External obsolescence prove it exists

[xm72mhd]

That's a perfect example of the market not recognizing or meeting the 'cost' or cost doesn't equal or exceed value. In the case you cite it's because of externalities, i.e, poor economy. In fact, I've done it myself.

OK, its perfect. Now, how do arrive at what it is worth? In other words how do you support your estimation that the local economy, or for that matter whatever economy, is affecting the value by decreasing the cost approach by say 10% external depreciation?

 

[xm72mhd]

That's a perfect example of the market not recognizing or meeting the 'cost' or cost doesn't equal or exceed value. In the case you cite it's because of externalities, i.e, poor economy. In fact, I've done it myself.

Actually I said the other guy said it was poor economy. I'm not so sure, and it might just be a different economy. And if we do use economy as the cause of EO, what is the benchmark?

Another question. How can you describe EO as being the result of local, or wherever economics, in order to explain why the cost approach does not support the sales approach? Could the difference not be explained as over production (over building) in the segment of the market you are dealing with (in this case multi-family housing)? In other words and in keeping with the original question, not only how do you prove it, but how do you prove what it is?

 

[Joyce Potts]

Where does anyone extract any obsolescence from? How about the market? Currently the Central Florida Market is experiencing oversupplied market conditions in many cases. I take each case on a sub-market basis and ANALYZE ALL THE MARKET DATA. Combined with all the media and MLS reports about what the market is doing. It's not rocket science.

Make your case and logically support your arguments makes more sense to me than appraiser who uses three closed sales and refuses to remove his blinders as to what external influences may be affecting the value of his property today and perhaps next week.

So how do you do it, Eddy?

 

[Webbed Feet]

Mr. Gillespie, Ms. Potts,

Recent site sales should have been used to develope the opinion of site value. If recent site sales were not found, then the site value should have been found using either extraction or allocation, or even both used for consideration.

IF any of the above had been properly done, this so called EO for "poor economy" would have inherently been reflected in the opinion of site value because it also, if the site sales or comps used for extraction / allocation are properly selected, reflects the location of the subject. Since "economy" is affecting the entire general area, and not a case of an external smelly junk yard next door, this is a discussion of market location and not appropriately one of an adjustment for external depreciation that should only affect some properties in some of the area. Not ALL properties in the entire area which should be reflected already in the comps!

To then AGAIN adjust for "Poor Economy" affecting the entire area IMO is now either double dipping or showing a sucky job of site value analysis was done in the first place with a later adjustment pulled out of thin air, with no support for it, to correct the lousy site value opinion.

Also, if the cost to build even the physical depreciated improvement is so great no one will pay it in the area due to a lack of jobs, we are only proving either the houses have all come to the end of their economic lives and the H&BU analysis for one SFR improvement is incorrect, or the value of a SFR site in the area has to decline. It either is not ecomomcally affordable to build a SFR house there due to costs to do so versus the contributory value to the land and land costs, so the land is no longer appropriate for SFR, or the value of the land (location) has to go down until it is economcally feasible.

The site value should have been much lower and the SCA probably SHOULD have had negative market condition (time) adjustments in it. The appraiser used historical land sales, unadjusted for market conditions (time) in a declining market, and opined a land value too high as a result.

 

[Couch Potato]

Mr. Dayton, hopefully I will have more time later to go into detail, but for now I will just say I disagree with your logic and conclusions.

 

[Lawrence R.]

I am sick of agreeing with you!

Mr. Gillespie, Ms. Potts,

Recent site sales should have been used to develope the opinion of site value. If recent site sales were not found, then the site value should have been found using either extraction or allocation, or even both used for consideration.

IF any of the above had been properly done, this so called EO for "poor economy" would have inherently been reflected in the opinion of site value because it also, if the site sales or comps used for extraction / allocation are properly selected, reflects the location of the subject.

(edited for time)

To then AGAIN adjust for "Poor Economy" affecting the entire area IMO is now either double dipping or showing a sucky job of site value analysis was done in the first place with a later adjustment pulled out of thin air, with no support for it, to correct the lousy site value opinion.

(edited for time)

The site value should have been much lower and the SCA probably SHOULD have had negative market condition (time) adjustments in it. The appraiser used historical land sales, unadjusted for market conditions (time) in a declining market, and opined a land value too high as a result.

Land doesn't have a cost to produce, that is why you don't depreciate it. In the cost approach, as Mr Feet says, you use a market based opinion of site value. Not a cost based analysis. You can't "build" land. I know some snarky snark will come up with some example like in Holland, Japan, or Hawaii, but for our purposes, you can't build a lot with materials bought at Lowe's.

Any sort of depreciation, physical, functional or otherwise has already been affected in the marketplace.

 

[xm72mhd]

Mr. Gillespie, Ms. Potts,

Recent site sales should have been used to develop the opinion of site value. If recent site sales were not found, then the site value should have been found using either extraction or allocation, or even both used for consideration.

