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    Site Valuation Methods & Data Analysis

    Site Valuation Methods & Data Analysis

    Site Valuation Methods & Data Analysis: A Scientific Introduction

    Real estate appraisal demands precise valuation, and a cornerstone of this process is the accurate assessment of site value. This chapter, “Site Valuation Methods & Data Analysis,” within the Appraisal Toolkit: Mastering Data Collection and Analysis course, addresses this critical aspect. As the course description highlights, mastering data collection and analysis is crucial for creating “accurate and insightful appraisals” and achieving a “competitive edge in the dynamic world of valuation.” This chapter directly contributes to this goal by providing a comprehensive framework for understanding and applying various techniques for site valuation.

    The scientific importance of site valuation stems from its direct influence on several key appraisal methodologies. The content of this chapter emphasizes the dependency of both the cost approach and the building residual technique of income capitalization on accurate site value estimation. The cost approach, premised on the principle of substitution, explicitly requires the determination of land value as a component in calculating the overall property value. Furthermore, legal requirements related to property tax assessment and condemnation proceedings often mandate a separate site evaluation, underscoring its regulatory and economic significance. Beyond these explicit dependencies, accurate site valuation underpins the entire appraisal process by providing a foundation for highest and best use analysis, market comparisons, and ultimately, a reliable indication of value.

    This chapter elucidates the scientific principles behind various site valuation techniques, including the sales comparison method, allocation method, extraction method, development method, land residual method, and ground rent capitalization method. A crucial element of these valuation techniques is the importance of comparable property data. The chapter explores the data requirements for each method, including the collection of prices and terms of sale, dates of sale, financing details, and sale conditions for comparable properties. Each method is assessed for its scientific validity, practical application, and inherent limitations, equipping trainees with the knowledge to select and apply the most appropriate technique based on the specific characteristics of the appraisal assignment. By understanding these methods and their respective data requirements, trainees will be able to avoid common errors, a core objective of this course, ensuring the accuracy and reliability of their appraisal reports.

    The educational goals of this chapter are threefold: 1) to equip students with a thorough understanding of the theoretical underpinnings of various site valuation methods; 2) to provide practical guidance on the application of these methods, including data collection strategies and analytical techniques; and 3) to enable students to critically evaluate the strengths and limitations of each method, allowing them to make informed decisions about which approach is most appropriate for a given appraisal scenario. By mastering the concepts and techniques presented in this chapter, students will be better prepared to “leverage cutting-edge mobile technology” for data collection, accurately interpret market indicators, and ultimately, elevate their professional expertise in the complex and evolving field of real estate appraisal.

    Chapter 6: Site Valuation Methods & Data Analysis

    Part of: Appraisal Toolkit: Mastering Data Collection and Analysis

    Description: Unlock the power of data in real estate appraisal! This course equips you with the essential tools and techniques for gathering and analyzing critical information, from regional trends to property specifics. Learn how to leverage cutting-edge mobile technology, interpret market indicators, and avoid common errors to create accurate and insightful appraisals. Gain a competitive edge in the dynamic world of valuation and elevate your professional expertise.

    I. Introduction: The Significance of Site Valuation

    Site valuation is a cornerstone of the appraisal process, often serving as a necessary step in various valuation methodologies. As noted in the book content, a separate site valuation is crucial for:

    • Cost Approach: Essential for determining the replacement cost new (RCN) of improvements and subsequent depreciation. (Book Content, Chapter 8). This ties directly into the course description goal of accurately assessing property specifics.
    • Building Residual Technique (Income Capitalization): Critical in isolating the income attributable to the land, enabling the valuation of the improvements. (Book Content, Chapter 10). This aligns with the course’s focus on analyzing market indicators.
    • Legal Requirements: Required by law in certain appraisals, such as those related to property tax assessment and condemnation. (Book Content, Chapter 6).
    • Highest and Best Use Analysis: Provides foundational data to inform the identification of the most profitable and legally permissible use of the land.

