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Final Report to Property Purchase Case Study

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Updated: May 17th, 2022

Introduction

Buying property has become a challenging task due to many hurdles that one has to consider. These hurdles may include legislation from government and other relevant regulatory bodies, as well as the return on investment of that property in case you decide to lease it out for commercial purposes. In my assesment of the intended property investment choice, all these factors are critical for decision making. The project evaluates the property of interest and thus the information will convince various funders in supporting this worthy house purchase endeavour.

National Archives and Records Administration highlight the choice of purchasing houses in Phoenix and this is an advantage as real estate values in the city are mostly similar with other states. Therefore, in considering the Phoenix environment, most people have developed the purchasing interest in houses since the values have been dropping in the recent times.

Due to the economic mechanism and financial behavior irresponsibility, policies of Phoenix environment have largely favored wealthy people who have their own interests in American workers. With this in mind, many home owners were convinced of purchasing houses with mortgages which have been adjusted (Miller 331).

In the present idea of buying the house, I came to the realization that wealthy people have been taking advantage of the situation, thereby benefitting from accessing homes. Therefore, I have began to take advantage as a possible investor at this opportune time, and I believe this will be beneficial to the project and purge from me the distress of not owning a house.

Therefore, in undertaking this cause to buy a single home property, the following convincing steps were followed to determine the envisaged idea thereby providing evidence and financial backing that the idea was viable and worthy. These steps include:

Research and Facts

This involves the use of information from various real estate agencies and firms that gave a valid information on the prospects of home purchasing and ownership.

Analysis

The analysis points out the methods used to evaluate the real values of real estates. In this, it was found that the methods used looked at the income approach which compares the sale to the cost of the purchase. Thus, this made us choose the best method which is the sales comparison approach that is considered for appraising single family homes (United States Congress 545).

In using the method presented above and looking at the report on sale of property, we calculated the sales in each year based on the capital gains of an investor in comparison to recapturing the depreciation tax rate and the assumptions supplied for appreciation. It is worth noting that the next process involves getting the net value of the property

Another consideration is to determine the time of sale whether in January-March, April-June, July-September or October-December. This looked at the uniformity and equitability of the data used to evaluate the property over a period of one year. In doing this, we found out that the factors of reference had to be adjusted so as to reflect the actual price of the house (Ford par. 10). This meant that assessment was to range certain evaluated prices allowing levels of confirming the used method applied in relation to the choice of the present property (Mc Mullin, 132). In addition, it became evident that this method of evaluation and statistical analysis was used annually and was thereby preferred by assessors and buyer. The report is valid and recognized by the Phoenix state authority.

Research and Facts

The United States economy has slowed down in the recent times, especially during the economic crisis that influenced the market dynamics of the real estate. As the recession continued, it has shifted the major players in business thereby having changed the way they were running their transactions. In this period, unemployment levels have risen as many employees were cut off, thus leading to people not being able to save and, as a result, invest in buying a house became an utopian dream (Crockett 210).

This decline has mostly reduced the consumer confidence in spending triggered by their financial and economic crisis. As a result of this reduced spending, business firms have been forced to cut down their prices so as to attract customers following the fact that when there is a reduction of prices, the consumer capacity to spend increases thereby leading to economic advancement in value and increase in job opportunites and influencing the property management business (Yinger 593).

In addition, the weakening of the US economy, financial conditions have created fear among investors, especially in the real estate business as the demand for space has forced the property managers to increase their rates, thus putting pressure on the business. However, in all the impacting factors that challenge the real estate business environment, some people still believe that the economy will come round and become stable again for people to start to invest their monies in houses again (Yavas 188). This is for the reason that the taxes have been cut and thus stimulated relief among people thereby bringing hope to the present times. In retrospective, as technology advances, changes will effect a recognition of conscious awareness especially for those who continue wandering aimlessly about false hope and misconceptions that the past situation will surely come back. In an identical route, technological changes have surpassed the modern rate at which consumer behaviour has influenced the major changes in the real estate business. This revolutional swiftness has created a problem which has contributed to many impending factors that people were unable to cope with (Benjamin et al 220).

But in a positive note, these changes and advancements have shifted the interest among the real estate experts from addressing the sector’s issues. It is in this light that the evolutionary change of old models and theories will motivate property investors to change their tactics in the real estate market. According to the property and real estate agencies, insurance is a combined policy in the states that guarantees protection against disasters and safeguards all internal content covering liability and legal responsibility for injuries and property damage incurred by the residents to other people. The property owner has to have two policies covering flood and earthquake while maintenance and repair expenses are the owner’s responsibility.

