Learner Manual – CPPDSM4003A Appraise property
At the completion of this unit students should be able to:
- Understand the difference between an appraisal and valuation
- Establish the purpose of a property appraisal
- Identify the relevant data required to do a property appraisal
- Appraise the likely sale price or rental value of a property for listing purposes
- Present the information to client or customer in a meaningful fashion
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Table of Contents
LEARNING OUTCOMES. 2
CPPDSM4003A – Appraise Property. 5
About this Learner Manual 6
EMPLOYABILITY SKILLS. 7
What to do now.. 7
1. Appraising Property. 8
1.1 Purpose of Appraisals. 8
1.2 Appraisal or Valuation. 8
1.3 What is Value?. 9
1.4 Estimating Value. 10
ACTIVITY 1. 10
2. Research and Analysis. 10
2.1 Researching market conditions. 10
2.1.1 Sources of Information. 11
2.1.2 Type of Information. 11
2.2 Indicators of Market Conditions. 12
2.2.1 Sales Market. 12
2.2.2 Leasing Market. 13
2.3 Sources of Information. 13
2.3.1 Factors that affect property values. 14
2.3.2 Highest and Best Use. 15
2.3.3 Title and Property Rights. 15
2.3.4 Material Facts. 15
2.3.5 Features of the property that affect value. 17
2.4 Property Inspections. 17
2.5 Seeking Specialist Advice. 18
ACTIVITY 2. 18
3. The Appraisal of the likely market price or rental value of a property. 18
3.1 Comparable sales or rentals. 18
3.2 Non Comparable sales or Rentals. 19
3.3 Appraisal Methods. 19
3.3.1 Comparable or Recent Sales. 19
3.3.2 Summation Method. 20
3.3.3. Replacement Cost. 20
3.3.4 Capitalisation Method. 20
ACTIVITY 3. 21
3.3.5 Other Methods. 21
ACTIVITY 4. 21
3.4 Selecting the Appraisal Method. 22
4. Presenting the Information. 22
4.1 Legal Requirements. 22
4.2 What the Office of Fair Trading Requires. 23
4.3 Property Appraisal Reporting. 23
4.4 The Use of Disclaimers. 24
ACTIVITY 5. 25
5. Recording and Managing the Information. 25
5.1 Agency Records. 25
5.2 Types of Records. 26
5.3 Record Management Systems. 26
5.4 Privacy and Confidentiality. 26
A. ASSESSMENT ACTIVITIES (copied from within the Learner Manual). 33
ACTIVITY 1. 33
ACTIVITY 2. 33
ACTIVITY 3. 33
ACTIVITY 4. 33
ACTIVITY 5. 33
B. QUESTIONS and ANSWERS. 34
CPPDSM4003A – Appraise Property
Welcome to the Learner Manual for CPPDSM4003A – Appraise property.
About this unit of competency
This unit of competency specifies the outcomes required to appraise the sale price range or rental value of all forms of property for listing purposes in line with client instructions, agency practice and legislative requirements. The learning outcomes will enable you, at the completion of the module, to:
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- Research property
- Appraise sale price range or rental value of property for listing purposes
- Present information
The unit may form part of the licensing requirements for persons engaged in real estate activities in those States and Territories where these are regulated activities.
Prerequisites There are no prerequisites for this unit. The unit specifies outcomes required to appraise the sale price range or rentalvalue of all forms of property for listing in line with client instructions, agencypractice and legislative requirements, and how to present that information in ameaningful way.
About this Learner Manual This Learner Manualis suitable for a range of learning situations, such as:
• Workplace – based learning
• Classroom learning
• Blended workplace/classroom learning
• Self-paced and/or flexible learning.
It is recommended that you read the material and attempt ALL activities, asthis will enable you to complete the unit competently and confidently.Completing theactivitieswill graduallybuildyourskillsnecessarytogaincompetencyin thisunit.However,yourteacher, traineror assessormayidentifycertainactivitiesthatwillsuityourparticularlearning situation.
Many of the activities throughout this Manual require you to access documents from within a working agency; to drawonyourown experiencesintheworkplace;orrequireyoutoaccess theinternet.Speaktoyourtrainer/assessorifyouarenotcurrentlyemployedinthereal estatesector,or donothaveaccesstosuchdocumentationortheinternetthat youneed tocompletethe activities.
An activitytableappearsatthe endofthis Guide.This tableidentifieshowtheactivities aligntoeachoftheperformancecriteriafor thisunit. Formostlearningsituations,trainers andassessorswillrecommendthatlearnersworkthroughtheLearnerGuideandattemptall activities. Insomesituations,trainersandassessorsmayprescribespecificactivities, depending on the learner’s current skills and knowledge.
EMPLOYABILITY SKILLS Employability skills are generic skills that support your ability to performeffectively in the workplace. They are also known as transferable skills becausethe employability skills you learn in one workplace can be applied and furtherdeveloped in other workplaces and roles.
Employability skills are:
• Problem solving
• Initiative and enterprise
• Planning and organising
Theemployabilityskillscoveredrelistedin thetableatthe endofeachchapter.Thetable demonstrateswhichfacetofthatskill hasbeencovered,howithasbeencoveredand whetheryouhaveachievedcompetencystatusandrecord anycomments.Keepthesetables asevidencetoshow that youhaveachievedtheseemployabilityskills.
What to do now We suggest that you follow the following steps in using this Manual.
1. Read the material in this Manualand attempt all activities
2. Complete the assignments and case studies that appear at the end ofeach chapter where applicable
3. Speak to your trainer or assessor about how you will be assessed in thisunit
1. Appraising Property Part of the functions of a real estate agent is to provide advice or informationto potential vendors and buyers, landlords and tenants about the likely sale or lease price of property in the agent’s localarea. Assessing the likely sale or lease price of a property is verysubjective and the outcome of any analysis will depend heavily on where the information is sourced and the importance attached to the different factors that can affectprice.
This unit will focus on the appraisal of residential property. Appraisal of property for commercial sale or lease relies on different information. Sale & leasing appraisals for commercial purposes does not get covered in this manual. Please check with your trainer/assessor to determine where such information may be sourced. 1.1 Purpose of Appraisals There are different methods that can be used but generally someone that isappraising the likely selling price of a property will take into account a varietyof information, which could include information on such things as social,economic, political and physical features of an area, along with specifics aboutthe property and the likely level of demand for that type of property.
The aim of the appraisal is to provide the client with relevant, up to date informationabout their property, or the property they are thinking of purchasing.
From a vendor’s perspective, a property appraisal can: –
• Help them identify the likely selling price of their propertyunder particular market conditions
• Help the vendor assess what improvements they need to undertake ontheir property to improve the likely selling price
• Provide the vendor with up to date information during the sellingprocess so that they can effectively assess offers
From the buyer’s perspective, a property appraisal can: –
• Help them assess the reasonableness of an asking price for a property
• Help them establish what an auction property may fetch at auction
• Help them establish the area they can afford to purchase in, given theirneeds
In terms of leasing, a property appraisal can: –
• Help a potential landlord to establish a reasonable asking rent for theirproperty
• Help them assess whether any improvements would improve the returnon the property
• Help the landlord undertake repairs and maintenance to improve thecapital value of the property
1.2 Appraisal or Valuation In New South Wales, only a Registered Valuer can provide a valuation of aproperty.
A Valuation is an estimate by the Valuer of the likely value of aproperty at one point of time after they have gone through an extensiveprocess of gathering relevant data. Formal valuations by Valuers are prepared for many different purposes, and the figure arrived at can be different,depending on the purpose of the valuation.