    Therefore, mastering site valuation techniques and data analysis is directly relevant to building accurate and insightful appraisals, a key objective of the course.

    II. Understanding Highest and Best Use

    The Highest and Best Use (HBU) is defined as: the reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value (Book Content, Chapter 3), aligning directly with the course’s promise of providing essential tools for analyzing market indicators.

    A. Key Principles of HBU:

    • Legally Permissible: The proposed use must comply with zoning regulations, environmental restrictions, and other applicable laws.
    • Physically Possible: The site’s characteristics (size, shape, topography, soil conditions, access, etc.) must be suitable for the proposed use.
    • Financially Feasible: The proposed use must generate sufficient income or benefits to justify the costs of development or operation.
    • Maximally Productive: Among all feasible uses, the HBU is the one that produces the highest net return or value to the property. This resonates with the course’s goal of mastering data analysis for insightful appraisals.

    B. HBU as Vacant vs. Improved

    • HBU as Vacant: This analysis considers the optimal use of the land if it were vacant and available for development. It’s crucial for identifying potential re-development opportunities and informing decisions about demolishing existing improvements.

    • HBU as Improved: This analysis considers the existing improvements and determines whether the current use maximizes the property’s value, considering the cost of demolition and redevelopment. The interplay between vacant and improved uses highlights the course’s objective of understanding market trends.

    C. Mathematical Considerations for HBU

    The decision to continue the current use, redevelop, or hold land vacant can be assessed using basic profitability calculations.
    For example:

    Equation 1: Net Present Value (NPV) of Current Use

    NPVcurrent = ∑(CFt / (1 + r)t ) - Initial Investment

    Where:
    * CFt = Cash flow in period t
    * r = Discount rate
    * t = Time period
    * Initial Investment = Costs associated with maintaining current use of the property

    Equation 2: Net Present Value (NPV) of Alternative Use (Redevelopment)

    NPValternative = ∑(CFt / (1 + r)t ) - (Initial Investment + Demolition Costs)

    Where:
    * CFt = Cash flow in period t
    * r = Discount rate
    * t = Time period
    * Initial Investment = Costs associated with new development.
    * Demolition Costs = The total cost of demolishing current improvements.

    Equation 3: Comparing HBU Options.

    HBU is the use with the highest Net Present Value (NPV). For instance:
    * If NPV current > NPV alternative. HBU = Current Use.
    * If NPV current < NPV alternative. HBU = Alternative Use.

    D. Practical Application & Experiment: Mobile Data Collection for HBU Analysis

    Leverage mobile technology (as emphasized in the course description) to gather and analyze data for HBU analysis.

    1. Data Collection: Using mobile apps, collect data on comparable properties, construction costs, operating expenses, and market rents for different land uses in the area surrounding the subject property. This would directly be applicable to the collection data of comparable property, as described in Book Content, Chapter 3.

    2. Data Analysis: Use spreadsheet software or mobile appraisal apps to input the collected data and calculate the potential income, expenses, and NPV for different potential uses of the subject property. This connects back to course description goal of leveraging tools and techniques to analyze critical information.

    3. Highest and Best Use Determination: Based on the financial analysis, determine the highest and best use of the property, considering legal restrictions, physical limitations, and market demand.

    Experiment: Conduct a comparative analysis of mobile apps specializing in commercial real estate data and property analysis. Evaluate their features for data collection, NPV calculation, and report generation. Document the efficiency gains achieved through the use of mobile technology in HBU analysis.

    III. Methods of Site Valuation

    The book content outlines several methods for site valuation (Book Content, Chapter 6). Each method requires a different data input and approach. These methods are:

    A. Sales Comparison Approach

    This is the most reliable method, directly reflecting market behavior.

    1. Data Collection:
    • Comparable Sales: Collect data on recent sales of similar vacant land parcels, with similar zoning, size, location, and other relevant characteristics. (The more similar, the better, as per Book Content, Chapter 3). Data gathered using modern technology can allow appraisers to be competitive in a rapidly changing market.

