Evaluation of methods, process and product:

Comparison technique/Method
LECTURE 7- ASPECTS OF LAND
VALUATION
 Comparison Method
 The 'Comparison Method' is also called 'Comparable Sales Method' of property value. This method estimates the value of a house by comparing it to the prices of like-kind
properties sold in similar locations within a recent period of time. The basic assumption is therefore that a property is worth what it will sell for, in the absence of undue stress
and if reasonable time is given.

This method estimates the actual market value of homes by examining factual data. It is the most prevalent method in the residential property market and works with general
trends and projections.

Procedure
The central task is to systematically collect data on comparable properties. Basically, the forces influencing value have to be weighed against each other. The relevant elements to
look for can be split up as follows:

1. Transaction Characteristics - Date of transaction, means of payment, transaction speed, etc.

2. Asset Characteristics - Size, location, conditions, utility, building regulations, business climate, etc.

The best way to compare property would obviously be to inspect it in person. Since this option is very time-consuming and not always possible, the next best solution is to
search property transaction databases. An ideal database will contain information relating to transaction date, price paid, property features and size etc. Most of the
valuation firms in Malaysia are using this method to perform their property valuation request.

Example: let's say you were the owner of No. 54 ABC Street and were looking to sell. A search on the valuation database using method No.1 above would tell you that identical
houses on the same terrace all sold for between RM125,000 and RM135,000 while the end-of-terrace house sold for RM158,000 - all within the last six months. A search using
method No. 2 would show there were also four similar terrace houses sold on the parallel ABC Street for between RM122,500 and RM140,000. Armed with this information, the
seller can confidently assume that his house price should be no less than RM120,000 and could possibly fetch RM140,000.

 Comparison Method Advantages

1. It is the most easy and straightforward method and has become general practice in the residential housing market.

2. It leads to an objective valuation being placed on the property. The answer is connected to the actual market value as opposed to an individual's preferences.

Comparison Method Disadvantages

1. Sometimes it might be difficult to locate enough similar property transactions to draw meaningful conclusions with regards to what the value should be.

2. Market value and price might differ due to "unreasonable" actions by other actors.


This technique makes no reference to intrinsic value. If a property's price is reasonable on a comparable basis, it does not necessarily follow that this is a reasonable buying or
selling price for an individual.
 THE COMPARISON METHOD OF VALUATION
 Property valuation can be carried out using several methods of valuation which
can be divided into two
 groups i.e. conventional and quantitative methods.
 Conventional methods include the comparison method, investment method, profIt
method, residual method and cost method.
 The quantitative method includes the cash flow, regression analysis and simulation.
 However, the comparison method of valuation has been the most acceptable
method of residential property valuation (Grant & Mc Tear, 1992; Azhari, 1993;
Mohd Harith, 1993).
 It has also been widely adapted in Malaysia (Mohd Hafiz, 1994).
 The comparison method is easy to use when the following conditions exist:
 • transactions always take place for property with the same type of interest;
 • there is no obvious difference in terms of quality of location;
 • value and economic condition is stable during the period of transaction; and
 • conditions of buyers and sellers do not affect the transaction.
COMPARISON METHOD
 Comparison between the same type of property can either be direct or indirect.
 The direct comparison is used when there is no difference in factors affecting value between the
subject property and its comparables.
 However, the indirect comparison is often adopted because there are always physical or locational
differences exist between the subject property and its comparables.
 This has normally involved some adjustments in the analysis process where the differences between
subject property and its similar comparables are adjusted in such a way to make them stand very
much alike
 Since the comparables are selected from the previous legally transacted property hence, methodical
analysis on the transactions taken place is the basis of this method (Grant & Mc Tear, 1992)
 The common comparison factors (which normally involved adjustments when differences exist)
between the properties are;
 • type of unit;
 • position of lot;
 • the time period between the date of transaction and the date of valuation;
 • nature of interest; and
 • physical factors.
 To summarise, these factors are compared and considered in the valuation
process.
 On top of this, the general concept that is widely accepted and adapted in
Malaysia is as below (Mohd Hafiz, 1994):
 OMV=LV+BV
 where,
 OMV =Open Market Value
 LV =Land Value
 BV =Building Value
 Land value of subject property is calculated based on the land value of
comparable properties selected.
 Building value is calculated based on the current construction cost obtainable
from quantity surveyor or building contractor, (less the depreciation).
COMPARISON METHOD
 The method involves making a valuation by directly comparing the property under valuation with
similar comparable properties

