functional or nonfunctional relationship between them. Structures with wasted space might lack space where it is otherwise desired so that the property will be less desirable to buyers than similar size homes.
How the designer allocates space affects desirability for many buyers. An example is while a custom 3,000 square foot home might have only two bedrooms because that is what the original owner wanted, to most potential buyers, the design would be a negative feature.
Case/Example: In a retirement oriented community, a two-story home without a bedroom on the first level is likely to be far less desirable than one with this feature.
C. ROOM CHARACTERISTICS - Kitchens
The kitchen is commonly the most used room of the house, so its design and location have a large impact on the functionality of the overall floor plan.
Kitchens should be conveniently accessible from both the main entrance and service entrance of the house, and should be located adjacent to the dining room and family room, if these rooms are included in the design. Also, the kitchen should be designed so that it is not necessary to walk through the working area in order to reach other rooms of the house.
A critical aspect of kitchen design is the work triangle, which is formed by the sink, refrigerator, and range. The distances between the three points of the work triangle can make the difference between an efficient kitchen design and a poor one. If the distances are too small, the kitchen will be cramped; if they are too great, preparing a meal will seem like a five-mile hike. A distance of four to seven feet between each point of the work triangle is considered optimal (see Figure 7-6).
Figure 7-6 Kitchen Work Triangle
SINK
REFRIGERATOR
STOVE
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Kitchen sizes vary considerably. Eighty square feet of space (8โ x 10โ) is considered a minimum, but kitchens twice that size are not uncommon. Larger kitchens often include an eating area or family activity area. The design should include adequate counter and cabinet space, and plenty of electrical outlets for kitchen appliances.
Lighting and ventilation are important considerations in kitchen design. Overhead lights should illuminate all areas of the kitchen, and a vent or fan should be located over the cooking area to allow cooking fumes to escape. Natural lighting is desirable, but the placement of windows can be a problem. The best location for a kitchen window is over the sink. Additional windows are desirable so long as they do not take up space needed for wall cabinets.
Windows should never be placed over the cooking area. - Laundry/Utility Rooms
Laundry areas are best located where they are convenient to the sleeping area of the house, off the bedroom hallway for example. However, location of the laundry area is not as critical as most other rooms of the house, and laundries are often located in the garage or basement.
The laundry area should be well-ventilated, and located where noise from the appliances will not disturb others. - Living Rooms
The living room is the main public room of the house.
It should be located near the main (guest) entry, be separated from the sleeping area, and preferably be on the south side of the house. If the house has a dining room, it should be next to the living room. It should not be necessary to cross through the living room in order to reach the kitchen or bedrooms.
The size and shape of the living room should allow for easy arrangement of furniture. About 200 square feet is the minimum size, and rectangular shaped rooms tend to work best for furniture placement. The modern trend is for smaller living rooms, particularly in homes with a separate family/recreation room. - Family Rooms
In many areas, the FAMILY ROOM (also called a recreation room) has taken over the role of the living room as the main center of entertainment and socializing in the house. As part of the living zone, the family room should be separated from the sleeping zone; however, it is usually considered an advantage if the family room is next to (or near) the kitchen.
Since the family room is a center of activity for household members, direct access to the outside is also an asset.
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Dining rooms may be formal or informal. A formal dining room or area is a separate room that is designed for that purpose. Informal dining areas are usually attached to or part of the kitchen itself, and may take the form of a nook or alcove.
The main considerations for the dining area are that it should be large enough to accommodate a dining table and chairs (including room to get in and out of the table), and it should have easy access to the kitchen so that food does not have to be carried through other areas of the house. - Bedrooms
The number of bedrooms has a major effect on house value.
Normally, homes with different numbers of bedrooms appeal to different segments of the market, that is, to families of different sizes or lifestyles. The average household size in the market will have a large impact on the desirability of three- or four-bedroom homes, as opposed to two-bedroom homes.
Ideally, bedrooms should all be located in a separate sleeping zone, to provide both privacy and noise insulation. The most common arrangement is to locate the bedrooms on a separate story or wing. Each bedroom should have convenient access to a bathroom, either directly or via a private hallway. Also, it should not be necessary to go through a bedroom to reach another room (other than a private bath).
Depending on the room layout, a size of 9โ x 10โ is the minimum needed to allow for a single bed, 10โ x 12โ for a double bed. Whether larger room sizes will add to value depends on local market preferences. Most homes have at least one bedroom that is larger than the others, the MASTER BEDROOM. Modern master bedrooms will often have walk-in closets and other amenities.