    • Elements of Comparison: Identify and analyze the key differences between the comparable sales and the subject property:

      • Real Property Rights: Fee simple, leasehold, etc.
      • Financing Terms: Cash equivalent sales are preferred.
      • Conditions of Sale: Arm’s length transactions are essential.
      • Expenditures Immediately After Sale:
      • Market Conditions: Adjust for market changes over time using time-trending analysis. (Book Content, Chapter 3).
      • Location: Adjust for neighborhood characteristics, accessibility, and other locational factors.
      • Physical Characteristics: Size, shape, topography, soil conditions, frontage, access, utilities, environmental concerns, water-related issues such as being in FEMA Special Flood Hazard Area (Book Content, Chapter 5.)
      • Economic Characteristics
    2. Mathematical Adjustments:

    Using the Elements of Comparison data, make adjustments to the comparable sales prices to reflect the differences between the comparables and the subject property. This is mathematically expressed as:

    Adjusted Sales Price (ASP) = Sales Price ± Adjustments (Book Content, Chapter 3)

    It is important to remember that the adjustments, including those from physical attributes and economic variables, should be applied to the comparable properties as opposed to the subject properties.

    3. Applying Statistical Techniques (Optional, for advanced analysis):
    • Regression Analysis: A statistical technique that can be used to model the relationship between sales prices and various property characteristics, including location, size, zoning, etc. A regression analysis can be particularly useful in identifying and quantifying the impact of specific property characteristics on value.
    4. Practical Application & Experiment: Mobile Mapping and Data Integration

    Utilize mobile GIS apps to visualize and analyze the spatial relationships between the subject property and comparable sales, including proximity to amenities, environmental hazards, and other relevant location factors. Integrating GIS data with sales and market data can provide a more comprehensive understanding of value influences.

    B. Allocation Method:

    This method derives land value by allocating a proportion of the overall property value to the land.

    1. Data Collection:
    • Comparable Improved Sales: Collect data on recent sales of comparable improved properties in the area. This data is directly applicable for data collection as described in Book Content, Chapter 3.
    • Land-to-Building Ratio (LBR): Research market data to determine the typical LBR for similar properties in the area. This can be obtained from local market surveys, assessor’s data, or appraisal reports.
    2. Mathematical Calculation:

    Land Value = Overall Property Value x Land-to-Building Ratio

    3. Practical Application & Experiment:

    Use mobile technology to access and analyze data on comparable sales and property assessments, calculating the average LBR for properties in the subject neighborhood. Apply this ratio to the subject property to estimate its land value.

    C. Extraction Method:

    This method extracts the land value by subtracting the depreciated cost of the improvements from the total property value.

    1. Data Collection:
    • Comparable Improved Sales: Collect data on recent sales of comparable improved properties in the area.
    • Cost Data: Gather data on the cost of constructing similar improvements, using cost manuals or professional cost estimators.
    • Depreciation Estimates: Estimate the amount of accrued depreciation for the improvements on the comparable properties, considering physical deterioration, functional obsolescence, and external obsolescence.
    2. Mathematical Calculation:

    Land Value = Overall Property Value - Depreciated Cost of Improvements

    3. Practical Application & Experiment:

    Leverage mobile apps and online resources to access cost manuals and depreciation calculators, estimating the depreciated cost of improvements on comparable properties. Apply the extraction method to derive the land value of the subject property.

    D. Development Method (Subdivision Analysis):

    This method estimates the value of raw land by deducting development costs, marketing expenses, and profit from the projected sales revenue of the developed lots.