Types of valuations include for: –
• insurance purposes
• resolving property disputes
• mortgage purposes
• setting government charges like rates, land tax etc
• compulsory acquisition
Valuers charge fees for their services and are governed by rules that dictate how they go about establishing value. They are fully accountable and can besued or fined if they are negligent in carrying out their duties.
Real estate agents are not Valuers, unless they have undertaken the requiredcourse and are registered to be a Valuer. However, clients and customerslook to real estate agents to provide advice on the likely selling price ofproperty. While an agent is usually not a Valuer, they canstill provide opinions as to the likely selling price of a property. Agents must be careful of the language they use when providing such opinions, or estimates.They should make sure they have undertaken some valid & reliable research before providing such an opinion (or estimate). They need to be able to show how they arrived at the figure they give the client or customer.
The Competition & Consumer Act, Property Stock and Business Agents Act, and the FairTrading Act can all be used against an agent who misleads someone whentalking about likely selling prices. This issue will be discussed further in thesenotes.
1.3 What is Value? One of the definitions of “value” in the Macquarie Dictionary is “The worth ofthing as estimated in terms of a medium of exchange” (money). So value canbe defined as the monetary worth of an object. But what determines value, and how can it be arrived at?
The concept of what is the value of a property rests firmly on the laws of supplyand demand for that property at a given point in time. In the High Court case, Spencer v. The Commonwealth (1907) 5 CLR 418, the concept of marketvalue was examined and provides the basis of the definition that follows.
Taking the principles handed down in the case, Market Value can be said to be theprice a ready, willing and able purchaser who has access to all the marketinformation is prepared to pay to a seller who is ready, willing and able to sell,without duress or exceptional circumstances in an arm’s length transaction onany given day.
Both parties must have full knowledge of the land and propertyincluding its “highest and best use”.
So the key principles embodied in the concept of market value are: –
• the market value given relates to a specific point of time
• both parties have to be willing to enter into the transaction
• they are not subject to any other forces that could cloud their decision
• they are fully aware of all the factors that would affect the property
There are other definitions of value and they include
• Insurance Value – The cost of replacing the buildings and improvements, not including the land.
• Security Value – This is the value placed on the property formortgage purposes. Because there is an element of risk attached to theproperty (a forced sale leading to a below market price) Valuersgenerally are conservative when determining security value and it isgenerally below market value.
• Statutory Value – This is the value placed on all land, and isdetermined by the Valuer-General. While based on market trends it is afigure derived so that Council Rates and Land Tax can be determined. Itcan also have some bearing on what is paid for land when it is forciblyresumed. Statutory values can include:-
- Capital Improved Value (CIV) – this is the value of theland, and improvements
- Net Annual Value (NAV) – this is the notional rental value
- Site Value (SV) – this is the land value…. It ignores anyimprovements on the land
• Special Value or Out of Line Sales – This is where the value of theproperty may have determined to reflect more than the actual sale ofthe property. Sometimes a sale can take place where the price paidreflects other factors e.g. a sale as a result of divorce; accompanypaying more than market to stop a competitor buying the land; anemotional attachment to the land where a person pays more. Out ofline sales can be hard to pick in fast moving markets, but somethingagents need always to be on the lookout for.
Using the information from the resources mentioned in the notes you are required to compile a profile of a particular area. Pick an area in a suburb youare familiar with and prepare a profile with the following information:-
1. Identify the demographics of the area including statistics for age, employment and family types
2. Identify geographical markets
3. Determine possible trends in housing needs
4. Formulate a strategy for developing your client base
1.4 Estimating Value When an agent is asked to give an opinion of value they need to establishseveral things so that they can support their opinion with clear and logical datathat they have analysed. To perform an appraisal the agent must establishthe what, where, why, when and who:-
o type of property is being appraised
o is the title of the land
o is the z oning of the land
• Where is the property located
• Why is the property being appraised
• When is the appraisal to be done and how is it to be undertaken
• Who is it for, what use are they going to put it to
Once the agent has the answer to these questions they can then decide how they will go about the appraisal and what they need to do.
Assume you have been asked by a friend who is thinking of selling,whether or not they should get a Valuer in to value their propertyto establish a likely selling price or to call in an agent and have theagent value the property. What advice would you give your friendas to who he should use to appraise the property? In your answer, draw outthe differences between a valuation and an appraisal.
2. Research and Analysis One of the fundamentals of being a real estate agent is understanding the market place, the value of property and how that value is determined, and alsobeing able to find what is the best and highest use of a property.
In this chapter we are going to examine how to research the property market, evaluate trends in the property market that affects the sale, rental andmanagement of property, and how such factors affect the value of property.
2.1 Researching market conditions In order to obtain an understanding of the property market, information needs to be gathered from a range of sources and cover a wide range of information.
Property prices are determined by a whole lot of different factors and agents need to be aware of what factors are dominant in their market place from timeto time.Such factors include but are not limited to: –
• The state of the economy or economic conditions
• The community’s expectations of future economic activity
• The level of interest rates and their likely movement
• Income levels
• Political stability
• Features of the property
• Uses of the property, zoning and proposed long term changes
• Buyer demand at a point in time
• The attractiveness of the property
• The potential of the property
• The position of the property
• The emotion of buyers
• Material facts that could have an impact on price
All these factors can have an impact on what a property may be worth at a point in time. As these variables change so does the markets view of theproperty, and fluctuations in property prices, even over a very short time, isquite likely.
2.1.1 Sources of Information
There is a variety of sources where property information can be sourced,including
• Government agencies
• Statutory bodies
• Industry bodies
• Private data services
• Other organisations
• The media
• Professional and industry organisations and their publications.
• The records of the agency
While some of the information from these sources may be obtained without cost, in most cases sourcing the information will involve charges.
2.1.2 Type of Information
Before we look too closely at property prices, we need a context in which to examine prices and trends. That requires the collection of information on theoverall market place. Many factors affect such market place and can include:
• Political factors – different political parties have different philosophiesthat can a big impact on the property market. A change in the party thatgoverns can have a big impact on the value of real estate assets
• Economic factors and market conditions – Interest rate settings,government economic settings, and the health of the world economy allhave an impact on property values. Also movements in exchange rates can affect value as well. For example a low exchange rate can lead toforeigners buying up property they perceive to be cheap when priced intheir own currency
• Other economic factors that can have a bearing are the level of inflation.Low inflation can boost consumer spending and lead to people spendingmore on housing because they don’t expect interest rates to rise
• Social factors – the demographic make-up of an area can have a bigimpact on the property market. Demographics include the average age,social/economic make-up of the population, average income, racialbackground, number of women in the work force etc. An understandingof the demographics of a market helps to explain why it reacts the wayit does to change
• Transportation infrastructure – the availability a public transport, roads,public utilities all have an impact on demand for property so it affectsvalue
• Other factors that need to be taken into account are:- the commercialenvironment you operate in, climate, physical characteristics of an area,subsidies etc
2.2 Indicators of Market Conditions
2.2.1 Sales Market
The real estate market can be very complex, and what affects one area may not be an issue in another area. In order to understand the market agentsneed to have access to market information that will help them determine justwhat is happening in the market place.