A term contract which is effective for some period of time includes four important types of coverage which are coverage for home structure; coverage for homeowner’s personal belongings; liability coverage and coverage of additional living expenses in the event of temporary homelessness and in the event of an insured disaster. Thus, thinking of investing in a house, the policies have to be considered especially the US house insurance policies classified as HO-1 (Limited coverage policy), HO-2 (Basic Policy), HO-3 (policy cover all aspects of home, structure and contents besides liability of any form), HO-4 (renter policy), up to HO-8 (older home insurance policy). (United States Congress 547).

Property taxes or any other related fees as checked with the assessor’s office

In case the ownership changes, real property is reappraised under the proposition 13. A sale occurs when property changes hands while a new construction occurs when property is improved. If the two scenarios do not occur, then the rent should be raised by more than two percent in a year. (Miller 334). A transfer involves receipt of the title deed and a valuation report if it is required. A transfer between husband and wife does not necessarily require a valuation report.

One of the homes in Phoenix which was found in guard-gated Silverleaf, is more than 20,000 sq. ft. estate which sits squrely on a golfcourse attracted buyers. Distinct features include: indoor and outdoor kitchenette, elevators, golf unit, basketball court, volleyball pitch and rock climbing area, guest house suite, garage, game place, estate pool, spa, security and house automation (Miller 336). This property is being constructed by Linthicum and will be complete by December 2012. Price $24,500,000 the style of the house is a bungalow which has 20805 sq. ft, 170755 sq ft which is 3.93 Acres. The following are other details;

Property Description

Master Bathroom : 2 Master Baths, Tubs with Jets, Separate Shower & Tub, Double Sinks, Bidet
Dining Area : Breakfast Bar, Formal, Eat-in Kitchen, Dining in FR, Breakfast Room
Kitchen Features : Built-in Microwave, Walk-in Pantry, Reverse Osmosis, Refrigerator, Range/Oven Gas, Pantry, Multiple Ovens, Kitchen Island, Granite Countertops, Disposal, Dishwasher
Exterior Features : Balcony/Deck(s), Storage Shed(s), Sport Court(s), Separate Guest House, Pavement Yard(s)/Courtyard(s), Private Street(s), Patio, Misting System, Gazebo/Ramada, Covered Patio(s), Circular Drive, Children’s Play Area, Built-in BBQ
Cooling : Refrigeration
Features : Drink Water Filter Sys, Wet Bar(s), Water Softener Owned, Fire Sprinklers, Elevator
Level : 2
Lot Size : 2 – 4.9 Acres
Ownership : Fee Simple
Fencing : Block, View/Wrought Iron
Parking : Attached Gar Cabinets, Separate Storage Area, Over Height Garage, Extended Length Garage, Electric Door Opener
Builder Name : Linthicum
Model : Custom
Spa : Spa – Heated, Spa – Private
Additional Bedroom : Master Bedroom Downstairs, Separate Bedroom Exit, Other Bedroom Walking Closet, Other Bedroom Split, Other Bedroom Downstairs, Master Bedroom Walking Closet, Master Bedroom Split
Energy Features : Ceiling Fan(s), Tank less Ht Water Heat, Recirculation Pump, Multi-Zones, Multi-Pane Windows, HVAC (16 SEER+), Energy Star Appliances
Sewer : Sewer – Public
Pool – Private : Fenced Pool, Pool – Private, Heated Pool
Water : City Water
Tax Year : 2011
Taxes : 34818.60
Roofing : All Tile
Fireplace : 3+ Fireplace, Two Way Fireplace, Gas Fireplace, Free stand Fireplace, Fireplace Master Bedroom, Fireplace Living Room, Fireplace Family Room, Fire point, Exterior Fireplace
Other Rooms : Bonus/Game Room, Media Room, Library-Built-in Bookcase, Guest Quarters-Sep Entrance, Great Room, Family Room, Exercise/Sauna Room, Den/Office
Utilities : APS, SW Gas
Heating : Gas Heat

Analysis of Value

In our search, we decided to use appraisers and methods to estimate the value of the real estate. Looking at the methods in context of the best approach was comparing the sales to the cost. This led us to adapt the above choice of appraising homes for single ownership which suited the method of choice.

In using the above method, we looked at the report on sale of property. It calculates a sale in each year based on the capital gains of an investor in comparison to recapturing depreciation tax rate and the assumptions supplied for appreciation. While doing the actions presented above, it should be considered that the calculations are done after the sales and tax proceed, thus the profit value based on the sales is assumed and therefore enter in the system. (Crockett 210).