Each bedroom should have its own clowith such features will vary widely. - Bathrooms
The optimal number of bathrooms depends, to a large extent, on the number of bedrooms. Market preferences for bathroom location will vary. However, any well designed home should include the following:
โข at least one full bath (with tub and/or shower, toilet, and sink) located near the sleeping area;
โข at least a half-bath (toilet and sink) located near the living zone;
โข if the home has a master bedroom, the master bedroom should be served by a private bath.
The most desirable location is between the bedroom and main rooms. This reduces bedroom traffic.
IV. Construction Methods and Materials
There are several different methods and materials used to construct residential improvements.
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A. FOUNDATIONS
A foundation is a structural element that transfers the load of a structure to the earth. The foundation system includes the footing, foundation walls or piers, and, in the case of buildings with basements, a concrete floor (see Figure 7-7).
Figure 7-7 Foundation Systems
Concrete Slab Foundation (Floating Foundation)
Foundation Wall & Footing
Illustrations courtesy of Marshall & Swift - Types of Foundations
In warmer areas, a structure may have only a concrete slab foundation (monolithic slab or floating foundation), which is a single pour of concrete that serves as both the footing and the floor. In colder climates, such a system would be below the frost line, and require a separate footing and foundation wall of either masonry or concrete.
Pier and Beam (Crawl Space Foundation)
In a PIER AND BEAM foundation, the structure rests on vertical posts, known as piers, which rest on concrete footings that have been poured below the frost line. The grade beams and floor joists rest on the piers to carry the floor load. The space underneath the first floor is called the CRAWL SPACE.
A foundation that extends below the frost line will help prevent settling and structural damage due to freezing.
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Concrete Slab Foundation (Floating Foundation)
In warmer areas, a structure may have only a concrete slab foundation (monolithic slab or floating foundation), which is a single pour of concrete that serves as both the footing and the floor. In colder climates, such a system would be below the frost line, and require a separate footing and foundation wall of either masonry or concrete.
Basement
A BASEMENT is a full story below the first floor level. Basement foundations provide the advantages of usable space and added strength, at the cost of greater construction expenses. The value of a basement can vary from nothing to almost a full story, depending on its size, layout, construction and level of finish.
Basements in houses should be designed and constructed to prevent moisture penetration. In cold climates, basement walls should be insulated to prevent heat loss through the foundation, and to keep the water pipes from freezing.
Experienced Appraiserโs Tip: While it is common practice not to include areas below grade in the square footage of living area, a walk-out basement is typically given more value than a basement not open to the outside.
A โwalk outโ or walk-up basement is typically given greater value by potential purchasers.
Water Tables:
Water tables are underground geological formations that provide a level water flow in areas that have a higher water table. Areas with a high water table may require a foundation system in order to carry-out construction on the site. For example, areas located in the South Pacific such as Guam may have a water table as shallow as two feet below the surface.
For soil with high water tables or unstable soil, concrete foundations may be desirable or required.
Settling:
Improper construction can lead to serious problems with settlement. The causes of settlement include: - The type of the soil upon which the house is to be constructed. Some soils are more suitable to support structures and weight.
- The soilโs moisture content.
- The depth of footings used. In colder climates, the footing depth must extend down to the frost line in order to prevent ground movement as the soil freezes and thaws. In
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warm climates that do not experience freezing, soil conditions may still require deep footings in order to properly support the improvements. - Good soil compaction.
- Proper water runoff and drainage from the structure so as to not contribute to settlement.
- Foundation Materials
The most common materials used to construct foundations are concrete, concrete block, brick, and stone.
Concrete block, brick and stone are referred to as masonry materials. Concrete is a mixture of Portland cement and an aggregate material (sand, gravel, or crushed stone) to which water is added; as the cement hydrates, it binds the aggregate together to form a rigid mass.
The strength and durability of concrete is determined by the ratio of cement to aggregate, the ratio of water to cement, the temperature, and the degree of compaction of the mixture.
B. FRAMING AND SHEATHING
FRAMING refers to the skeleton of the building. The framing members serve as the structural support for the walls, floors and roof. SHEATHING is the exterior covering of the frame.
The skeleton is made up of floor joists, studs, and rafters. A floor joist is a horizontal supporting member that runs the length of the house (as part of the floor) to provide stability.