    1. Data Collection:
    • Development Plan: Create a detailed development plan, including the number and size of lots, infrastructure requirements, and estimated timeline.
    • Projected Sales Prices: Research market data to estimate the projected sales prices of the finished lots.
    • Development Costs: Gather data on all development costs, including construction, engineering, permitting, legal fees, marketing, financing, and carrying costs.
    • Discount Rate: Select an appropriate discount rate to reflect the risk and time value of money.
    2. Mathematical Calculation:

    Land Value = [∑(Projected Sales Revenue/(1+r)^t) - Total Development Costs]/(1+r)^t

    Where:

    • r = The discount rate,
    • t = The amount of time it would take to complete development and sale.
    3. Practical Application & Experiment:

    Using mobile project management apps, create a detailed timeline and budget for the subdivision development. Utilize spreadsheet software to perform a discounted cash flow analysis, estimating the present value of the land based on the projected sales revenue and development costs.

    E. Land Residual Method

    This method calculates the value of land based on the residual income remaining after deducting the income attributable to the improvements.

    1. Data Collection:
    • Property’s Net Operating Income (NOI): Estimate the NOI that the property can generate in its highest and best use.
    • Value of Improvements: Estimate the value of the improvements, based on replacement cost or other valuation methods.
    • Capitalization Rate (Improvements): Determine the appropriate capitalization rate for the improvements, reflecting the return required by investors in similar properties.
    • Capitalization Rate (Land): Determine the appropriate capitalization rate for the land, reflecting its risk and return potential.
    2. Mathematical Calculation:

    Income Attributable to Improvements = Value of Improvements x Capitalization Rate (Improvements)
    Residual Income Attributable to Land = Property’s NOI - Income Attributable to Improvements
    Land Value = Residual Income Attributable to Land / Capitalization Rate (Land)

    3. Practical Application & Experiment:

    Research and analyze market data to determine the appropriate capitalization rates for land and improvements. Use mobile appraisal apps to perform the land residual analysis, estimating the land value based on the property’s projected NOI and the value of its improvements.

    F. Ground Rent Capitalization

    This method estimates the land value by capitalizing the ground rent paid under a long-term lease.

    1. Data Collection:
    • Ground Rent: Determine the annual ground rent paid under the lease.
    • Capitalization Rate: Select an appropriate capitalization rate for the land, reflecting its risk and return potential.
    • Lease Terms: Analyze the lease terms, including the remaining lease term, rent escalation clauses, and other relevant provisions.
    2. Mathematical Calculation:

    Land Value = Ground Rent / Capitalization Rate

    G. Depth Tables:

    Often used to adjust land value on properties that aren’t uniform or that need to have the “best” portion of land assessed more favorably.

    1. 4-3-2-1 Method

    If a property lost the rear 25 percent of its depth, the value would decline, but the loss in value would be less than 25 percent. While there are complex mathematical tables, a simple evaluation method is the “4-3-2-1 Method.”

    The appraiser assumes that the value of the parcel is as follows:

    • 1st ¼ = 40% of Value
    • 2nd ¼ = 30% of Value
    • 3rd ¼ = 20% of Value
    • 4th ¼ = 10% of Value

    IV. Data Analysis Best Practices and Potential Errors

    The core content of the course description is the analysis of data. To ensure robust and reliable site valuations, appraisers must adhere to these best practices:

    • Verify Data Sources: Thoroughly verify the accuracy and reliability of all data sources, including sales records, assessor’s data, cost manuals, and market surveys. The “Appraisal Errors and Omissions” section in Book Content, Chapter 5 further describes this requirement.
    • Apply Consistent Standards: Use consistent and well-supported methods for estimating depreciation, development costs, and capitalization rates.
    • Consider Market Conditions: Pay close attention to current market conditions, including supply and demand, interest rates, and economic trends.
    • Document and Justify Adjustments: Clearly document and justify all adjustments made to comparable sales prices, providing a detailed explanation of the reasoning and supporting data.
    • Recognize Limitations: Acknowledge the limitations of each valuation method and select the method that is most appropriate for the subject property and the available data.
    • Understand USPAP Requirements: Under USPAP, which are the ethical and performance standards for appraisers, appraisers must maintain detailed work files for every assignment.

