This section is from the book "Practical Real Estate Methods For Broker, Operator & Owner", by Thirty Experts. Also available from Amazon: Practical Real Estate Methods for Broker, Operator, Owner.
In determining the value of a piece of property and in working up its selling and talking points, the broker naturally must be thoroughly familiar with the neighborhood. He must be aware of projected improvements in transportation, change in character of tenancy, keep track of parallel sales, gather newspaper and private information and also be able to work out new uses for the property which would increase its earning power. For example, especially in a new section, he should be able to foresee that the particular plot would make a fine location for a certain sort of store. Naturally, he must be able to detect strategic values or key situations. In a recent deal, a broker was able to foresee that an adjoining owner would eventually be forced to buy a certain lot and so advised his client to pay what seemed to be an abnormal price in view of the sales record for the neighborhood. In this instance, a year of waiting brought a profit of $20,000. In this particular instance, the rents of the parcel in question when capitalized did not indicate anything like the price first paid. The fact of the matter was that the rents were too low, and the first step of the broker was to raise them materially. In arriving at value by capitalizing rents, therefore, it is necessary to make certain that the current rents are not too low, or to have enough vision to foresee a greatly increased income from a new building or from improving the old building. Vision of this sort frequently supplies admirable talking points to present to the purchaser. Knowledge of the conditions which detract from the value of a piece of property also is necessary, both to enable the broker to prepare himself to meet such objections on the part of the purchaser and for use in educating an owner who is asking too much for his property. For example, a public school on a block hurts private dwellings, but helps tenement property. An armory hurts a neighborhood because it is unoccupied except for a few hours at night. Consequently, it does not help the butcher or baker and is of service, if at all, only for a few hours each evening to the corner saloon. In other words, an armory cuts out a block of families. The restrictions on property or adjoining property also are very important. A man does not want to buy a high-class private dwelling for his own use if some one can build cheap flats on the property across the street.