Comparable properties:
 Transacted and transferred in the recent past, having consideration of the market performance i.e
within the same market period
 Sold does not necessarily mean have been transacted and transferred
 Transaction at Sale & Purchase stage does not mean transacted and transferred- only 10% of the
price has been paid during the S&P stage and transaction has not been fully concluded.

Comparable method:
 Involves properties that area frequently transacted in the market
 Desirable that the comparison should be made with similar comparable properties –properties
sharing the same characteristics
 Similar comparable properties situated in the same market area
 The method is reliable provided that the sample of comparable sales is of sufficient size to draw
realistic conclusions as to market conditions.
COMPARISON METHOD
Methodology:
 Sale transaction and listing of comparable properties recorded within the same locality are
complied
 The sale transactions of comparable properties are then analysed to arrive at a common
denominator or a comparison rate base on land area etc (i.e per hectare/acre/sq.meter/sq.ft).
 Comparable properties are analyzed for their characteristics and physical features;
• Location
• Size
• Shape
• Market condition
• Built-up area
• Building construction & finishes
• Age and condition of building etc
• Benefits and restrictions in interest
• Legal and legislative constraints
• Time element and other factors that may affect the value under which the properties have been
transacted.

 The analysis of similar comparable properties are then weighted and adjusted to arrive at a
practical and acceptable
CASE 1: LOW MEDIUM COST WALK UP FLAT UNIT LOCATED WITHIN THE SAME SCHEME

Property Unit 1 Unit 2 Unit 3 Unit 4 Unit 5

Characteristics

Floor area & 20 ft X 30 ft 20 ft X 30 ft 20 ft X 30 ft 20 ft X 30 ft 20 ft X 30 ft

Dimension

Block A B A B B

Floor Level 1st 2nd 4th 3rd 4th

Floor Finishes Cement & Ceramic & Ceramic & Cement & Cement &
mosaic tiles tiles mosaic mosaic

No. of Bedrooms 2 2 2 2 2

Date of Transaction 5/07 7/07 6/07 6/07 12/07

Selling Price (RM) 64,000/- 72,000/- 66,000/- 59,000/- 60,000/-

Analysis RM pfs 106.67 120.00 110.00 98.33 100.00

COMPARABLE DATA ADJUSTMENT

Property Subject Unit 1 Unit 2 Unit 3 Unit 4 Unit 5

Characteristics Property

Analysed value X psf 106.67 120.00 110.00 98.33 100.00

pfs (RM)

Floor area & 20 ft X 30 ft nil nil nil nil nil

Dimension
Floor Level 2nd nil nil +9% +8.5% +7%

Floor Finishes Cement & nil -12.5% -12% nil nil

Mosaic
Date of 8 /07 nil nil nil nil nil
Valuation/
Transaction
Total Adjustment - nil -12.5% -3% +8.5% +7%
%
Adjusted value 105 to 106.67 105 106.7 106.68 107.00
RM pfs 107.00
Valuation of Subject Property
MV = Floor area X adjusted value rate
MV = 600 fs X RM 107.00 pfs
MV = RM 64,200.00

Check:
Unit 1 : 1st Floor, cement & mosaic @ RM 106.67pfs
Unit 2 : 2nd Floor, ceramic & tiles @ RM 120.00 pfs
Unit 3 : 4th Floor , ceramic & tiles@ RM 110.00 pfs
Unit 4 : 3rd Floor, cement & mosaic @ RM 98.33 pfs

Subject Property : 2nd Floor, cement & mosaic @RM 107.00 pfs
COMPARABLE DATA INFORMATION