    Common errors to avoid include:

    • Reliance on Inaccurate Data: Using outdated or unreliable data can lead to significant errors in the valuation.
    • Subjective Adjustments: Making adjustments based on personal biases or unsupported opinions, rather than on market evidence.
    • Oversimplification: Failing to consider all relevant factors that may affect value.
    • Mathematical Errors: Committing errors in calculations can lead to inaccurate results.

    V. Conclusion: Elevating Appraisal Expertise through Data Mastery

    This chapter provided a comprehensive overview of site valuation methods and data analysis, emphasizing the importance of accurate data, sound methodologies, and a thorough understanding of market dynamics.

    By mastering the techniques discussed in this chapter and leveraging mobile technology, appraisers can enhance their ability to create accurate and insightful appraisals, achieving a competitive advantage in the valuation landscape, and elevating their professional expertise, aligning fully with the promise of the course description.

    Chapter Summary

    1. describe the factors that influence proper siting of a house❓ on its lot,
    2. list the three basic activity zones of a house and describe their relationships to each other;
    3. describe the characteristics that affect functional utility in the various rooms of a
      house,
    4. identify the characteristics of various building components that can affect value❓, and
    5. 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 “house” 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 “party walls,” 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 “type of house” 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 “type” categories (see Figure 7-2):
    6. one-story,
    7. one and one-half story,
    8. two-story,
    9. split-level, and
    10. 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
    11. One-Story House
      A ONE-STORY HOUSE, often called a “ranch” or “rambler,” 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 cost❓ 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.
    12. 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.
    13. 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.
    14. 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.
    15. 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 “raised ranch,” 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 “gross living area” for appraisal purposes in many parts of the country.
      II. Architectural Styles
      ARCHITECTURAL STYLE is the character of a building’s 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 “A” 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 “out-of-place,” 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 building’s architectural style is often defined at least in part by the materials used in its construction. Spanish style homes have clay tile roofs, Tudor’s 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 “good” design, and what is a
      “bad” 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 property’s 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 best 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 sun’s 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 direction, 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 building’s 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 house’s value is affected by the building’s 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
    16. 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 (8’ x 10’) 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.
    17. 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.
    18. 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.
    19. 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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    20. Dining Rooms
      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.
    21. 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 9’ x 10’ is the minimum needed to allow for a single bed, 10’ x 12’ 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 closet, and the closet should be located within the heated area of the house.
    22. Bathrooms
      The size, location, and number of bathrooms are very important factors in the design of a functional house.
      In most situations, the number of bathrooms has a direct impact on value. At a minimum, any house should have at least one three-piece bathroom (toilet, sink, shower or tub).
      Depending on the number of bedrooms, more than one bathroom may be needed. A rule of thumb is that there should be at least one bathroom for each two bedrooms, or for each 1,000 square feet of gross living area.
      The location of bathrooms is also very important. At least one bathroom should be near the bedrooms, and another near the living zone of the house. If the house has a family room in the basement, or over the garage, there should also be a bathroom near the family room. And if the house has an office or study, it is helpful to have a half-bath (toilet and sink only) nearby.