IF any of the above had been properly done, this so called EO for "poor economy" would have inherently been reflected in the opinion of site value because it also, if the site sales or comps used for extraction / allocation are properly selected, reflects the location of the subject. Since "economy" is affecting the entire general area, and not a case of an external smelly junk yard next door, this is a discussion of market location and not appropriately one of an adjustment for external depreciation that should only affect some properties in some of the area. Not ALL properties in the entire area which should be reflected already in the comps!

To then AGAIN adjust for "Poor Economy" affecting the entire area IMO is now either double dipping or showing a sucky job of site value analysis was done in the first place with a later adjustment pulled out of thin air, with no support for it, to correct the lousy site value opinion.

Also, if the cost to build even the physical depreciated improvement is so great no one will pay it in the area due to a lack of jobs, we are only proving either the houses have all come to the end of their economic lives and the H&BU analysis for one SFR improvement is incorrect, or the value of a SFR site in the area has to decline. It either is not ecomomcally affordable to build a SFR house there due to costs to do so versus the contributory value to the land and land costs, so the land is no longer appropriate for SFR, or the value of the land (location) has to go down until it is economcally feasible.

The site value should have been much lower and the SCA probably SHOULD have had negative market condition (time) adjustments in it. The appraiser used historical land sales, unadjusted for market conditions (time) in a declining market, and opined a land value too high as a result.

Not withstanding your detractors I agree with what you have said about the entitled site values reflecting economic conditions. Deducting it again as external obsolescences doubles the dipping. Let's see what Greg does with it.

larryroscoe1 says,

that is why you don't depreciate it.

Are you really sure about that when it comes to external obsolescences?

It's not rocket science.

Make your case and logically support your arguments makes more sense to me than appraiser who uses three closed sales and refuses to remove his blinders as to what external influences may be affecting the value of his property today and perhaps next week.

So how do you do it, Eddy?

Joyce

Depends on the occasion and who wants what, when and how. My mother is the only other person who has ever called me Eddy and she's in her 90's. Have you met?

You may have missed the example I gave you, but I agree the market is most likely a good place to look for market information. Now this economic obsolescence could be attributed to over-supply, but that isn't what the guy said, he said economy not oversupply. To my recollection the economy has been more or less shot for a score of years. I just wonder with what do we compare? You'd think after 20 +- years Marshall would have detected it and done something about our local cost multiplier.

 

[Webbed Feet]

Mr. Dayton, hopefully I will have more time later to go into detail, but for now I will just say I disagree with your logic and conclusions.

Mr. Myers!..

I look forward to it... Be kind to me though because I typed that really fast just before a dental cleaning appointment I almost made myself later for... I bet someone can catch me misspeaking on something in it somewhere without 100% thinking about what I said.. LOL!

But that is the fun of the forum... it sure keeps a person on their toes!

 

[Joyce Potts]

Not withstanding your detractors I agree with what you have said about the entitled site values reflecting economic conditions. Deducting it again as external obsolescences doubles the dipping. Let's see what Greg does with it.

larryroscoe1 says,

Are you really sure about that when it comes to external obsolescences?



Joyce

Depends on the occasion and who wants what, when and how. My mother is the only other person who has ever called me Eddy and she's in her 90's. Have you met? (No, but I'm close)

You may have missed the example I gave you, but I agree the market is most likely a good place to look for market information. Now this economic obsolescence could be attributed to over-supply, but that isn't what the guy said, he said economy not oversupply. To my recollection the economy has been more or less shot for a score of years. I just wonder with what do we compare? You'd think after 20 +- years Marshall would have detected it and done something about our local cost multiplier.

Your first problem is you're relying on Marshall and Swift. I missed the memo that they were the Bible of the cost industry, because in my market, they're usually off about 15% to 20%.

This is not about the land. Textbook speaking, land doesn't depreciate. It is what it is. Functional and external/locational obsolesence has solely to do with the diminished value to the improvements, NOT THE LAND, Sonny.

 

[Webbed Feet]

HER:
They say we're young and we don't know
We won't find out until we grow
HIM:
Well I don't know if all that's true
'Cause you got me, and baby I got you
BOTH:
Babe, I got you babe, I got you babe
HER:
They say our love won't pay the rent
Before it's earned, our money's all been spent
HIM:
I guess that's so, we don't have a pot
But at least I'm sure of all the things we got
BOTH:
Babe, I got you babe, I got you babe
HIM:
I got flowers in the spring
I got you to wear my ring
HER:
And when I'm sad, you're a clown
And if I get scared, you're always around
Don't let them say your hair's too long
'Cause I don't care, with you I can't go wrong
HIM:
Then put your little hand in mine
There ain't no hill or mountain we can't climb
BOTH:
Babe, I got you babe, I got you babe
HIM: I got you to hold my hand
HER: I got you to understand
HIM: I got you to walk with me
HER: I got you to talk with me
HIM: I got you to kiss goodnight
HER: I got you to hold me tight
HIM: I got you, I won't let go
HER: I got you to love me so
BOTH:
I got you babe, I got you babe
I got you babe, I got you babe
I got you babe


Something reminded me of this song... I thought everyone would enjoy it one more time!!!!!!