Information such as:-
• Sales Market Conditions. Agents need to be aware or the followingfactors as they relate to sales of property in the area
o PRICES: What is the average price of property in the area, what isthe medium price, the lowest and highest prices? What way are theprices moving? Is the Trend up, down or staying the same?
o BUYERS: What types of buyers are in the market place? Are theyFirst Home Buyers, Owner Occupiers or Investors?
o TIME: What is the average time being taken for properties to sell?Also known as Time on Market, this statistic gives an indication justhow strong the market place is. Another important piece ofinformation is the amount of discount the vendor has to give effect to a sale
• Leasing Market Conditions. A good agent will also know what ishappening in the leasing market for property as this can have abig bearing on sales. A strong leasing market can eventually lead tomore sales as the rate of return can make it attractive for investors to come into the market. A weak leasing market can lead to the opposite effect
• Medium Prices vs. Average Prices. It is important for agents tounderstand the difference. The average price is just simply a numericaverage of the price data. A median price is the mid-point where thereare an equal number of properties above as there is below
For example, for the following list of sales: $1,000,000 ) $550,000 ) $525,000 ) $520,000 ) The Average Price is $560,555 $510,000 ) $500,000 ) The Median Price is $510,000 $490,000 ) $480,000 ) $470,000 )
In this example, the Median Price better reflectswhat the market price of a given property.
• Moving annual medium. This is a compilation of the average ofthe median figures for a previous 12-month period. This is added tothe previous 11 months of figures and the range is averaged. Thisfigure can be plotted and gives a longer-term view of the trend in prices
• Mode. The mode of a set of numbers is the most recurring numberin a set of values. Not every set of values will have a mode, as it requires the same value occur more than once. You canhave more than one mode in a set of numbers. For example, themode for the following set of numbers
$150,000 ) $199,000 ) $199,000 ) $205,000 ) The most occurring value is $205,000 $205,000 ) $205,000 ) $210,000 ) $211,000 ) • Other indicators that are used to measure the sales marketinclude: –
o Home loan affordability
o Availability of finance
o Level of housing stock
o Seasonal factors
o Government subsidies or charges
2.2.2 Leasing Market
The most commonly used indications of the leasing or rental market includes
• Vacancy rates. This is a measure of the percentage of rental propertiesvacant and available for rent at any one time
• Medium Rent. The medium value of rent is the middle value in theordered list of weekly rental values. This is often expressed as themedium moving annual average, which is calculated as an average ofthe four quarterly mediums for a consecutive 12-month period
• Other indicators that are used to measure the rental market include: –
o Rental values currently being achieved
o Seasonal leasing rates. In some areas such as holiday areas thefluctuations throughout the year can be very large
2.3 Sources of Information There are ranges of sources from which to obtain all the information required toundertake an assessment of market value. In some cases private suppliers ofthe information have brought all the information together. The sources include: –
• Australian Bureau of Statistics (ABS)
• Real Estate Institute of Australia (REIA)
• Real Estate Institute of NSW (REI NSW)
• Estate Agents Co-operative (EAC)
• Property Council of Australia (PCA)
• Land & Property Information(LPI)
• Local Councils
Private suppliers include:-
- Australian Property Monitors(APM)
- RP Data
2.3.1 Factors that affect property values
The uses that a property can be put will be determined by such things asproperty title, the zoning of the land, and any easements or covenants on title. They have an impact on value as they can restrict what a property can be usedfor. When looking at a property, these characteristics are not readily apparent,and require some research to discover them.So, where is this information found?
A detail of zoning and the restrictions, and opportunities that the zoning allows is available from the Local Government body that governs the area. The localcouncil generally administers local Planning Schemes, and the zoning thatapplies to the land will set out what is allowed in that zone. However, it mustbe kept in mind that the zoning tells you what is allowed and not allowed. Whatcouncil finally allows on the land will depend on the individual DevelopmentApplication that they approve. Just because the Local Environment Plan allows
a certain development in a particular Zone, doesn’t mean that council mayhave other requirements that restrict what can be done.
In the end result, the NSW Environment Planning and Assessment Act governall planning in New South Wales 1979. In some planning zones, the State Government has taken away the approval of projects from Local Council.
The types of zones and what they allow are slightly different from council area to council area. It is important that when agents are researching value thatthey have an understanding of the zoning that applies for the property they areresearching.A property can be zoned, residential, industrial, commercial orrural, and within those headings are sub zones that vary the density of development, e.g. a residential property could be zones Residential 2a, or Residential 2b or even Residential 2c.
While each of the zones are residentialwhat they allow in the zone in terms of density will vary. Residential 2a tendsto be a zoning that only allows single dwellings or dual occupancydevelopments. In some areas Residential 2b would allow the development of say villas and townhouses while 2c would cover multi story units.
Zoning of any particular parcel of land is available from the local council. To find out just what can be developed on the land requires obtain a copy of theCouncil Code that covers that zoning.When a vendor decides to sell a property they are required to include a copy ofthe Council Zoning Certificate that sets out details of the zoning of thatparticular parcel of land.
The Certificate is issued under Section 149 of the Environment and Planning Act as is generally known as a 149 Certificate.
In addition to the zoning some properties have other features that could restrict how the property or the land could be developed. Matters such as:-
• Inundation issues (becoming very important in sea side areas)
• Traffic corridors
• Special building requirements in certain precincts
All these matters have an impact on value and must be researched before opinions are given.
The other issue that arises from time to time is where the use of an existingproperty is different than the zoning on the land. In many parts of Sydney, forexample, there may be factories or warehouses whose existing use precedesthe Planning Laws. The zoning on the land does not reflect the existing use ofthe property. This is referred to generally as ‘Existing Use Rights’. Because theuse precedes the zoning the introduction or changing of the zoning cannot stopwhat the property is presently being used for. If the owner sells, and a newbuyer purchases the property, the existing use for which the land is used goeswith the sale.
Court decisions over the years confirm these rights and councilcould not outright refuse a new development on the land just because it doesnot conform to the zoning. If the developer develops to a lesser use that movescloser to the zoning from the old use, then the Courts have held that councilcannot refuse a reasonable application to redevelop on the grounds it does notmeet existing zoning requirements. These existing use rights can have a majorimpact on what the property may be worth. For example, many service stations in Sydney are built on land that is now zoned residential. The existing zoningmay only allow a single dwelling because it is zoned Residential 2a. A purchaserbuying knows that the existing use rights will allow more than that. Forexample a Development Application to build units or villas is likely to beapproved because it moves the use of the land closer to the existing zoning thanthe original use (i.e. a petrol station).
