UNIVERSITY OF DAR ES SALAAM

COLLEGE OF ENGINEERING AND TECHNOLOGY (COET).

DEPARTMENT OF STRUCTURAL AND CONSTRUCTION ENGINEERING.

DEGREE PROGRAM: BACHELOR OF SCIENCE IN QUANTITY SURVEYING.

QS368: REAL ESTATE MARKET ANALYSIS.

GROUP NUMBER :7

PARTICIPANTS
S/N NAMES. REGISTRATION NUMBER.

01. MASIKA JOY B 2018-04-07637

02. MASANZA WITNESS B 2018-04-04267

03. MBELEKA ERICK 2018-04-11041

04. MKUCHU KELVIN 2018-04-07393

Real property, is land and anything that is permanently attached to it and inherent of right to
ownership of real estate.

Real property analysis, is the investigation of the various factors and element which affects the
current and future value of a particular property and consideration of the relationship of those
factors and elements to an investigated decision. Determining factors that can affect the properties
help in knowing the value of the property as it is not necessarily the value to be equal to the cost.

Real property analysis valuation, is the process of determining the economic value of the real estate
investment of a particular property based on different criteria.

Key analytical terms involved in real property valuation

A. BROKER PRICE OPINION.

Broker price opinion, commonly known as a BPO, is a real estate professional’s opinion of a
property’s value. this is the agent's opinion of a property fair market value based on comparable
sales to determine the BPO, a real estate agent or broker will use his or her expertise to assign
a dollar amount to a property based on certain factors. BPOs are normally performed by a
broker who is familiar with the local housing market. A BPO is helpful in the early stages of
the real estate transaction when setting the list price of a home. The home seller gets an
understanding of what the property will command, and the buyer gets an understanding of what
they will need to pay to own it. It can be defined as the estimated value of a property as
determined by the broker, this is one of the important terms that should be applied when
determining the value of a property as it is taken as the initial value based on comparable
having similar characteristics.
B. RISK

Risk, a risk management is very important because it can threaten the survival of the property
economically, during the valuation of real property manager or owner should balance the value
of the property with the risk incurred. There are three ways on which risk can be addressed as
avoidance, control and risk transfer.

C.YIELD

Yield, is used in the valuation of real property to assess the future value of property taking into
account future circumstances that can affect the property value. In the context of commercial real
estate, yield refers to the annual income from the investment, expressed as a percentage of the
investment’s total cost (or some cases its estimated current value). Yield is another name for the
rate of return. There are two types of yield: levered yield and unlevered yield. The difference
between the two is that levered yield takes into account the income earned after financing costs
have been paid, while unlevered yield does not include financing costs.

The formula for yield is:

Yield (%) = Annual income / total cost

Yield is solely a measure of the income produced by a property and does not generally factor in
increases in its value (appreciation).

D.CAPITALIZATION APPROACH.

Is an appraisal method used by appraiser to arrive at a property’s value based on the present
worth of a property future net operating income. According to (Adetiloye and Eke,
2014)appraisers usually apply different techniques to convert future incomes into present value
estimate, the techniques used to relate the income expectations to market value estimates
include gross income multiplier (GIM)analysis, net income capitalization (NIC) analysis and
discounted cash flow analysis.(DCF).
 E. CAPITALIZATION RATES (CAP RATES).

The annual rate of return on investment produced by the operations of an income property or
sought by an investor on the investing of capital. This rate is calculated by dividing the net
operating income by the price asked/offered for income property. It measures income after the
deduction for operating expenses and normal vacancies but before deducting the financing
charges and income taxes, abnormally the high vacancy rate during an initial absorption period
is not included. The cap rate is related to the overall return to property before financing and
income taxes (Ambrose and Nourse, 1993)

Cap rate can be calculated by the following approach.

Cap rate = Net Operating income /Sales price.

F. GROSS RENT MULTIPLIER

This can be known as the measures the relationship between the total purchase price of the property
and it is Gross Scheduled Income. It is the factor which, when multiplied by gross income of
Property produces an estimate of the value of property.

Formula for calculate the Gross Rent Multiplier

Gross Rent Multiplier = Purchase price/Gross Scheduled Income.

The GRM can be calculated either an “as is” basis with no changes or improvements to the property
or “on pro forma basis”, which includes both improvement and the expected increase in revenue
that will result from the improvement. The gross rent multiplier (GRM) is always used for single
family income property and duplexes.

