understanding qualitative analyses

How many here made a qualitative decision this morning?

Who decided that this program would be more beneficial to them than other programs?

Who took the time to analyze what percentage or dollar amount more benefit they would derive from this particular program?

What is Qualitative Analysis? Dictionary of Real Estate Appraisal 5th

Edition: “The process of accounting for differences (such as between comparable properties and the subject property) that are not quantified; may be combined with quantitative analysis.”

13th Edition: “In the sales comparison approach, the process of accounting for differences that are not quantified; usually follows quantitative analysis.”

The Dictionary says Qualitative and Quantitative can be combined. Why?

We often don’t have the time or resources to fully develop the statistical analysis required for a true quantitative analysis.

RPP – USPAP Scope of Work Rule says the scope is acceptable when it “meets or exceeds what an appraiser’s peers’ actions would be”

The 13th Edition says that qualitative usually follows quantitative. Why?

Comparing apples to apples. Sales aren’t perfect, they

frequently require reconciliation.

The word “usually” recognizes that they are not mutually exclusive techniques.

Where do we use Qualitative Analysis?

Selecting Sales Area Analyses Highest and Best Use Subject physical Features

This session concentrates on how qualitative analyses fit within the sales comparison approach.

We will identify the strengths and weaknesses of the methodology.

We will discuss overcoming or reducing most of the weaknesses.

We will discuss the myths and misunderstandings.

What are the weaknesses of Qualitative Analyses in the Sales Comparison Approach?

Appears to be unsupported if not reported well

Reviewability May be misunderstood Under-recognized in practice

What are the strengths of a well done Qualitative Analysis?

Quality comparison of elements of comparison

Reflects market behavior Already used in every report to some

extent Easily understood if done well Limits the likelihood of a conclusion

outside the range of comparable sale prices

Location Adjustment:

Which Location is better?How much better (what would the adjustment be)?

How do you measure the difference?

Lot Shape Adjustment:

Which Shape is better?How much better (what would the adjustment be)?

How do you measure the difference?

Improvement Quality Adjustment:

Which Quality is better?How much better (what would the adjustment be)?

How do you measure the difference?

Would you use the above questions in qualitative or quantitative analyses?

Research and analysis requirements are no different.

The depth of analysis and information gathering is just as cumbersome between both methodologies.

USPAP appraisal reporting standards (Standard 2) says nothing about development.

They are separate functions. Restricted, summary and self-contained

appraisal reports require the same development.

All three require the same documentation, information must be contained in the file.

Reporting Qualitative Analyses

Simple Inferior/superiorExample

Industrial buildings:Subject: Average location, 4 doors

Sale 1 Good location, 6 doorsSale 2 Average location, 4 doorsSale 3 Fair location, 2 doors

Sale 1: $1,050,000 SuperiorSale 2: $1,000,000 SimilarSale 3: $ 950,000 Inferior

Implied Adjustments:Sale 1: -$50,000Sale 2: $ 0Sale 3: $50,000

Which is more important, doors or location?

To what proportion?

If location is more important, then the implied adjustment for location is more than $25,000.

This must be supported with market evidence.

Refined Superior/InferiorThis technique involves using symbols to

indicate superior and inferior traits on a table.

The table segregates different elements of comparison.

Weighting can be shown with multiple symbols of the same type, but care must be taken to distinguish weight from degree

SALE # $/SF MARKET SIZE LOCATION APPEAL OVERALL INDICATION 1 $56.11 1.01 > < >> >> $ 56.67

2 $11 6.36 1.02 > < < < $ 118.69

3 $33.36 1.03 > > - > > >> $ 34.36

4 $54.20 1.03 > < > > $ 55.83

5 $164.15 1.03 - < < < < $ 169.07

6 $159.33 1.05 - < < << $ 167.30

7 $45.54 1.05 >> > < < > $ 47.82

8 $88.75 1.11 - < >> > $98.51

9 $66.70 1.13 > < > > $75.37

Narrative Superior/Inferior analysesDescribes in narrative the

development, analyses and reasoning.

Explains weighting and reasoningExplains why the element is

superior or inferior. Demonstrates or describes trends

and differences.

Sale Price/SF Comments

1 $6.51

This sale is located in a busier area along the main road, is much larger than the subject effective size, has similar access and retail potential, but is slightly inferior due to the subject’s lack of competition. Overall, primarily due to the size of the lot, the subject should be more valuable than $6.51 per square foot.

3 $7.00

This sale is located in the rear of the a business park, is much larger than the subject effective size, has inferior access and retail potential, and is slightly inferior due to the subject’s lack of competition. Overall, primarily due to the size of the lot, the subject should be more valuable than $7.00 per square foot.

2 $7.84

This sale is located in the rear of the a business park, is much larger than the subject effective size, has inferior access and retail potential, and is slightly inferior due to the subject’s lack of competition. Overall, primarily due to the size of the lot, the subject should be more valuable than $7.84 per square foot.

4 $8.00

This sale is located along a secondary road with some visibility from the highway, is slightly smaller than the subject effective size, has similar access but somewhat inferior retail potential, and is similar in visibility to the subject. Overall the subject should be slightly more valuable than $8.00 per square foot.

Sub $8.50 Best Fit for Subject

5 $9.00

This sale is located along a secondary road with some visibility from the highway, is slightly smaller than the subject effective size, has similar access but somewhat inferior retail potential, and is similar in visibility to the subject. Overall the subject should be slightly less valuable than $9.00 per square foot.

When does qualitative analysis become quantitative?

Most quantitative analysis includes some qualitative analysis.

Most qualitative analysis requires some quantitative analysis.

Weighted Average MethodThe weighted average methodology is

much more detailed. Much more quantitative in practice.

Developed to account for variances in both weighting and degree.

Allows for scale selectionAllows for a range of weighting options.

Weighting 1Element Location Size Utilities Topography Shape Total Price/SF Price/Point

1 Grade 3 1 3 5 3Total 9 3 6 10 3 31 17.65$ 0.5694$

Sale # 2 Grade 5 3 3 5 5Total 15 9 6 10 5 45 25.65$ 0.5700$

3 Grade 3 3 3 5 3Total 9 9 6 10 3 37 21.00$ 0.5676$

Subject Grade 4 3 3 3 1Total 12 9 6 6 1 34

Indication 19.38$ 0.5700$

3 2

Timothy James Holzhauer, JD, MRICS, SR/WA

(505)474-3068timtheappraiser@comcast.net