2.3.2 Highest and Best Use
This leads to the concept of “Highest and best Use” of the land, when trying to establish what a property is worth. When establishing the highest and bestlegal use an agent needs to find out what will be allowed on the land given allthe zoning factors, including existing use rights, and then establish how that affects value. In other words the agent is establishing the most valuable use towhich the property can lawfully be put.
2.3.3 Title and Property Rights
In the Learning Guide for the unit CPPDSM4080A we examined the issue of land ownership and the various forms of ownership and title. This issue alsoneed to be taken into account when establishing the likely value of a property.
A parcel of land under Old System Title may mean it is valued lesser than if it was under Torrens Title because of the extra costs in purchasing Old Systemland, and also the risk of the security of the title. Also Strata Title would bepreferable to Company Title, with the former worth more than the latter.
Other issues that the Certificate of Title gives information on that could affect value are: –
• Current ownership
• Details of any restrictions caused by
o Reservations in the Crown land grant
The location of sewerage and drainage pipes could also have a negative impact on the value of the land. If the sewer line runs through the middle of theland where a building could be erected, then the value may beless because of the requirements of the sewerage authority that would require the developer to relocate the pipes or encase them for access & maintenance purposes.
2.3.4 Material Facts
Section 52, The Property, Stock and Business Agents Act, states that agents cannot mislead, deceive or “conceal any material facts”.
During the marketing of a property, the agent is required to reveal any material facts of which they are aware, we need to examine the question ofwhat is a ‘material fact’, and how would it affect the likely selling price of aproperty.
The Macquarie Dictionary defines the word “material”, to mean “Of suchsignificance as to be likely to influence the determination of the cause”. So, fora fact to be ‘material’ in a real estate transaction, the fact would have to be ofsuch consequence it would bear upon a person’s decision to purchase, or wouldimpact on what they may pay for the property. Knowledge of such a fact/s wouldbe important to a reasonable person in deciding whether or not to proceed witha particular transaction, or would have a bearing on the offer they may make.
An Administrative Decisions Tribunal appeal decision pointed out that afact can be ‘material’ in two ways:
“it can become ‘material’ because in the particular circumstances it is known bythe agent to be material to the particular consumer, even though agents andconsumers may not typically regard the matter as ‘material’. The other way inwhich it may become ‘material’ is by the application of an objective standardwhich has regard to what a reasonably informed consumer with a fair minded understanding of the real estate market, including the role of a real estateagent, would regard as ‘material’”.
Material facts are inherently related to issues of market value.
They are facts which:
• may be sufficiently significant or relevant to influence decisions onwhether to buy, sell or rent; and/or
• what market value would apply to buying, selling or renting?
Apart from individual circumstances where an agent understands that a particular issue is ‘material” to an individual, for the purposes of generallyunderstanding the requirements of the law, agents should concern themselveswith considering issues which are sensitive for a significant proportion of thepopulation.
When assessing potential sale price the agent must be particularly aware of any material facts that relate to the property.
Some ‘material facts’ about a property, which may not be readily apparent, could include:
• whether a property is Roads and Traffic Authority affected
• whether the property has a current DA approval – this might be apositive selling point for some
• aspects of the recent history of use or activity in a dwelling
• Crown Land affecting vehicular access to a property
• aspects of the neighbourhood surrounding the property which may notbe immediately apparent upon inspection
• potential psychological stigma attached to a property, which is likely tobe shared by a significant proportion of the population. For example,property that has been the scene of a serious crime during the currentoccupation. While such circumstances may not represent a physicalbarrier to the use of the property, they may significantly affect theextent to which occupants would be comfortable using the property, orwhat they would pay for it
The OFT has stated that when giving opinions on price expectations agents mustconduct a physical inspection of the premises which is to be marketed for saleand obtain all relevant information necessary to complete the sales inspectionreport, as required by clauses 1 and 2 of the Rules of Conduct set out inSchedule 2 of the Property, Stock and Business Agents Regulation 2003.
Therefore, agents should discuss with sellers and owners any market sensitivematters that are likely to be the subject of statements or representations bythe agent in the course of marketing the property for sale or rent. During thisprocess, it is important for the agent to gather information on aspects of theproperty that are sensitive to the market which will assist the agent inaccurately and honestly representing the value of the property.
2.3.5 Features of the property that affect value
When evaluating a property, there are many features of the property that could affect what a person may pay for it, and thus its value. They include thecondition of the property, the style and /or appearance of the property.
Physical features that could impact on value could include:-
• The age of the improvements
• The size and/or architectural style of the improvements
• The character and potential uses of the improvements
• Fixtures and fittings they are included with the property
• Construction material of the improvements
• The layout of the rooms
• Quality of finish
• The landscaping
• Position in the street and views
• Surrounding properties
• Land dimension and area and frontage to the street
• Other impacts such as flight paths, busy roads, drains etc
The other factor relates to wear, tear and disrepair of the property and itsimprovements. These defects may have a positive or negative impact on valuedepending on what they are. Examples of wear and tear include:
• The need for painting
• Worn carpet
• Scratched floor boards
• Broken kitchen and/or bathroom tiles
• Old fencing
• Any visible damage to the improvements
As well the improvements on the land may have structural defects that are not readily apparent by a visual inspection. This is why many purchasers obtainbuilding and pest inspections before going ahead with a sale. One thing to keepin mind is that the older a property is the more likely is that it will have somesought of building defects.
Faults that can impact on value include:-
• Rising damp
• Uneven flooring or spongy flooring
• Cracks in walls and ceilings
• Sagging roof, cracked or broken roof tiles
• Water stains
• Drummy plaster 2.4 Property Inspections Before giving an opinion on the likely selling price of a property, it needs to be inspected and notes made about what is observed. Information that would berecorded would include:-
• Land size and dimensions
• Age, condition and structure of the improvements
• Visual appeal
• Position and features
• Any views or other relevant information observed
Other factors that could impact that are not readily apparent that would require research would include: –
• Covenants, easements and encumbrances
• Proposals that may affect the property
2.5 Seeking Specialist Advice If an agent is inspecting a property and there is any doubt about any aspects that arise from the inspection, then special advice should be sought to clarifythe situation. Unless otherwise trained, agents should be aware that they are NOT qualified Valuers, planners, structural engineers, building inspectors, pestinspectors and environmental experts. They are real estate agents and shouldrefrain from advising clients or customers in areas without proper and adequatespecialist advice.
Pick a suburb that you are familiar with, and do some research so that you can talk to people about what is going on in theproperty market in your area. The profile should include thefollowing information: –
• The demographics of the area, including statistics for age, employmentand family types living in the area
• Identify the main types of property in the area
• Determine possible housing trends in the area
• Any other information you feel is relevant to a suburb profile 3. The Appraisal of the likely market price or rental value of a property It is implicit that when trying to establish the likely value of a property in aparticular market that a comparison needs to be made with similar propertiesthat had sold or been rented recently in the market place. This raises thequestion of just what makes a property comparable to another property orproperties?
3.1 Comparable sales or rentals What is a comparable sale or a comparable rental? This is where a particular property is compared with a like property. The agent is required to be clear on what features affect value.
