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Cost Approach For Attached Duplex

Discussion in 'General Appraisal Discussion' started by Pat Butler, Dec 2, 2003.

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  1. Pat Butler

    Pat Butler Senior Member

    10
    Jan 17, 2002
    Professional Status:
    Certified Residential Appraiser
    State:
    Illinois
    I did an appraisal for 1/2 of an attached duplex. It's zoned in such a way that each half can be sold separately.

    I did not develop the cost approach because it is non sensible to consider building 1/2 of the whole building when that does not represent what was actually built. The builder has the economy of scale when building the whole building- the builder doesn't build "1/2" of building separately and place it on the market. These two units share a common wall. Who pays for the common wall if you are only looking at building only 1/2 of the building? Also, that common wall is supported on each side by intersecting walls that further support the common wall. If you were to look at building 1/2 of the building then that common wall would probably need to be reinforced above and beyond its current specs. Also, they share a roof with a ridgeline in the center. If you were to only build 1/2 of a building then the ridgeline would have to be moved to the center of the one unit. Obviously, lots of problems...

    Even if I were to calculate the cost of the entire building (2 units) I would be missing important data from the other attached unit because I obviously didn't inspect it.

    The client is insisting on me developing the cost approach. What do you think?
     
  2. Pine Tree

    Pine Tree Junior Member

    0
    Aug 19, 2002
    Professional Status:
    Certified Residential Appraiser
    State:
    Maine
    I agree with you.

    This reminds me of Condexes (duplex, condominiums.. only two units in the association) in my market.. We don't do cost approach for those.. And the reasoning is generally as you stated it. A credible value indicator is nearly impossible to develop..

    Hope that helps
    Wendy
     
  3. Austin

    Austin Elite Member

    1
    Jan 16, 2002
    Professional Status:
    Certified General Appraiser
    State:
    Virginia
    I don't see this any differently than doing the cost approach on the FNMA form. Just fake it like everybody else does. Estimate the cost, make the effective age and total economic life match so that the result is the same value as the income or sales approach and be done with it. If the client questions you, just insists that is the way everybody does it.
     
  4. Chris Colston

    Chris Colston Elite Member

    0
    Jul 24, 2003
    Professional Status:
    Certified Residential Appraiser
    State:
    Florida
    What would they do if the subject half had a fire that totaled that half? Would they not rebuild it and just leave the other half standing? The lot has value, did you give it any land value? If you really were to think about it you can develop a Cost Approach for half. There would certainly be a cost to rebuild if it burned down.
     
  5. Tim Hicks (Texas)

    Tim Hicks (Texas) Elite Member
    Gold Supporting Member

    62
    Jan 15, 2002
    Professional Status:
    Certified Residential Appraiser
    State:
    Texas
    Just remember the Marshall & Swift has a separate section for multi-families.
     
  6. Pat Butler

    Pat Butler Senior Member

    10
    Jan 17, 2002
    Professional Status:
    Certified Residential Appraiser
    State:
    Illinois
    Chris-- I agree that there would be some sort of replacement cost to replace the 1/2 unit if it burned down. BUT, that cost would not be the same as what the builder incurred when he built the ENTIRE building. His costs per unit would likely be lower due to the economy of scale. It's a matter of developing a replacement cost that represents the market, and I don't think there is a reliable way to do that unless you duplicate what the market does- namely, build two units together than sell them off separately.
     
  7. Tawfik Ahdab

    Tawfik Ahdab Senior Member

    3
    Feb 19, 2003
    Professional Status:
    Certified Residential Appraiser
    State:
    Oregon
    Right, Tim. However, are there land sales allowing tandem homes (that's what we call them here)? If not, then the cost approach does not apply. There is no departure if the approach is neither necessary nor applicable.

    If there are no land sales, the appraisal would still be a complete appraisal despite the omission of the cost approach, for the very good reasons Pat stated.
     
  8. Richard Carlsen

    Richard Carlsen Elite Member

    0
    Jan 15, 2002
    Professional Status:
    Licensed Appraiser
    State:
    Michigan
    Zero-lot line houses. We marketed some of those in the Kalamazoo market in the early 80's. Wood foundations. Drove the appraisers crazy. Almost all of them financed FHA.

    On the cost approach, figure what percentage the common wall is and reduce the cost of the wall by that 1/2 that amount. Simple. Bet the Cost Approach is close if you use the proper approach.
     
  9. Tim Hicks (Texas)

    Tim Hicks (Texas) Elite Member
    Gold Supporting Member

    62
    Jan 15, 2002
    Professional Status:
    Certified Residential Appraiser
    State:
    Texas
    You can do a cost approach to please the lender, just explain in your comments that the cost is to rebuild that side since that is the only feasible cost approach. However, it would seem that the income approach and sales comparison would be the best approaches to value. I would bet there is a high amount of rental properties in a duplex neighborhood.
     
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