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      The overall size of the bathroom is not a major factor as long as it is large enough to perform its function.
      Bathrooms are not primarily a “living” area of the home, but a utility area. So they do not need to be especially large. Bathrooms should be well ventilated.
      IV. Construction Methods and Materials
      Although this course will NOT make you an expert on residential construction, an understanding of construction techniques and terminology is helpful to appraisers in a number of respects. This material can provide the appraiser to properly describe the subject property in the appraisal, to be able to more fully describe comparable❓ properties and to better understand the cost approach❓ to value.
      A. FOUNDATIONS
      The foundation is the part of a building that transfers the building’s loads (weight) to the ground. Foundations must support the weight of the building, and keep it level and plumb.
    23. Types of Foundations
      There are several types of foundations used in residential construction, including:
      Monolithic Slab (Floating Foundation) Pier and Beam
      Basement Crawl Space
    24. Monolithic Slab or Floating Foundation is a single, poured concrete slab. It is simple and least expensive to construct (see Figure 7-7). This type of foundation is commonly used in areas with relatively mild climates, and soil that is stable enough to support the foundation. In some cases, slab foundations are constructed on compacted fill, to provide a level pad on sites with irregular terrain. With a slab foundation, all plumbing and electrical lines must be installed in the slab before it is poured.
    25. Pier and Beam foundations are often used in areas where flooding, expansive soils, or earthquake activity are a concern, raising the building off of the surface (see Figure 7-8).
      Piers (concrete columns) or posts (treated wood) are set on concrete footings, and beams are laid across the piers to provide the support for the floor frame.
    26. Basement is a full story height that is located below the first floor, at least partially below ground level, and primarily not used for living accommodations. It is a type of foundation that is a common feature in many areas of the country (see Figure 7-9). Basements are often used as living space, with proper insulation, plumbing, and
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      Figure 7-7
      Foundation Types – Monolithic Slab
      Monolithic Concrete Slab
      Figure 7-8
      Foundation Types – Pier and Beam
      12 inches
      pier
      Pier and Beam (Post and Beam)
      Figure 7-9
      Foundation Types – Basement
      8 inches - 12 inches
      basement foundation wall
      footing
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      electrical to the level that matches above grade construction.
    27. Crawl Space is another type of foundation system that has space below the living area of the house, but it has less height than a basement, usually less than four feet (see Figure 7-10).
      The crawl space provides access for utilities and may afford a limited amount of storage space.
      The amount of open space depends on the height of the wall. The advantages of this type of foundation include easy access to pipes and wiring, and also a degree of air circulation that can help reduce moisture problems.
      Figure 7-10
      Foundation Types – Crawl Space
      Crawl Space
    28. Foundation Materials
      Almost all residential foundations are constructed of concrete. Older foundations are often unreinforced, but modern foundation walls are reinforced with steel rebar.
      B. FRAMING AND SHEATHING
      The FRAMING of a house is the skeleton that supports its roof and walls. The SHEATHING is the outside covering applied to the roof and walls. It provides extra strength and a base for the exterior finishes (siding, roofing, etc.)
      The main framing members are the sills, studs, joists, and rafters (see Figure 7-11).
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      Figure 7-11
      Framing Members
      Wall Stud (or Framing)
      Rafter
      Joist
      Header
      Floor Joist
      Sill
      The SILL is the lowest framing member in the structure. It rests directly on the foundation wall and provides a base for the wall studs.
      STUDS are the vertical framing members that form the walls of the house. Studs typically run from the sill to the top plate (a framing member that runs along the top of the wall), or from the bottom plate to the top plate in the case of interior, non-load-bearing walls.
      JOISTS are the horizontal framing members that support the floor and ceiling. Joists may rest directly on top of the foundation walls, or they may rest on the sills that rest on top of the foundation walls. In multi-story buildings, joists span from wall to wall on each floor. In ceilings, joists provide a base for the ceiling finish.
      RAFTERS are the framing members that support the roof. Rafters are typically slanted from the roof ridge to the exterior walls.
    29. Framing Lumber