These features are broken into three main areas:-
• Inherent features i.e. those factors that affect value that come directly from the property
• External features
Inherent features include:-
• Location –same building, town or city, neighbourhood, street design, etc
• Aspect – general aspect such as weather (e.g. prevailing winds &/or aspect: south-east, south-west,
• Views – harbour, river, parks, golf courses, beach, mountains, etc
• Land –dimensions, area, shape, topography, soil, subsoil, etc
One of the biggest problems when making comparisons between properties is that no two properties are the same. In addition, different people take intoaccount different values when making assessments about what sales arerelevant and which are not.
Agents who have been taken to the Tribunal have, on occasions, had to defend why they took into account onesale, rather than another. To be caught up in defending such decisions is difficult, as it will generally happen long after theevent, and so it becomes difficult to recall why you thought a particular sale was relevant.
One-way around this is to have some details about the sale and maybe a writtenassessment (by way of notes) of whether the property was comparable or not.
To be judged to be comparable aproperty must meet three criteria, for the comparable sale to be judged valid.
- The property should be a competitive property. It shouldbe a reasonable substitute for the property being judged. If the averagepurchaser missed out on buying the subject property, would they be likely to buy the property considered comparable
- The sale should qualify as an open market transaction. In otherwords, it needs to be an arm’s length transaction with a willing buyer anda willing seller. The sale should not include unusual conditions tothe sale or abnormal inclusions
- The sale of the comparable property would need to be close to the timethat assessment is being made about value. The market conditions atthe time of the sale should be close to those at the time of making theassessment of value. For example, if assessing a property aftera change in interest rates, and all the sale information related to sales before the interest rate move then they would not becomparable. Adjustments would need to be made to account for thechange in market conditions
Agents should keep in mind that when interest rates rise, if all other things stay equal, then asset values fall.Likewise, if interest rates fall, & all other things remain constant, asset values rise. To establish comparability, the following should be taken into account:-
• Location and use of the properties
• Physical characteristics
• Title (should be the same sort of title)
• Time of sale in relation to time of assessment
3.2 Non Comparable sales or Rentals Non-comparable sales that should be excluded from the analysis of value wouldinclude: –
• Transactions that were not “arm’s length” e.g. between familymembers, or related companies
• Forced sales
• Out of line sales
• Sales of different terms and conditions than a normal sale e.g. delayedsettlement, different deposit conditions
• Sales subject to tenancies where the rent or the type of tenancy maydetermine what the property sold for, e.g. a sale where the propertywas subject to a life tenancy
3.3 Appraisal Methods There is more than one way to appraise a property. Following here is a list of the different appraisal methods. None of them are the right, wrong or only way to undertake anaapraisal. All of them have a use, depending on the circumstances.
3.3.1 Comparable or Recent Sales
One of the most common ways of appraising property for agents is to try andlocate the property they are appraising with the sale of other properties thatare very similar to it. They try and compare “apples with apples”, but this is notalways straightforward. No two properties are exactly the same – they all varya little.e.g. location, aspect and position all come into the equation. So theprocess is in itself not exact and can be very subjective. What one persontreats as a comparable sale may not be accepted by another person as beingcomparable. But it can be a guide.
Features that an agent should take into account when trying to price property includes: –
• The date of the sale (the more recent it is the more relevant to theexisting market
• The market conditions applying at the time of the sale
• The location (people have different perceptions as to value and location.e.g. what may be desirable to one person may be undesirable toanother)
• Characteristics of the property – room lay out, style, type ofconstruction, and age of the improvements.
• Zoning of the land also likely changes to the zoning
• Land size and do different sizes affect value
• Anything else relevant
When putting together a list of comparable or recent sales, agents must take into account the fact that the list in itself is not indicative of what a property maybe worth. A good agent needs to look at as many properties on the list, even ifit is only from the outside, to establish how it may be comparable. The morean agent knows about the properties on the list the better. This demonstrates their “local area specialisation” and enhances their credibility with their clients.
There are a coupleof drawbacks in using this information. They include: –
• Land title records, by their very nature, are out of date (at least 6 weeks, but more often, 8 to 12 weeks)
• The information is not always complete (for one reason or another, notall sales are recorded)
So, a good agent supplements the records with other information on sales theyknow about. e.g. other sales the office have made but not yet settled,other sale information that they gather from other sources.
However, keep inmind that the information on sales that have exchanged and not yet settledmay be defective because it has not been independently recorded.
3.3.2 Summation Method
This method establishes value by dissecting each of the main components ofthe property and valuing them separately. The value for each of thecomponents is derived by dissecting other sales into their components, such asbuildings, landscaping, pools, inclusions etc.
An example is: –
Building (205m2 @ $1,025 per m2) $210,125
Separate Garaging $26,000
Pool, pergola and deck $ 43,000
Landscaping $ 17,000
Inclusions – carpets, curtains, blinds, A/C etc $ 56,000
3.3.3. Replacement Cost
An alternative to summation is REPLACEMENT COST. The principle is the sameas summation but it values the components and what it would cost to replacethem. This method is mainly used for insurance purposes.
Either method can only be used if the agent has a substantial database of information on which to base figures. Because of this such methods are onlyused in exceptional circumstances, and then, should be used in conjunction with other methods.
3.3.4 Capitalisation Method
The Capitalisation method can be used with any property that generates anincome. However, it is mainly used when appraising commercial and industrialproperty. It is based on evaluating the net income the property generates.
Net income is defined as the income left over after all expenses are paid. For example, the landlord receives the rent but has to pay expenses directlyassociated with the property such as, land rates, water rates, land tax, buildinginsurance and sometimes maintenance, strata levies (if it is strata title), andmanagement fees. Other expenses of the landlord can be included bynegotiation.
So, the NET RENTAL equals the GROSS RENTAL less ALL EXPENSES.
The capital value of the property is then calculated as follows: –
NET INCOME X 100 = CAPITAL VALUE
Capitalisation Rate 1
$36,000 X 100 = $450,000
Therefore, the price of the property is $450,000 based on a capitalisation rate of 8%.
Calculate the value of the above property if the capitalisationrate is
3.3.5 Other Methods
Sometimes, agents are asked to value potential development sites to establishwhether the site is worth more as it is, or if it were to be sold as adevelopment site. To give such advice the agent needs to undertake ananalysis that looks at a “what if“ scenario.
The agent would look at
• Gross expected sales from the finished project
• Cost of selling the project or development
• Cost of the development, including holding charges, interest onborrowings, and other costs
• A profit margin to cover the risks associated with the project, such aswet weather, labour problems, market fluctuations etc.
The total outlay of the project or development is calculated and the profit margin is expressed as a percentage and used to determine the net realisedproceeds. Once the calculations are complete the developer can then work outthe maximum price they are prepared to pay for the land. Sometimes, that canbe less than what the property would gain if it was not marketed as adevelopment site.
Agents should be very aware that they should not use this method unless they have a full understanding of development projects and costs. It is really afeasibility analysis of the project, and the value put on the various variablescan lead to vastly different conclusions.
