Nate Wilding

Smeal College of Business

The Pennsylvania State University
Department of Risk Management


Risk Management 450 Instructor: Lily Shen
Contemporary Issues in Real Estate Markets
Spring 2014


Appraisal Project
State College Market Condition Analysis:
The subject property is located in the town of State College, Pennsylvania within
Centre County. While being on a fraction of a percentage of a decline, State Colleges
population is relatively stable around 42,000 people. This population breaks down further
with a majority (83%) white residents and an almost an even gender split. These residents
experience high turnover in living conditions, with only 40% living in the same house for
over a year. This is compared to the much higher state average of 88%. This excessive
level of yearly movement can be attributed to the high concentration of student residents.
State college is a very dense, populated environment. The city has 9,224.1 people per
square mile, as opposed to the state average of 283. These people also have a shorter
average distance to work (15.5 minutes), placing an emphasis on a propertys location.
There are some 13,000 housing units in the area, 70% of which are in multi-unit
structures. Full home ownership is only around 19%; 50 points lower than the state
average. Of these owner occupied housing units, the median value is around $259,100.
This is almost $100,000 higher than the state average, showing that while fewer houses
are fully owner-occupied, those that are cost significantly more. Despite the higher
average price of these housing units, per capita income is half the state average and 52%
of residents lie below the poverty line. There are 2,421 firms in the area and over $363
million in annual retail sales. Wholesaler sales are around $10 million, and
accommodation and food services around $100 million. As previously stated, State
Colleges 40,000 residents reside on only 4.56 square miles, making for over 9,000
persons per square mile.
Appraisal Subject Property:
The appraisal subject property to be valued is located at 234 Fry Drive, State
College, PA 16801. The property is 1901 square feet, with four bedrooms and two
bathrooms. The property was built in 1960 on .33 acres of land. Inside, there are new
kitchen cabinets and countertops with two-year-old kitchen appliances. A hot tub is also
included outside. The house is a rancher with a finished basement that is included in the
square footage, so it will be considered equal to a standard two-story home for appraisal
purposes. The seller currently lists it at $230,000.