A stud is a vertical supporting member used in framing walls and partitions. Rafters are structural members or beams that support the roof.
See Figure 7-8 for an example of framing members.
Figure 7-8 Wall Section
Top Plate
Sheathing
Studs
Building Paper
Siding
Illustrations courtesy of Marshall & Swift
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Chapter 7 - Framing Lumber
Because of the size and the volume used in home building, wood is still the material of choice in most construction projects. Wood used in structural framing is normally softwood lumber, such as pine or fir.
Lumber grades are assigned using the following guidelines:
โข Select Lumber - used for natural finish, trim and cabinetry (select grades include A, B, C, and D)
โข Common Lumber โ used for structural framing (grades include No. 1, No. 2, No. 3, and No. 4)
Wood framing members come in various sizes, such as 2x4 (2 inches x 4 inches), 2x6, and 2x8. However, nominal dimensions are not the same as actual dimensions. For example, a nominal 2x4 is actually about 1 ยฝโ by 3 ยฝโ.
Different lengths of framing members are produced, depending on the application.
Lumber for framing should be straight, strong, and free from defects. Moisture content is also important. If lumber with too high a moisture content is used for framing, it may shrink excessively as it dries, leading to loose connections and structural movement.
Lumber may be surfaced in one of four ways:
S1S โ surfaced one side.
S2S โ surfaced two sides.
S4S โ surfaced all four sides.
SDR โ surfaced dry rough.
Because solid wood lumber has a limited supply, it can be costly. Substitute lumber products are available to homebuilders, including Laminated Lumber, Particle Board, Plywood, Oriented Strand Board (OSB), and Composite Materials.
โข Laminated lumber
Laminated lumber consists of layers of wood that are glued and pressed together.
โข Particle board
Particle board is made from sawdust and other wood scraps, held together with glue.
โข Plywood
Plywood is a sandwich of several layers of wood, pressed together with glue. The grain of each layer of wood runs perpendicular to the grain of the layer above and below it. Plywood is strong, relatively lightweight, and not prone to warping or splitting. For these reasons, plywood is commonly used for sheathing and roof decking.
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โข Oriented Strand Board (OSB)
Oriented Strand Board (OSB) is similar to plywood, except it is made from wood chips rather than solid wood layers. The chips are aligned to give OSB directional strength. OSB is less expensive than plywood, but may also be less resistant to moisture damage. It is used for sheathing and roof decking.
โข Composite Materials
One option for sustainable โgreenโ flooring is bamboo, a renewable resource which comes in planks and is installed in a similar manner to hardwood. It is also easily stained, so its look can mimic expensive hardwoods.
Some composite materials are made from recycled plastic and other materials.
They can be molded or extruded into various shapes, and are commonly used for decking.
Many of the materials mentioned, such as Plywood and OSB, may have a high formaldehyde gas content which has an extremely high level of toxicity.
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Chapter 7 - Framing Terminology
Terms commonly used to describe framing methods are shown in Figure 7-9.
Figure 7-9 Building Framing
Common Framing Terminology:
โข Sill- the framing member that is anchored to the foundation wall.
โข Joists- the framing members that support a floor or ceiling.
โข Studs- the vertical framing members that make up the walls.
โข Rafters- the framing members that support a roof.
โข Ridge Board- the horizontal framing member at the peak of the roof.
โข Header- a framing member used to support a load over a door or window opening.
โข Top Plate- the horizontal framing member that is connected to the top of the wall studs.
Illustrations courtesy of Marshall & Swift - Framing Methods
โข Balloon Framing
The first type of framing technique to be utilized was the balloon framing technique. This involves long studs running from the foundation to the roof.
โข Platform Framing
The most common framing method is now platform framing. This technique involves separate platforms for the first floor, the second floor and the roof. This technique offers several advantages, primarily the shorter length studs are easier to handle.
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โข Post and Beam Framing
In Post and Beam Framing, posts are spaced several feet apart, with a beam running from post to post. The post and beam structure will carry the roof load. The walls do not carry a structural load, so they can be made of almost any material. Post and beam structures are relatively fast and inexpensive to build, and create large open areas.
a. Roof Framing
The style of the roof is often a significant part of a buildingโs architectural character. From a construction standpoint, however, the primary purpose of a roof is to keep out the weather. There are many variations on roof design, but the most common are flat, gable, hip, gambrel, and mansard roofs. See Figure 7-10 for an example of roof framing.