Looking at the house purchase, we saw it best not to exaggerate the appreciation rates as this would give a false perception of future rates of the purchase. Therefore considering a low appreciation gives a range that is viable for purchase and future proceeds. Looking at the income gains, I realized that profits from assets owned have long term gains if owned for a year, thus a 25 % income tax bracket is taxed by 15% (Yinger 595).

In evaluating a residential house, the assessment is done each year using the assessment of the sale ratio (ASR) which is a process of comparison of assessed value with the actual sale price of residential sold within the previous years. In review annual sales for single homes, the ASR is less than 95%, the revaluation needs to be conducted in order to appreciate markets. This allows the market value to be assessed accordingly, while in depreciating markets many assessing agents lower the value to highlight the reality (National Archives and Records Administration 12).

When the revaluation is in order, validity verification is done by reviewing all sales from the previous year which showns that this is the right time to purchase a house. In determining that valuation of the residential property is 25 variables e.g., the quantitative variables include; number of rooms, bedrooms, bathrooms, garages, fireplaces, square feet of living areas, square feet of porch and deck areas and heating system type. While qualitative variables include; Neighborhood location, house style, and condition of structure and construction quality that were used in evaluating this house in consideration (Yinger 598).

Another analysis done was to determine the time of sale whether in January-March, April-June, July-September or October-December. This looked at the uniformity and equitability of the data used to evaluate the property over a period of one year. This meant that our assessment was to range within a 10% of the showed prices thereby allowed us to obtain the level of confirming the used method as applied to many other properties in relation to the choice of the houses. In addition, it became evident that this method of evaluation and statistical analysis is used annually and is preferred by assessors. (United States Congress 549).

Legal Forms

To purchasing a property, (single-family residence,) one should prepare certain required documents to understand the necessary requirements.

Legally single family home agreement is done between the purchaser and the agent who operates and manages the properties. The importance of this arrangement is in that it explains the precise duties and responsibilities the agent or manager is bound to perform and the type of compensation in case of any break of the contract due in writing. This agreement in writing will be evidence whenever there is a disagreement or misunderstanding in relation to the running or expectation of the owner in regards to the property. (Benjamin et al 260). The following provisions are vital in dealing with such problems;

Parties/Date: this includes the name and address of the property owner, property manager and the date the agreement is signed;

Appointment/Owners Obligations: The owner has to appoint a manger or liaison of the house and provide all materials necessary to manage their property effectively.

Authority of Broker: This gives the agent a legal mandate in operating all duties as pertains to managing the property in terms of maintenance, leasing authority, security deposits and day to day responsibilities.

Broker Fees: This entails provisions of fees paid by the owner to the agent/ property manager for duties of management, leasing and renewal of contracts.

Term and Termination: The commencement date of the agreement is outlaid under which the agreement can be terminated;

Expenses: The extra expenses as regards legal fees and other professional fees are contracted here.

Dispute Resolution: The American Arbitration Association settles the disputes under this agreement of the property management.

Signature: Signatures of both, the owner and the manager are put in writing.

In being on a safe purchasing level the following rights to the property are to be purchased at the attorney which includes:

  1. General Information
  2. Instructions and Checklist
  3. Property Management Agreement (Single Family Home)

In addition, the State Law Compliance form with laws of all states will be important.

Works Cited

Benjamin, John D., G. Donald Jud and G. Stacy Sirmans. “Real Estate Brokerage and the Hosting Market: An Annotated Bibliography.” Journal of Real Estate Research. 20.1(2000): 217-278. Print.

Benjamin, John D., G. Donald Jud and G. Stacy Sirmans. “What Do We Know About Real Estate Brokerage?” Journal of Real Estate Research. American Real Estate Society, 20.1(2000): 5-30. Print.

Crockett, John. “Competition and Efficiency in Transacting: The Case of Residential Real Estate Brokerage,” Real Estate Economics. 10.2(1982): 209-227. Print.

Ford, William J. Valuation Determination. 2012. Web.

Miller, Craig. USAID worldwide purchase card program manual. A Mandatory Reference for ADS. 2010. Web.

National Archives and Records Administration. Grants from the Federal Government. Washington D.C:Guilford Press, 2002. Print.

United States Congress. American State Papers, Class 8: Public Lands; Class 9: Claims. Greenville, South Carolina: Southern Historical Press,1994. Print.

Yavas, Abdullah. “Impossibility of a Competitive Equilibrium in the Real Estate Brokerage Industry.” Journal of Real Estate Research 21.3(2001):187-200. Web.

Yinger, John. “A Search Model of Real Estate Broker Behavior,” American Economic Review. 71.4(1981): 591-605. Print.

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