Caution is required when providing any advice such as this – because it could fall into the category of “financial advice” under the Financial Services Reform Act – and most agents are neither qualified or experienced to do that.
Find a property in the local area chosen for the Second activity. Undertake an appraisal of theproperty that shows: –
- the main features of the property
- a comparison to properties in the area that have recently sold,relevant to establishing the value of the property
- an assessment of current market trends and how they mayimpact on the sale price of the property if placed on the marketnow
3.4 Selecting the Appraisal Method Every time an agent is requested to give an appraisal of the likely selling orlease price for a property, it is important to keep in mind how the appraisal will beused, and select the best method to meet the expectations of thecustomer. 4. Presenting the Information Real estate agents must ensure that, to the very best of their ability, they havegathered and analysed all the relevant and up to date information about themarket place that would impact on the values of the property beingappraised. The Competition & Consumer Act makes agents fully accountable for whatthey say or do in presenting a property appraisal.
If it was subsequently foundthey had misled or deceived the recipient of the information, the ACCC couldfine the agent, or worse still, if a person was found to have suffered a loss in relying on information provided by an agent, then that person could sue the agent for the loss.
In most cases, when an agent is requested to give an appraisal of price they arebeing asked to determine what the property may sell for at sometime in thefuture. When doing this great care should be exercised, as they can be legallyliable if they give people the wrong information. There are several legalresponsibilities the agent must be aware of, and these will be reviewed before examining how an appraisal should be done. 4.1 Legal Requirements The Property, Stock and Business Agents Act 2002 in Section 72 states: –
“A real estate agent or employee of an agent must not make a falserepresentation to a seller or prospective seller of residential property as to theagent’s or employee’s true estimate of the selling price of the property”
Section 74 of the Act then gives the Director-General of the Office of FairTrading the power to require agents to substantiate how they arrived at theestimate of a selling price or price range for a residential property. If an agentcannot substantiate how the estimate of selling price or rangefor a residential property was determined, they can be fined up to $22,000.
In addition to the State legislation, the Federal Competition & Consumer Act 2010 also covers representations that agents make on price. The Competition & Consumer Act applies to all agents who work for a Corporation. It prohibitsanyone giving false and misleading information or to engage in what is called“Misleading or Deceptive conduct”.
An agent who is talking about what theythink a property may sell for, is making a “representation”, so they must be carefulwhen making such representations that it is based on material that has been thoroughly researched. In other words, they need information on file that clearly demonstrates how those figures havebeen arrived at.
Breaches of the Competition & Consumer Act are serious. The maximum fine for an individual is $220,000 and$1,100,000 for the Company. There are proposals before Federal Parliament to substantially increase these fines.
So, the message is clear to all agents. When giving opinions as to estimated sale price,whether for sales or rent, it is critical to undertake research and have theresults of that research on file to substantiate the results.
Agents should resist the temptation of being rushed into giving an opinion: “Spend the time and forget the fine”.
To help agents to prepare an estimate of selling price correctly, the NSW Office of Fair Trading has prepared a guide for agents to follow.
4.2 What the Office of Fair Trading Requires This is from the OFT Guidelines to agents
“When an agent provides an estimated price they must be able todemonstrate that their estimate of the selling price of a property wasreasonable in all the circumstances and that they took due regard of thosematters that should be included in determining an estimated selling price.Matters that should be considered when an agent is determining an estimated selling priceinclude:
1. Features of the property which would affect the value of theproperty in the market, such as recreational facilities orspecial architectural features
2. Future use of the property (such as zoning, rights of way,redevelopment, resumption by public authorities, historicalpreservation orders, covenants or restriction of user, development approvals)
3. Market demand in the area
4. Sales of comparable properties
5. Likely level of demand for the particular property
6. Recent valuations of the property
7. The circumstances of the vendors (are they under pressure to sell, how much time is available to develop a marketingplan, are they limited in terms of the way they wish to exhibitthe property or in respect of their desired method of sale)
8. Seasonal factors (does demand traditionally fall away orincrease at the time of year the property is being marketed)
9. Economic factors (the level of demand for property, whetherinterest rates on the move, whether the authorities warningabout overheated markets)
Agents when determining the estimated selling price of a property shouldensure that any information that is relied upon to determine the price isretained in the Sales File for the particular property. Agents should also ensure that any notes they made of their inquiries are also retained. A copyof the sales inspection report should also be retained on the file as it formspart of the agency agreement. This will ensure that if the Commissioner for Fair Trading requires an agent to substantiate the reasonableness of anestimated selling price, they will be able to do so quickly and withconfidence.”
4.3 Property Appraisal Reporting Having undertaken research to appraise the possible selling price of a property,agents then need to report to the prospective vendor and give feedback to them.While the results of this research can be provided verbally, it is more professional to provide a written report.
As a guide,the report should contain the following: –
1. The Address of the property, including title details (Lot and DP/SP)
2. Prospect Name
3. A description of the property (may or may not include a photo)
4. Condition of the property (this may include details of repairs orimprovements the owner could make to enhance value
5. Salient features or aspects
6. Negative features or aspects
7. General comments
8. Current Market conditions
9. Comparative or recent sales figures
10. Expectation regarding likely selling price
11. Details of alternative marketing methods
12. Recommendation as to what method to use
13. Details of fees and charges
14. Agency Services
15. Office and personal profile
17. Summary including a disclaimer
Details that could be included on an Estimate of Selling Price form would be features of each of the properties, e.g. bedrooms, bathrooms, fixtures & fittings, and maybe any special circumstances, such as days takento sell. If the size of the land is important, then that should also be noted.
Many agencies will already have their own format that allows agents to quickly and effectively record all the relevantinformation used to arrive at the estimate of likely selling price and tohave a record on file if, at some future time, a substantiation is required.
If there are no comparable sales that could be used to establish value, thenthe agent would need to consider using other methods. If this is the case, it is a wise suggestion to make notes detailing just what was undertaken to arrive at the figure provided to the client.
In the end, the figure arrived at is a subjective one, and whilst it might provide an indicator to acorrect prediction of the final sale price of a property, it is, when first created, little more than a calculated “guess-timate”. Such a form (for estimated selling price calculations)does, however, have everything to do with being able to showhow the figure was arrived at.
When talking about the possible sale price of a property, agents need to be aware of their legal obligations. In particular it is important to understand thatby cutting corners, by not recording evidence, or giving opinions that have noevidence to back them up, leaves both the agent (& the agency) very exposed to being fined, or worse still,sued.
Many agents have been accused of overvaluing a property in order to get a listing, but by doing so, they make their job much more difficult than if they priced the property correctly. Agood agent is able to educate the prospective vendor as to how price is arrivedat, and that the correct marketing and promotion of the property is critical tothe desired outcome.
4.4 The Use of Disclaimers Disclaimers do not in themselves protect the author of information from liabilityif the information provided turns out to be false and misleading. However, if research is undertaken correctly, and the disclaimer is worded correctly, some benefit can be provided if something goes wrong.
The disclaimer, when agents are giving an appraisal of price, should state that it isan opinion derived from examining recent sales that the agent/agency believe is relevant tothe property, and should only be used as a guide to estimated sale price. It would be a sound decision to ensure the word “value” is never used when providing such opinions.
