Case Study | Proration
Case Study | Proration
Part 1:
Calculation of Service Charges to be reimbursed to the Seller by the Buyer.
Annual service charge for a shop in Marina Diamond is AED 14,047. Service Charge period : 1st March 2018 to 28th February 2019
The Seller, Mr. John Doe, paid for the annual service charge in advance for the whole year on 1st of March 2018.
The Seller, Mr. John Doe, sold his shop to the Buyer, Mrs. Jumeirah Jane, on 4th September 2018.
How much did the Seller, Mr. John Doe, utilize from the fully paid annual service charge?
How much should the Buyer, Mrs. Jumeirah Jane, reimburse the Seller, Mr. John Doe for the service charges that he paid in advance?
Part 2:
Calculation of rental amount that needs to be reimbursed to the Buyer by the Seller.
In addition to the above, assume there is a tenant in the shop. The tenant was given proper notice to vacate the shop and the tenant agreed to vacate on 10/7/2019.
Annual Rent: AED 200,000/year in two payments:
AED 100,000 cheque dated 11/07/2018 “Cashed by Seller”
AED 100,000 cheque dated 11/01/2019 “Not Cashed”
The Security Deposit is AED 10,000
Tenancy period: 11/7/2018 to 10/7/2019
How much should Mr. Doe reimburse Mrs. Jane from the rent collected and cashed?
Part 3:
Calculation of total adjustments due on Transfer date
In addition to the above, assume the selling price is AED 2,690,880. Commission to be paid by the Buyer: 2% of the Selling Price.
Seller to pay the NOC charges of AED 500 to the developer.
Transfer fees were agreed to be paid in full by the Buyer.
Buyer agreed to pay 10% deposit to reserve the property through the transfer date. At the transfer date, it was agreed that the buyer gets back her deposit cheque and the Seller gets a manager’s cheque for the full amount.
Calculate the deposit amount, transfer fees; commission and the total amount of the cheque that the Seller is supposed to receive from the Buyer at transfer date.
Role Play 1=Seller
Ms. Huda A. is referred to you by a friend. She wants to sell her villa. What do you need to know at the initial stage?
What do you do next?
What you need to know about the property for sale
- Completed or off-plan.
- Type, location and exact address.
- Size, number of bedrooms, bathrooms.
- Parking spots, facilities
And many other things!
What is the main objective of this initial contact?
- List the property?
- Sell the property?
- Meet the owner?
- Find out information about the property?
It is to: Set an appointment to visit the property Then you
- Research: Area, schools, transport, shopping, entertainment…
- Prepare a Comparative Market Analysis (CMA)
Comparative Market Analysis (CMA)
- A tool to help reach a fair market price.
- The primary purpose of the CMA is to educate you, the agent, about the prices at which comparable homes are being listed and sold.
- Completing a comparative market analysis, an agent can obtain certainty and conviction about the value of the property you’re getting ready to list. With this knowledge, you’ll be able to proceed with confidence as you share your view of the marketplace and persuade the seller to accept your home pricing recommendation.
A Comparative Market Analysis involves a review of all homes similar to the one you are selling (subject property), and in the neighborhood of the subject property, that have recently:
- sold,
2. listed, or
3. expired
Sold properties provide the most valuable demonstration of market value. They are properties for which sales goals have been accomplished, transactions have closed, and ownership has transferred. Especially in markets undergoing active appreciation or depreciation, review only homes that have sold and closed in the last six months. In some markets it would be wise to narrow that to three months or less. Sales before that period probably won’t be an accurate indication of current values.
Listed Properties: A CMA for listed properties allows you to list (price) the subject property competitively. When selecting similar properties avoid exceptionally low or high priced comparable.
Expired listings: These are homes owned by sellers who, in effect, lost the sales game. In a CMA, they provide a very good bookend against the prices of sold properties.
By presenting both categories, you can show your seller the pricing path to success, as indicated by sold properties, and the path to failure, as indicated by expired listings.