      Traditionally, wood has been the most common material used for residential framing. Various dimensions and grades of lumber are used for different framing functions. Typical lumber sizes include 2” x 4”, 2” x 6”, 2” x 8”, 2” x 10”, 2” x 12”, 4” x 4”, 4” x 6”, 4” x 8”, and 4” x 10”. (Note: the actual dimensions of lumber are about ½” smaller than the nominal dimension. A “2 x 4” is really 1 ½” x 3 ½”).
      For framing purposes, lumber must be of a high enough grade to withstand all structural stresses, and to prevent warping and twisting over time. Also, some framing lumber (such as sill plates) must be treated to prevent infestation by insects and rot from moisture.
      Modern “engineered” wood framing is a manufactured product that has certain advantages over traditional lumber in some applications.
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      Truss-Roof Systems consist of manufactured structural components engineered to carry roof loads, and transferred to supporting walls below, at specifically designed bearing points. Truss roof systems are composed of various-sized members joined together by metal fasteners.
      TRUSS ROOF SYSTEMS:
      Provide a long span
      Require No Interior Walls
      Are Efficient
      Are Low Cost
      Allow No Future Rafter Cutting
      Require No Interior Support
      Are Computer Designed
      Cannot Be Altered
      (See Figure 7-12)
      Figure 7-12 Truss-Roof System
      As wood becomes more expensive, steel has become more widely used in residential construction framing.
      Modern steel framing members are light and strong, and can easily be assembled with screws. Steel framing also does not require special tools, can easily be adapted to meet construction conditions, does not rot or support insect growth, and can be recycled when it is no longer needed. The main drawback to steel framing is that it can rust when exposed to moisture, so care must be taken to provide a protective coating on all exposed steel members.
      Green Building Material
      Bamboo is the fastest-growing plant on earth, making bamboo a true renewable resource. The hollow stems of bamboo make it particularly strong, able to withstand earthquakes and hurricanes better than concrete.
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      BAMBOO FLOORING has many qualities, it is strong, durable, water-resistant and beautiful. Unlike many hardwood floors that can take weeks for the adhesive to dry, bamboo flooring can be installed within days.
    30. Framing Terminology
      To properly describe the structure of a building, the appraiser must be familiar with framing terminology. The appraiser must know the terms such as header, gable, dormer, etc.
      A HEADER is a beam that supports the load over a door or window opening.
      A GABLE is the triangular section of wall that is formed by the end of a pitched roof. A DORMER is a raised roof structure that projects from the main roof surface, usually with a window on the front side.
    31. Framing Methods
      There are three basic methods of framing residential buildings:
      Balloon framing Platform framing
      Post and beam framing
      The balloon framing method was commonly used in older construction, and in modern construction in some areas. In BALLOON FRAMING, the wall studs run continuously from the sill plate to the roof (see Figure 7-13).
      Figure 7-13 Framing Methods – Balloon
      Balloon Framing
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      This type of framing provides a direct channel for fire to spread quickly throughout the house from the basement to the attic. For this reason, codes have become increasingly stringent in specifying firestops for balloon framed walls.
      Platform framing is commonly used in modern construction because it offers several advantages. In PLATFORM FRAMING, the wall studs are independent for each floor of the house (see Figure 7-14).
      Figure 7-14 Framing Methods – Platform
      Platform Framing
      Each story of the house is framed as a unit, or “platform.” A platform frame provides horizontal firestops at each floor level. It also makes it easier to lift and assemble the walls for each story, and provides a solid work platform for framing the upper story walls.
      Post and beam framing relies on heavy timbers to form the frame of the building (see Figure 7-15).
      POST AND BEAM FRAMING also requires a special foundation design to bear the loads from the heavy timbers. This method of framing tends to be more expensive than either platform or balloon framing, and may require the use of specialized construction crews. Post and beam construction is often used to build very high-quality or architecturally distinctive homes.
      a. Roof Framing
      The type of roof framing, or roof design, can also have an impact on value. The most common type of roof is the gable roof. A GABLE ROOF is one with a simple A shape, formed by two roof planes that meet at a ridge (see Figure 7-16). Gable roofs are relatively inexpensive to construct, and can be adapted to most architectural styles.
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      Figure 7-15 Framing Methods – Post and Beam