The disclaimer should also state that the person receiving the information should not rely solely on the appraisal youhave given them,and that they need to make their own enquiries to establish the estimated market price/value of their property.
It should also state that the appraisal only relates to the time you made it (it therefore, obviously, needs to be dated) and that you reserve the right tochange your opinion if any of the information you used changes or newinformation becomes available.As well the disclaimer should state that the appraisal is provided to the personit is addressed to and cannot be relied upon or used by any third party.
Using the property in Activity 4, prepare a TrueEstimate of Selling Price. Put as much detail as you feel necessary to be heldon file (as required by the OFT Guide), that substantiatesyour opinion as to the likely selling range for the property. 5. Recording and Managing theInformation Maintaining adequate records that can be used in the business is an area oftenoverlooked in a real estate office.
To stay competitive agents need to regularly record the data relevant to their operations and continually analyse currenttrends in activity and prices. By maintaining up to date information about theirmarket place ensures agents can provide accurate property appraisals. 5.1 Agency Records While most agents subscribe to information providers, such as RP Data or Australian Property Monitors (& other similar data providers) for demographic and saleinformation, it is important to recognise there are other sources of information to further enhance the quality of the information whenappraising property prices.
Other information is also needed that is not readilyavailable from those data information providers.
Valid and reliable data about property transactions in the local area is essential to ensure a proper and accurate appraisal. Most information provided by the data suppliers comes from land title records and is, generally, up to 3 months old and is often incomplete. While some have details ofsales that have exchanged but have not settled, this information may not be100% correct or include all recent sales.
It is, therefore, important that the agencycollects and records details of recent sales and listings, so they can supplementthe other information they obtain. In addition other relevant information should also be maintained, such as buyer trends, etc. Many agencies have a file of newspaper articles about real estate trends happening in their area. This canbecome a useful research source over time.
For agents to be able to talk with confidence about their local area they need to keep records ofrelevant information that will allow them to advise potential clients, as well asexisting clients in the market place and how changes in the local market affect their property.
Such informationcould include: –
• financial trends and changes in market conditions
• expected market movements
• changes in demographics of the area
• types of buyers in the market place
• vacancy and absorption rates
• details of the most recent sales for
o the agent’s own agency
o other agencies in the area
Remember (just to emphasise & reiterate the following!): It is important to keep all records of calculations and estimates relating to property appraisals for sale and lease. Not only can this information provide awealth of data about the local market at any one time, it is a legal requirementof Section 74 of the Property, Stock and Business Agents Act. It is importantthat records of estimates are stored securely and readily available if requestedby the OFT. 5.2 Types of Records The types of records kept in real estate agencies that can help with appraisalswould include: –
• Property appraisals
• Listings and sales figures
• Sold properties
• Sale prices
• Rental prices
• Rates of return
• Comparison of listing price to sales price
• Days on market figures for agency and market generally
• Rental vacancy factors
• Details of buyers and renters in the market place
• Prospective clients and past clients 5.3 Record Management Systems How an agent stores the data can be critical to its retrieval and use within theagency. Having a systematic way to store the data is crucial to its effective use.Manual filing systems can be great, but, over time, become cumbersome. Acomputer-based database is far more preferable and the retrieval of theinformation is a lot easier.
Whether the information management system the agency uses is paper-based or electronic, the data needs to be organised logically so it can be located,updated and kept current.
5.4 Privacy and Confidentiality Agents need to keep in mind the 10 Privacy Principals when storing informationthat is confidential. While a lot of the data being collected is in the publicdomain, a lot isn’t. It should, therefore, be kept secure and out of the reach of unauthorised persons.
As well, the agent, if requested, must allow a client or customer to view any information that they hold that relates to the client or customer.
Assessment Section – CPPDSM4003A Appraise property
Assessment Information for Course Participants
To be assessed as competent in this unit you must be able to demonstrate your underpinning knowledge and your ability to perform the tasks that relate to the learning outcomes (elements and performance criteria) specified for this unit. This assessment allows you to demonstrate your competence through one or more of the following assessment methods:
- Knowledge based assessment questions
- Case Studies and / or
The unit descriptor for this unit (which includes the elements and performance criteria, required skills, knowledge and understanding, range statements and evidence guide) has been included on the following pages for your information. The knowledge based questions and, case study and project activities (where applicable) in this assessment have been mapped to the performance criteria.
However, please note that in addition to successful completion of these assessment tasks, other assessment methods may be used to determine your competency. These may include practical demonstrations, role plays or third party/supervisor reports.
If you have extensive and current experience in the requirements of this unit, you may be eligible to apply for Recognition of Prior Learning as an alternative method of assessment. If you believe that this applies to you, please ask your trainer or assessor about applying for Recognition of Prior Learning.
Notes for Course Participants:
Assessments are to be completed and returned or handed to your assessor / trainer by the agreed date.
You are completing a formal qualification so the standard of your work should reflect the quality of work you would want to achieve in the workplace. Your work should be neat, tidy and organised.
Where you have used external materials or resources to support your assessment work (eg: published authors or the internet) remember that you should reference the work correctly.
Should you have any difficulty with any part of your assessment you should immediately contact your assessor / trainer for assistance and advice.
Real Estate is a highly regulated industry sector and workers in the industry are expected to be able to understand and interpret the appropriate legislation.
Where required you should identify the legislation that relates to your answer. You should make reference to the appropriate Section or Paragraph of the relevant Act or Regulation that applies in your State or Territory.
- Focus on the application of knowledge, skill and understanding of the performance criteria required in the workplace and cover all aspects of workplace performance over a period of time
- Involve the evaluation of sufficient evidence to enable judgments to be made about whether competency has been attained over a period of time
- Provide for feedback to the applicant about the outcomes of the assessment process and guidance on future options
- Are equitable for all persons, taking account of cultural and linguistic needs
- Are valid, reliable, fair and flexible; and provide for reassessment on appeal
- Will be conducted by an authorised assessor
Participant Declaration & Signature – CPPDSM4003A Participant’s Name: Address: Tel:
1. I have read and understood the Assessment information and notes for this assessment document r 2. The work in the attached assessments is my own. I acknowledge and understand that copying the work of others’ is plagiarism and will result in re-assessment r 3. I have kept a copy of these assignments r Participant’s signature: Date:
Distance courses: Return your completed Assessment: For Trainer support/contact:
Ph: 1300 115 144
By mail to:
Suite 319, 410 Elizabeth Street
Surry Hills NSW 2010
by email to:
email@example.com Assessment Outcome Part A – Knowledge Based Assessment rCompetent rNot yet Competent Part B – Case Studies rCompetent rNot yet Competent Part C – Project rCompetent rNot yet Competent
- Assessor Comments / Feedback / Recommendations:
The Course Participant is Competent in this assignment. Assessor: Signature: Date:
CPPDSM4003A – Appraise property Unit descriptor This unit of competency specifies the outcomes required to appraise the sale price range or rental value of all forms of property for listing purposes in line with client instructions, agency practice and legislative requirements. It includes researching the property, selecting appropriate methods to appraise the sale price range or rental value of property and preparing reports on the property appraisal. It does not address the formal valuation of property.