CMA
When selecting comparable units:
1. Select properties that share as many features as possible with the subject property
2. Limit your CMA to 6 comparable units
3. Then zoom-in on the differences
Unit | Type | Area(m2) | No of Bed | No of Bath | Garage | Lock | Pool | Gym | View | Sale price
unit villa 205 4 5 2 yes yes pool
Unit 1 apt 120 2 2 1 1 yes yes 1.75m
Unit 2 villa 190 4 4 2 yes yes pool 3.35m
Unit 3 villa 194 3 4 2 yes yes pool 3.2m
Unit 4 villa 185 4 5 3 yes yes park 3.5m
Unit 5 apt 200 5 5 3 2 yes yes water 3.95m
Unit 6 villa 210 4 5 2 yes yes 3.4m
Unit 7 villa 192 4 4 2 no yes 3.15m
Unit 8 apt 185 3 4 1 1 yes yes water 3.45m
Unit 9 villa 220 4 5 2 yes yes 3.2m
unit 10 villa 300 6 7 4 private yes lake 4.9m
Unit 11 villa 140 2 3 2 yes yes 1.63m
Unit | Type | Area(m2) | No of Bed | No of Bath | Garage | Lock | Pool | Gym | View | Sale price
unit villa 205 4 5 2 yes yes pool
Unit 1 apt 120 2 2 1 1 yes yes 1.75m
Unit 2 villa 190 4 4 2 yes yes pool 3.35m
Unit 3 villa 194 3 4 2 yes yes pool 3.2m
Unit 4 villa 185 4 5 3 yes yes park 3.5m
Unit 5 apt 200 5 5 3 2 yes yes water 3.95m
Unit 6 villa 210 4 5 2 yes yes 3.4m
Unit 7 villa 192 4 4 2 no yes 3.15m
Unit 8 apt 185 3 4 1 1 yes yes water 3.45m
Unit 9 villa 220 4 5 2 yes yes 3.2m
unit 10 villa 300 6 7 4 private yes lake 4.9m
Unit 11 villa 140 2 3 2 yes yes 1.63m
CMA Exercise
- Assumed added values:
– Bedroom: AED100,000
– Bathroom: AED 60,000
– Garage: AED 40,000
– Locker: AED 20,000
– Pool: AED 90,000
– Gym: AED 35,000
– Views: Pool or park(80K), Water and lake(100K)
Example
In a CMA exercise, one of the comparable units is exactly the same as the subject unit EXCEPT that the comparable unit has one less bedroom and one less bathroom than the subject unit.
- The comparable unit was sold at AED 1,000,000.
- The added value of the extra bedroom is 100,000
- The added value of the extra bathroom is AED 50,000.
What should be the adjusted value of this comparable?
- AED 950,000
- AED 1,150,000
- AED 850,000
After Selection
Step1: Attach added values to variances (extra bedroom, bathroom, garage, view,
corner unit, updated kitchen…).
Step 2:Make adjustments to selling prices by adding or subtracting the added value.
Step 3:Come up with an average price.
Step 4:Determine a range for the suggested Selling Price of the subject unit.
CMA Exercise cont.
- What market price would you suggest Ms Huda lists her property for?
Listing Interview: What to take with you
- Presentation Kit.
- Business card.
- CMA.
- Camera.
- I-pad or laptop.
- Form A.
- A give-away.
Creating a Positive First Impression
- Promptness.
- Dress code.
- Power of a Smile.
- Hand Shake.
- Show sincere interest.
What to bring back
- Approved contract A through RERA’s Dubai Brokers App.
- Passport copies of all owners.
- Title deed or Oqood (for off-plan).
- POA if applicable.
- Mortgage details if applicable.
- Tenancy contract if the property is leased.
- In case of a Jointly Owned Property, a copy of The Owners Association Declaration Statement.
Then register the contract in the STR