G. COMPARABLE SALES.

Sales of properties recently sold which have similar characteristics as the subject property
being evaluated and are used for analysis in appraisal of the subject property. The sales
 comparison approach heavily depends on the availability, accuracy, timeliness of sale
transaction data, information sources include government records, data vendors and the
appraiser network of local contacts (Pagourtzi et al., 2003)

H. DEPRECITION.

Loss of property value brought about by age, physical deterioration or functional or

I.ECONOMICAL OBSOLESCENCE.

According to (Smith, 2004) economic depreciation has the potential to reduce both the income
and market value of a property and it is a function of both physical deterioration and functional
obsolescence. It is a loss of property due to external factors and not the condition of the
property itself.

J. FUNCTIONAL OBSOLESCENCE.

A loss of value due to adverse factors with n the structure and thus its value and marketability can
be also explained as the reduction of an property value due to obsolete features such as old house
with one bathroom in neighborhood filled with new homes that have at last three bathrooms .it
may also refer to outdated technologies .in real estate analysis the consumer can mitigate losses
caused by function obsolescence by considering the long term usefulness of purchased goods. An
item can be unattractive to consumer if it designs prevents upgrades or connectivity with
compatible version or design.

While various effort has been made over the year to objectively quantify the effect of functional
obsolescence in real state, assessment or appraisal of functional obsolesce is most subjective,
subjectivity occurs because various factors go into making decisions about price of real property
K. PHYSICAL LIFE.

A total number of years a building will potential exist in productive capacity.

L.ECONOMICAL LIFE

The period of time over which a property will yield a return on capital invested to own it. This
is the period for which the present (capital) value of the existing use of the property is greater
than the present value of the site cleared and ready for development (Wyatt, 2013)

M.EFFECTIVE AGE

The physical age of property based on the condition of the structure, distinct from its
chronological age. It accounts for the abnormal changes in the condition of the house that alters
its remaining economic life(Williams, 2019)

N. FAIR MARKET VALUE

The price a reasonable, unpressured buyer would pay for property on the open market, can be
further described as the most probable price which a property would bring on the open market,
given prudent, knowledgeable and willing buyers and sellers. Fair market value is the standard by
which the fairness of all assessments is judged.

In real estate property, the buyer and seller of real estate determines the fair market value of real
estate. The appraiser or assessor analyzes real estate transactions that occur with n a community
and determine the factors that lead to the final sale prices. Information developed through analysis
of these sales used by appraiser and assessors to develop mathematical models that are utilized in
estimating the market values of all properties in a community .Some of the typical factors that are
used by an appraiser in estimating market values include location,condition,age,size,quality of
improvements and others (Winderson,2020)
O. FINANCIAL ANALYSIS

The consideration of durability, quantity and quality of income and expenses generated and
incurred by an income producing property. Financial analysis begins with reviewing the income
statement, Balance sheet, Rent roll for the property, typically for the two most recent year. The
current twelve -month period is the best assessment of recent performance, which is the basis for
the value of property.

Data from the income statement is both analyzed for what it may reveal about the operation of the
property and used with various ratios to analyze the financial viability and therefore the market
value of the property.

P. NARRATIVE REPORT

This is the report that includes a summary of all factual materials, technique’s and appraisal
methods used by the appraiser in establishing the value of property. Can be further described as a
type of appraisal report that provides the most detailed analysis, as it allows the appraiser to
comment fully on the opinions and conclusions of the appraisal and this is the it application over
other type of the reports in real estate analysis and evaluation.

Full narrative appraisal report shall appraise the value of a property based on various methods or
approach can includes direct capitalization approach, discounted cash flow approach and others or
combination of all relevant approach

Q. PRINCIPALS OF APPRAISALS

The application of several appraisal principles so at to arrive at a final value. There different
economical principle that affecting the valuation of property these always affect the value of
property. The following are outline some of economic principles that affect the valuation.

• Principle of Anticipation

• Principles of Demand, Supply and desire

• Principles of Progression

• Principles of Regression.

R. REPLACEMENT COST

The cost to replace a structure with one having utility equivalent to that being appraised but
constructed with modern material and according to current standard, design and layout. It also
describes as the price that would cost to replace an existing asset with similar asset at the current
market price. The asset n question can be a real estate property investment security or account
receivable, for a damaged asset, the replacement cost for that asset takes into consideration the
pre-damaged condition of the assets.

For example, if a building suffers from damage caused by a fire the replacement cost of the asset
would refer to the pre-damaged condition of the assess. The actual replacement cost is subject to
change because a new asset would incur different cost than the original asset. However, the
replacement cost does not require to be a duplicated of the original asset and it must serve the same
purpose as the original asset and t must serve the same purpose as the original asset

Normally replacement cots are common in homeowner’s insurance policies to cover assets that are
damaged or destroyed in a disaster such as an earthquakes, flood or fire.