The unit may form part of the licensing requirements for persons engaged in real estate activities in those States and Territories where these are regulated activities Employability skills The required outcomes described in this unit of competency contain applicable facets of employability skills. The Employability Skills Summary of the qualification in which this unit of competency is packaged, will assist in identifying employability skills requirements Prerequisite units Nil Application of the unit This unit of competency supports the work of licensed real estate agents and real estate representatives involved in appraising the sale price range or rental value of all forms of property for listing purposes Competency field Real estate Unit sector Property development, sales and management ELEMENT PERFORMANCE CRITERIA Elements describe the essential outcomes of a unit of competency. Performance criteria describe the required performance needed to demonstrate achievement of the element. Where bold italicised text is used, further information is detailed in the required skills and knowledge and/or the range statement. Assessment of performance is to be consistent with the evidence guide. Research property. 1.1 Purpose of property appraisal is established with client in line with agency practice and legislative requirements.
1.2 Methods for gathering information are selected that are reliable and make efficient use of time and resources in line with agency practice.
1.3 Information on property is gathered and organised in a format suitable for analysis and interpretation in line with agency practice.
1.4 Appropriate interpersonal communication techniques are used to access additional information from relevant people.
1.5 Source documents are obtained and analysed to determine status and ownership of property in line with agency practice and legislative requirements. Appraise sale price range or rental value of property for listing purposes. 2.1 Appropriate method for appraising the sale price range or rental value of property is selected in line with agency practice and legislative requirements.
2.2 Sale price range or rental value of property is appraised for listing purposes in line with client instructions, agency practice and legislative requirements.
2.3 Appraisal of sale price range or rental value of property is clear, justified and based on assessment of all factors in line with agency practice.
2.4 Limitations in appraising property are recognised and specialist advice is sought as required in line with agency practice. Present information. 3.1 Information on sale price range or rental value of property is presented to client within specified time, budget and quality constraints and in line with client requirements and agency practice.
3.2 Information is prepared and presented in required format, style and structure using relevant business equipment and technology in line with legislative and agency requirements.
3.3 Feedback on suitability and sufficiency of appraisal is obtained and where appropriate incorporated into advice.
3.4 Agency property records are securely maintained with due regard to client confidentiality in line with agency and legislative requirements.
REQUIRED SKILLS AND KNOWLEDGE This section describes the essential skills and knowledge and their level, required for this unit. Required skills:
- ability to communicate with and relate to a range of people from diverse social, economic and cultural backgrounds and with varying physical and mental abilities
- analytical skills to interpret documents such as legislation, regulations and property reports
- application of risk management strategies associated with appraising the sale price range or rental value of all forms of property for listing purposes
- computing skills to access the internet and web pages, prepare and complete online forms and search online databases
- decision making and problem solving skills to analyse situations and make decisions consistent with legislative and ethical requirements
- literacy skills to access and interpret a variety of texts, including legislation, regulations and property reports; prepare property appraisal reports; prepare formal and informal letters and reports; and complete standard and statutory forms
- numeracy skills to calculate and interpret data, such as trends in property sale prices and rents
- research skills to gather information from a variety of sources on different forms of property, rents and sale price trends, and sale prices and rents of comparable properties.
Required knowledge and understanding:
- agency property records, including:
- key features of a records management system
- reasons for maintaining property records
- types of property records
- determination of sale price range or rental price of properties, including:
- appraisal methods
- local market factors
- factors that affect return on property, including:
- key indicators of market conditions
- market conditions, including:
- leasing market conditions
- sales market conditions
- property appraisal, including:
- content and format of appraisal report
- difference between appraisal and valuation
- factors that influence whether properties are comparable for appraisal purposes
- information required for appraisals
- key sources of information required for appraisals
- property appraisal methods
- purpose of property appraisals
- relevant federal, and state or territory legislation and local government regulations relating to:
- anti-discrimination and equal employment opportunity
- consumer protection, fair trading and trade practices
- employment and industrial relations
- financial services
- property sales and management
- return on property investment
- role of the agent in providing property appraisal
- risks and risk management strategies associated with property appraisal
- sources of information on market conditions
Critical aspects for assessment and evidence required to demonstrate competency in this unit A person who demonstrates competency in this unit must be able to provide evidence of:
- appraising the sale price range or rental value of property for listing purposes
- gathering and researching information on property for use in conducting appraisals
- identifying the limitations of property appraisals and sourcing specialist advice as required in line with agency practice
- knowledge of agency practice, ethical standards and legislative requirements associated with appraising the sale price range or rental value of property for listing purposes
- knowledge of different property appraisal methods
- maintaining agency property records with due regard to client confidentiality in line with agency practice and legislative requirements
- presenting information on sale price range or rental value of property to clients within specified time, budget and quality constraints and in line with client requirements and agency practice
- using appropriate methods for appraising the sale price range or rental value of property.
A. ASSESSMENT ACTIVITIES (copied from within the Learner Manual)
Assume you have been asked by a friend who is thinking of selling, whether or not they should get a Valuer in to value their property to establish a likely selling price or to call in an agent and have the agent value the property. What advice would you give your friend as to who he should use to appraise the property? In your answer, draw out the differences between a valuation and an appraisal.
Pick a suburb that you are familiar with, and do some research so that you can talk to people about what is going on in the property market in your area. The profile should include the following information: –
• The demographics of the area, including statistics for age, employment and family types living in the area
• Identify the main types of property in the area
• Determine possible housing trends in the area
• Any other information you feel is relevant to a suburb profile
Calculate the value of the above property if the capitalisation rate is
Find a property in the local area chosen for the Second activity. Undertake an appraisal of theproperty that shows: –
1. the main features of the property
2. a comparison to properties in the area that have recently sold, relevant to establishing the value of the property
3. an assessment of current market trends and how they mayimpact on the sale price of the property if placed on the market now
Using the property in Activity 4, prepare a TrueEstimate of Selling Price. Put as much detail as you feel necessary to be heldon file (as required by the OFT Guide), that substantiatesyour opinion as to the likely selling range for the property.
B. QUESTIONS and ANSWERS
QUESTION 1What is the purpose of a property appraisal?
QUESTION 2What is the difference between a property valuation and a property appraisal?
QUESTION 3What is an accepted definition of value?
QUESTION 4What are the three (3) key principles embodied in the concept of market valuefor real estate?
QUESTION 5Give 3 different types of valuation.
QUESTION 6WHAT, WHERE and WHY does an agent need to establish whenproviding a market appraisal?
QUESTION 7What are 5 factors that could affect the value of a property?
QUESTION 8Where can an agent obtain information they need to conduct an appraisal?
QUESTION 9What is meant by “Highest and Best use”?
QUESTION 10What is a “Comparable Sale”?
QUESTION 11What are 2 other methods to assess value,besides recent sales of comparable properties?
QUESTION 12List the 9 things OFT state must be considered when determiningan estimate of selling price.
QUESTION 13What should an agent be aware of when storing information in databases?