Comparable Property Analysis:
Properties to be examined as substitutes to the subject property will be analyzed
according to a number of attributes. These attributes include number of bedrooms,
number of bathrooms, size of the home (sq.ft.), size of the land (acres), year built,
parking, previous transactions, and general location (distance from CBD). Basically, the
properties should be close in size and layout while residing in the same general location.
While each of these properties were not perfectly met by each comparable property, the
properties that were chosen showed strong correlation to one or more attributes or were
included to balance out each factor. Additionally, all properties had to be sold in standard
environments, not under duress or upon foreclosure. All properties are located in State
College, PA. The comparable properties are as follows:
1) 1221 William Street- Located in a similar residential neighborhood to the
subject property, this house has similar size (1972 sqft on .36 acres),
bedrooms (4), and age (59). It was also sold within the last two months.
2) 202 E McCormick Ave- This property also has the same bedrooms (4) and
almost the same bathrooms (1.5) as the subject property. It is also close in age,
in a similar neighborhood, and is close in house size (1841 sqft).
3) 236 Ellen Ave- This site has a similar lot size (.38 acres), is located in a
similar neighborhood, and is off by only five years in age. There are some
differences, but only minor (extra bathroom, one less bedroom).
4) 241 Bradley Ave- This property is close in age and lot size. It has slight
differences in bedrooms, bathrooms, and square footage but is still
comparable.
5) 111 W Marylyn Ave- This property is almost identical to the subject property
in bed and bathrooms, age, and square footage. The only minor difference
comes in lot size (.23 acres). It was sold a little farther back than most of the
other properties, but is still within the past two years.
6) 1125 William Street- This property has minor differences in most areas, but
still remains comparable to subject property. It is still similar in lot size,
location, age, and layout.
Assumptions made regarding sale comparison adjustment grid:
Due to Zillow.com not having an up-to-date sale price regarding
past transactions/home sales, repeat sale analysis could not be
used. Instead, because Zillow stated that home sale prices in State
College had decreased by 2% in the past year, each property was
decreased by a standard adjustment of 2%. Most of the properties
had been sold within the past year, and all in the past two.
Living area adjustments were based off of the Zillow.com
statement that the median transaction price per square foot in State
College was $158.
Based on an assumption made in the cost approach, the subject
property hot tub was valued at $3000. This cost was then used for
adjustments in the pool parameter.
Inconsistent porch and patio information caused the parameter to
be removed entirely.
Because the subject property was a one-story building with a
finished basement, any property fitting that description was
considered a standard two-story building. Adjustments were only
made for two story buildings with finished basements, or one-story
buildings with no basement.
Any other assumptions not listed in public State College
information were taken from the book and are as follows:
o Lot size: $100,000/acre
o Effective age: $1,250/year
o Bathroom: $4000/room
o Bedroom: $8000/room (doubled from bathroom)
Through the sales comparison adjustment grid, market value of the subject property was
found to be $259,398.67. This figure was taken from the equally averaged final
adjustments of all six comparable properties.
See appendix for sales comparison adjustment grid (Item A) and comparable
property breakdowns (Item B)
Cost Approach:
The cost of construction of a 1901 square foot home with 8-foot high walls would
be $214,128.64. This calculation does not include additional improvements to the
property. This site has new kitchen cabinets and countertops, with two-year old kitchen
appliances, and a hot tub. The average cost of a new kitchen according to Today.com is
around $15,000. Market value for a brand new kitchen appliance set is $2,500-$3,500, so
a safe value for a slightly older set is estimated at $2000. Finally, the value of a brand-
new hot tub stands anywhere from $2000-$8000. Because the age and model of the hot
tub was unspecified, a safe estimate was placed at $3000, assuming the hot tub was at
average quality and slightly aged. These additional costs bring the total appraisal using
the cost approach to $234,128.64.
Income Approach:
Average monthly rent in State College is at $600/bedroom with $2000 in total
annual maintenance costs. Thus, $600 times four bedrooms times twelve months equals
$28,800 in potential gross income. Subtracting out $2000 in operating expenses takes the
property to a net operating income of $26,800. The closest capitalization rate listings to
single-family residential in the CBRE Report was Multihousing Class A, and the closest
market area to State College was Pittsburgh. Accordingly, a capitalization rate of 6% was
chosen (Pittsburgh stabilized Class A Multihousing). With dividing NOI by the 6% cap
rate, a valuation for the subject property was found to be $446,666.
Final Valuation:
After reconciling the values determined from the comparable sales approach, the
cost approach, and the income approach, a final valuation of the subject property has
been determined. The comparable sales valuation was weighted the highest, as residential
homes have the highest turnover rate, transaction volume, and overall most comparable,
similar properties. There was a wealth of data to choose from when looking at past
transactions, with most properties being very similar to the subject property. The weight
of the comparable sales approach was 60%. The next highest weight was the cost
approach. While single-family homes are typically not specialty buildings and this
property was not new, the cost approach still made more sense than the income approach.
Re-creation was not impossible to calculate, and most improvement and appliance values
were able to be determined through research. Still though, the cost approach was
weighted at only 30%. Finally, income approach was weighted the lowest at 10%.
Single-family homes are typically not viewed or bought as income-generating properties,
and to value the site like that would only serve to skew the data. Additionally, I did not
agree with the method used to find the propertys capitalization rate. Instead of applying
a forced, imperfect rate from CBRE (Pittsburgh Multihousing), it could have been more
accurate to find the cap rates of comparable local residential properties and average them.
Using the transaction price of previously sold houses; a new cap rate could be found by
dividing the NOI (based on the provided assignment information) by the listed value of
the property. Regardless, the weights of the different approaches combined to result in a
final valuation of $270,544.39.
See appendix for full calculation (Item C).
This value was higher than Zillows sale listing price and value estimate. This
could possibly be attributed to the slight influence of an unreasonably high income
approach value and a slightly inflated comparable property approach from a higher
adjustment cost per square foot ($158). Even so, the property is not unreasonably priced
as compared to others similar houses in the State College market.
FINAL VALUATION FOR 234 FRY DRIVE, STATE COLLEGE, PA 16801:
$270,544.39
Appendix:
Item A: Sales Comparison Adjustment Grid:

Item B: Comparable Property Breakdown

Item C: Final Valuation Calculation