      Post and Beam Framing
      Figure 7-16 Types of Roofs – Gable and Hip
      Common Roof Shapes
      Gable Roof Hip Roof
      A variation on the gable roof is the GAMBREL ROOF, a variation on a gable roof. It has a small slope on the upper portion, and a steeper slope on the lower portion.
      HIP ROOFS have sloping surfaces on all four sides, with no vertical ends or gables. Hip roofs are generally more expensive to build than gable roofs, but they are also stronger and more weather-resistant.
      FLAT ROOFS, as the name implies, have no slope. Flat roofs are commonly found on commercial buildings. They are rarely used in residential construction due to problems with water leakage.
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      b. Chimneys, Stacks, and Vents
      Codes have increasingly required that all chimneys, stacks, and vents extend a minimum of 2 feet above a roof within 10 feet for fire safety reasons.
    32. Sheathing
      After the frame of a house has been erected, the next step in construction is to cover the frame with sheathing. Sheathing provides extra strength and rigidity to the structure, and also provides a solid base to which exterior siding materials can be attached.
      Materials used for sheathing include plywood, OSB (oriented strand board), and drywall board. For roofing, the sheathing usually consists of plywood or OSB.
      C. EXTERIOR FINISHES
      A wide variety of materials are used for exterior finishes on residential buildings. Common siding materials include wood, aluminum, vinyl, brick, and stone (see Figure 7-17).
      Figure 7-17 Common Siding Materials
      SIDING
      •Wood
      •Brick
      •Stucco
      •Stone
      •Aluminum
      •Vinyl
      •Steel
      Wood siding is attractive and versatile, but may require frequent repainting or other maintenance to prevent moisture damage. Aluminum and vinyl siding is more durable than wood, requiring less maintenance.
      Brick and stone exteriors are very durable, but can be quite expensive.
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      D. DOORS AND WINDOWS
      Doors and windows are key components of the building envelope, and as such, they can have a significant impact on value.
    33. Doors
      Exterior doors must be durable and well weather-stripped to prevent air and water leakage. They should also have solid cores (not hollow), and be equipped with secure locking mechanisms. Most exterior doors are made of wood, but steel and fiberglass doors are also available. Steel doors are very secure, but subject to rust and corrosion unless they are carefully maintained.
      Interior doors must provide privacy, and be compatible with the rest of the interior design. Interior doors are commonly made of wood, but metal and plastic doors are also used.
      The side posts for doors and windows are called JAMBS.
    34. Windows
      Windows have a large effect on the overall appearance of a house, both inside and out. FENESTRATION is the design and placement of windows in a building.
      A well-designed fenestration scheme can enhance the functionality of a room and can add architectural interest to the design. But perhaps even more importantly, the type of windows used in a house can have a significant effect on heating and cooling costs.
      Heat Loss and Heat Gain account for 30 percent of home energy bills. Upgrading to Energy Star windows can save up to $500 per year on energy bills.
      The window frame should be constructed of a durable, weather-resistant material. Metal frames have the advantage of strength and weather resistance, but tend to transfer heat rapidly, causing energy loss. Wood frames offer better thermal resistance, but require careful weatherproofing to prevent moisture damage. Vinyl or plastic frames offer a good combination of durability and thermal resistance.
      Another important characteristic of windows is whether they use single pane or multiple pane glazing.
      Single-pane windows, common in older construction, offer little resistance to heat transfer and are generally considered very energy inefficient.
      Multiple Pane Window systems include the following:
      Double Pane – These are the standard panes sold on the market. Two panes are glued together with airspace in between, which provide a great amount of insulation.
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      Triple Pane – These panes cost more than double paned windows, but offer increased energy efficiency. They also have enhanced sound control qualities.
      Multiple-paned windows come in a variety of designs that enhance energy efficiency, including air spaces between the panes, inert gas fills, and reflective coatings. Each of these features reduces the amount of heat transfer through the glass. The thermal resistance of a window is rated by its R-value, which is the same R-value that is used to rate insulation materials.
      (See Figure 7-18)
      Figure 7-18 Types of Windows – Single-Hung and Double-Hung
      Types of Windows
      Double Hung Single Hung
      Types of windows also include Casement, Aw

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