S. RATE ON INVESTMENT

A measure of annual income or profit on property in relation to capital invested.in real estate
analysis and evaluation rate on investment (ROI) is a metric that helps real estate investors to
evaluate whether they should buy an investment property and compare ,apples to apples ,one
investment to another also ROI, allows the investor s to predict ,based on comparable ,the profit
margin they should realize on their real estate either through flipping homes or renting properties
-as a percentage of cost.

When it comes to real estate investments, ROI is an important tool for any investor regardless of
their experience level a it provides concrete, factual look t how profitable a potential investment
might be.

ROI= (Annual rental income-Annual operating cost)/Mortgage value.

T. SITE VALUATION

The appraised valuation of the ground (site) separate from any structure /improvements. Site value
reflects what the land would expected to sell for in its current condition.it includes any work
undertaken, or materials used to improve the physical nature of the land to prepare it for
development such as clearing the site and vegetation.

The land value is determined by the economic principles of highest and best use of land which
produces the highest net return in any term Over period. The property value is dependent on the
various factors such as structural attribute, land value, land use and location. Hence site valuation
in real estate analysis and evaluation should be critically examine and considered or taken into
consideration.

Value.

The present worth stated in dollar of the future benefits arising out of the ownership of property.
technically unlike many consumer goods that are quickly used ,the benefits of real property are
generally realized over long period of time.
Therefore, an estimate of a property value must take into consideration economic and social trends
as well as government controls or regulations and environmental conditions that may influence the
four elements of value which are:-

• Demand

• Utility

• Scarcity

• Transferability

Value is not necessarily equal to cost or price. Cost refer to actual expenditures on materials, labour
and others. Price in other hand is the amount someone pays for something while price and cost can
affect value, they don’t determine value

U.AD VALOREM TAXES.

Real estate taxes imposed on property based on its assessed value can be deep described as An tax
typically imposed when property is purchased in the form of value added tax or a sales tax. In
some cases, it may be imposed later on a set basis, such as once per quarter or once per year. Ad
valorem tax can also be imposed on estates and imports, and in other circumstances when property
changes hands, such as inheritance.

Ad valorem taxes are calculated as a percentage of the assessed value of the property being taxed.
The assessed value of the property typically means the annual determination of fair market value,
or the price that a potential buyer would pay and a potential seller would accept for a property.

Property taxes on real estate and land value taxes are forms of ad valorem taxes. The proprietors
of real estate or other properties pay this tax based on the value of their properties. With land value
taxes, also called site valuation taxes or a site-value rating, only the land is taxed and any buildings
or improvements on the land are not included in the calculation of the tax.
A sales tax is type of ad valorem tax on goods or services charged at the time of purchase. Sales
tax can be added to the price of goods (tax-inclusive), or included at the point of sale (tax-
exclusive). The economic burden of sales tax generally falls on the buyer, but in some cases may
fall on the seller.

A value added tax (VAT) is imposed on business profits and labour. VAT is considered to be an
indirect tax because the seller is responsible for paying the tax, though the buyer pays higher prices.
VAT is different from sales tax in that VAT is levied only on the value added by the seller. The
tax is imposed on the value added to the item at each stage of its production cycle and the price
paid by the final consumer.
 REFERENCES

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techniques. 4, 1878-1893.
AMBROSE, B. & NOURSE, H. 1993. Factors influencing capitalization rates. 8, 221-237.
Berges,S.2005The complete Guide to Buyng and Selling Apartment Buildngs .Hoboken,New
Jersey:John wiley &Sons,Inc .
Betts,Richard M. and Ely ,Silas 2018 J.Basic Real Estate Appraisal.Mason,Ohio:Thomson,
Bond ,Robert J.McKenze G,Dennis J and Gavello,A.2007.California Real Estate
Finance.Mason,Ohio:Thomson,
PAGOURTZI, E., ASSIMAKOPOULOS, V., HATZICHRISTOS, T. & FRENCH, N. 2003. Real
estate appraisal: a review of valuation methods.
SMITH, B. C. 2004. Economic depreciation of residential real estate: Microlevel space and time
analysis. 32, 161-180.
WILLIAMS, E. 2019. Using effective age to determine capital recovery in the housing market. 16,
25-41.
WYATT, P. 2013. Property valuation, John Wiley & Sons.