Figure 7-10 Roof Framing
Rafters
Ridge Board
Illustrations courtesy of Marshall & Swift - Flat Roof
A flat roof is used on buildings that have no attic space. A slight pitch is provided to allow for water runoff, and a watertight covering is applied to prevent leakage. - Gable Roof
A GABLE ROOF has a single ridge line, with sloping surfaces on both sides. Gables are simple to build, relatively inexpensive, and allow for good water runoff. Gable roofs that slope steeply can also provide for additional usable space under the roof. A DORMER is a window that projects from a roof. Dormers add light, ventilation, and usable space to areas that are located under the roof. - Hip Roof
A HIP ROOF has sloping surfaces rising from all four sides of the building. The lines where the surfaces join are called hips. Hip roofs are more difficult and expensive to construct than gable roofs. They are also somewhat less effective at providing additional space under the roof, and do not allow as much light to enter the attic space.
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Chapter 7 - Gambrel Roof
A GAMBREL ROOF is similar to a gable, except that each side has two slopes instead of one. Gambrel roofs are commonly used on barns and other farm structures. - Mansard Roof
A MANSARD ROOF is similar to a hip roof except each side has two slopes.
It is named after French architect Franรงois Mansart (1598-1666).
The roof structure is framed using rafters, which are laid out and attached individually.
Individual construction of the roof is the common and reliable method for building a strong frame; however, some builders have adopted truss roof systems to help reduce costs.
There are inherent problems associated with truss roof systems.
Truss roof systems utilize pre-assembled trusses, which are quickly erected to support the roof. Roof trusses make it very difficult to create habitable areas under the roof and they limit attic space.
While truss construction is a very efficient and economical method of construction, there are several factors that the appraiser needs to take into consideration:
โข When the trusses are first placed, there is a likelihood that they will be twisted to align them for nailing or screwing. The problem with doing this is that with all the different twists they can actually raise the roof and cause a bow.
โข The trusses have to be properly supported until all the sheathing can be placed on top.
โข The strength of a truss system is limited to the strength of the weakest joint, and there are lots of joints.
โข Interior load bearing walls might be required in truss construction to keep from spreading walls.
โข In areas subject to earthquakes and strong winds, there can be structural inadequacies due to improper fastening of the trusses to the building.
Roof Covering
A variety of materials are used to protect the structure from the weather. Roofing materials are selected based on appearance, cost, durability, resistance to fire, and resistance to wind damage.
The most common roofing materials are:
โข Asphalt Shingles,
โข Wood Shingles,
โข Clay Tiles, and
โข Slate.
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The type and condition of the roofing material can have a significant effect on the overall value of the home.
b. Chimneys, Stacks, and Vents
Homes with fireplaces must also have a CHIMNEY, which is a passage for conducting exhaust gases from a fireplace to the outer air. The chimney must extend above the roofline for proper drafting. Chimneys may be constructed of brick, stone, or concrete block.
A STACK is any vertical waste pipe that runs from the building drain through the roof.
A VENT is any opening to the outer air to allow for the escape of foul odors or gases. - Sheathing
SHEATHING is the exterior covering of the frame. Walls and roofs are typically covered with sheathing prior to application of the final exterior finish. Sheathing is made of sheets of plywood or oriented strand board.
C. EXTERIOR FINISHES
There are many different kinds of exterior finishes used in modern construction (see
Figure 7-11). The more common types of exterior finishes include:
Figure 7-11 Exterior Finishes
Common Exterior Finishes
โข Wood Siding
Wood Board
Shingles
โข Brick Veneer
โข Stucco
โข Metal
โข Vinyl
Each material is suitable for residential use, provided that the material meets all applicable fire codes and structural requirements.
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The type and quality of the exterior finish has an impact on property values.
Other types of exterior finish applications include, stone, concrete, and โEngineered Wood Sidingโ (also known as โfiber cement board.โ)
D. DOORS AND WINDOWS
FENESTRATION is the design and placement of windows in a building.
The type and location of doors and windows is another element of exterior design that impacts value. - Doors
Exterior doors are generally made of wood, fiberglass, or steel. The door should be heavy enough to be durable and to provide good insulation. Doors should be well-weather stripped to prevent air leakage.
Door frames are constructed of three pieces
