Definition
The Comparative Unit Method is an appraisal technique used in real estate to determine the value of a property by comparing it against relevant standardized units. This method helps appraisers establish a basis for valuation by identifying common units of measure that are directly comparable across similar types of properties.
Examples
-
Parking Garages:
- Appraised per parking space.
- For instance, if the cost to build or buy comparable parking spaces is $25,000 per space, a parking garage with 50 spaces may be valued around $1,250,000.
-
Bowling Centers:
- Appraised per lane.
- If similar bowling centers in the area are priced at $100,000 per lane, a center with 20 lanes could be valued at $2,000,000.
-
Land:
- Appraised per square foot or per front foot.
- For example, if the average value of comparable land is $10 per square foot, a parcel of 10,000 square feet might be valued at $100,000.
Frequently Asked Questions (FAQs)
What is the Comparative Unit Method primarily used for?
The Comparative Unit Method is primarily used for appraising properties by comparing them against specific standard units that are common and significant in similar properties.
How does this method differ from other appraisal techniques?
This method focuses on standard units such as per space, per foot, or per unit of measure, instead of looking at the property as a whole or using more complex techniques like the income approach.
Can the Comparative Unit Method be used for residential properties?
Yes, while it is commonly used for commercial properties, it can also be applied to residential properties by using units like per room or per square footage.
What kind of properties are best suited for the Comparative Unit Method?
Properties such as parking garages, commercial retail spaces, and land parcels are often best suited for this method due to the uniformity and standardized nature of their units.
Is there any software that can assist with applying the Comparative Unit Method?
Yes, various real estate appraisal software and tools can assist with this method by providing comparable data and performing calculations.
Related Terms and Definitions
- Appraisal: The process of estimating the value of a property.
- Front Foot: A measurement used in appraising land value, denoting the property’s frontage abutting a street or body of water, often used in valuing commercial properties.
- Square Foot: Standard unit of measure in the U.S. for architectural drawings, construction, and real estate.
- Income Approach: Another common appraisal method that assesses property value based on the income it generates.
Online Resources
References
- Appraisal of Real Estate by Appraisal Institute
- Mastering Real Estate Appraisal by Dennis S. Tosh
- Essentials of Real Estate Investment by David Sirota
Suggested Books for Further Studies
- “The Appraisal of Real Estate” by Appraisal Institute
- “Fundamentals of Real Estate Appraisal” by William L. Ventolo Jr.
- “Property Valuation Techniques” by David Isaac
Real Estate Basics: Comparative Unit Method Fundamentals Quiz
### What is the purpose of the Comparative Unit Method in real estate appraisal?
- [x] To determine the value of a property by comparing it with standardized units.
- [ ] To evaluate a property's income potential.
- [ ] To figure out the highest and best use of the property.
- [ ] To calculate the cost of constructing a new property.
> **Explanation:** The Comparative Unit Method aims to determine the property value by comparing it with standardized units like per square foot or per parking space.
### Which of the following property examples can be appraised using the Comparative Unit Method?
- [x] Parking garage per parking space.
- [ ] Office building income potential.
- [ ] Residential property's best use.
- [ ] New construction costs.
> **Explanation:** Parking garages can be appraised using the Comparative Unit Method by evaluating each parking space.
### How would you appraise a bowling center using the Comparative Unit Method?
- [ ] By estimating the income it could generate monthly.
- [x] By comparing it per lane.
- [ ] By evaluating the total construction cost.
- [ ] By measuring the total land area.
> **Explanation:** A bowling center can be appraised by comparing it on a per-lane basis to similar facilities.
### Which unit of measurement is NOT commonly used in the Comparative Unit Method?
- [ ] Per parking space.
- [ ] Per square foot.
- [ ] Per front foot.
- [x] Per month of occupancy.
> **Explanation:** The Comparative Unit Method focuses on physical units like parking spaces, square footage, or frontage, not on monthly occupancy costs.
### What kind of properties is least suited for the Comparative Unit Method?
- [ ] Parking garages.
- [x] Unique high-value homes.
- [ ] Commercial retail spaces.
- [ ] Land parcels.
> **Explanation:** Unique high-value homes may not be best suited for the Comparative Unit Method due to their uniqueness and lack of standardized units for comparison.
### Which organization provides standards for real estate appraisal techniques?
- [x] The Appraisal Foundation
- [ ] IRS
- [ ] Federal Reserve
- [ ] National Association of Realtors
> **Explanation:** The Appraisal Foundation provides standards and practices for real estate appraisal techniques.
### The measurement used often for appraising land by its frontage measurement is called?
- [ ] Square foot
- [x] Front foot
- [ ] Acre
- [ ] Block
> **Explanation:** Front foot is the measurement used for appraising land by its frontage measurement.
### Does the Comparative Unit Method apply to income-producing properties?
- [ ] Yes, always.
- [x] It applies if standardized units can be identified.
- [ ] No, it never applies.
- [ ] Only in rare cases.
> **Explanation:** The Comparative Unit Method can apply if standardized units (like per square foot of retail space) can be identified for comparison.
### When comparing per lane for a bowling center, what kind of unit is being used?
- [ ] Income unit
- [x] Physical unit
- [ ] Cost unit
- [ ] Utility unit
> **Explanation:** Comparing per lane is using a physical unit for determining the value.
### Which method might provide more complex property valuations compared to the Comparative Unit Method?
- [ ] Per parking space comparison
- [ ] Per square foot valuation
- [ ] Per front foot price evaluation
- [x] Income Approach
> **Explanation:** The Income Approach might provide more complex valuations because it considers the income-producing potential, not just physical units.