Property Lot 1 Lot 2 Lot 3 Lot 4 Lot 5

Characteristics

Land area and 50 ft X 100 ft 50 ft X 110 ft 60 ft X 100 ft 50 ft X 100 ft 60 ft X 150 ft

Dimension

Tenure Grant in Grant in Grant in Grant in Grant in

Prep. Prep. Prep. Prep. Prep.
Restriction Nil Nil Nil Nil Nil

Nature of land flat flat flat flat flat

Location corner intermediate intermediate intermediate end

Date of 5/07 12/06 6/07 7/07 5/07

Transaction
Selling Price 220,000/- 210,000/- 240,000/- 200,000/- 325,000/-
(RM)
Analysis RM pfs 44.00 38.18 40.00 40.00 36.11
COMPARABLE DATA ADJUSTMENT

Property Subject Lot 1 Lot 2 Lot 3 Lot 4 Lot 5

Characteristics Property
Analysed value X pfs 44.00 38.18 40.00 40.00 36.11
pfs (RM)

Tenure Grant in Nil Nil Nil Nil Nil

Prep.
Restrictions Nil Nil Nil Nil Nil Nil

Nature of land Flat Nil Nil Nil Nil Nil

Land area & 60 ft X 150 ft -10% -10% -10% -10% Nil

Dimension
Date of 8 /07 Nil +5% Nil Nil Nil
Valuation/
Transaction
Location Corner Nil +10% +10% +10% +10%

Total - -10% +5% Nil Nil +10%

Adjustment %
Adjusted Value 39.60 to 39.60 40.00 40.00 40.00 39.72
RM pfs 40.00
Valuation of Subject Property
MV = 9000fs X RM 40/-pfs
MV =RM 360,000.00
Check:
Lot 1 : Corner standard plot @ RM 44/-pfs
Lot 2 : Intermediate standard plot @ RM 40/- pfs
Lot 3 : End extra land plot @ RM 36.11 pfs

Subject Lot : Corner extra land plot @RM 40.00 pfs

Limitation of Method
I. No two properties are directly comparable
II. Date/ period of transactions will always vary
QUESTION 2
 Jurunilai hartanah has been approached by En Ali who wants
to sell his properties. Before he sells off his properties he
wants to know the value of his properties. He then give a
description of his properties to you who is a valueer with
jurunilai Hartanah that his properties comprises of a terraced
house in Taman Tun Dr Ismail, a special-built clubhouse in the
Perdana Country Resort in Putrajaya and a hotel in Melacca.
 You are required to advise En Ali the method of valuation that
can be used to value the three properties and show EN Ali
examples of how you use the methods to derive at the value of
the properties
ASSIGNMENT FOR TOMORROW

 Question 1
 You are valuing a 2 storey house at taman bukit idaman selayang, situated exactly 200m to Sekolah
Menengah Bukit Idaman and approximately 1 km to selayang mall. Your client is considering buying
the property for own occupation . The parcel is 2-’ x 80’ is intermediate unit, is same level with road
frontage and has an excellent view, the asking price is rm300,000.00
 Three sales of comparable properties at the same level with the road frontage occurred last year.
 Comparable 1: 20’x80’ and directly across the road, sold 2 moths ago for rm280,000, lack of view
 Comparable 2: 20’x 75’ nearer to school and shopping mall, sold 3 months ago for Rm270,000 with
excellent view
 Comparable 3: 20’x80’ located nearer to school and shopping mall, sold 6 months ago for rm300,000
very similar to the subject in physical respects and has a comparable view
 Appropriate adjustment are as follow
 For time : value are increasing 1% per month
 For location : being across road means exactly comparable to subject
 : Being nearer to school and shopping centre adds 5% to land value
 For view : having high-quality view adds 5% to value relative to not having a view

 Based on the above information

 A) prepare a grid to adjust sales prices on per square foot basis
 Make necessary adjustment and estimate the market value of the subject property
PREPARATION FOR NEXT WEEK LECTURE
 Study for next week lecture i.e.
 investment or income method
 Definition
 What is the method
 How and what are the calculation used for the
method