I must be missing something.
I have done everything I can to point out that “reference” you need is replacement cost only and doesn’t entail the “approach” to market value part. In fact, what I keep seeing is explanations that show how the cost approach depends on value found elsewhere, rather than find anything on its own.
Go back to post 130 where Jim extracted the location difference and post 131 where Greg, broke it down, $7,000 by land values and backed into the external obs for a cost approach. These demonstrations of making the cost approach “work,” always seem dependent on already knowing what the property is worth.
The cost is your point of reference in measuring the obsolesence. To have obsolesence you have to have some kind of market reaction to measure against the cost.
All 'obsolescence' is (is) basically measuring the 'cost' vs. what the market will bring. Whatever the difference, equals the amount of the obsolesence. So I guess if you want to call that backing into it, you're right.
Now I'd like to hear some responses to the following:
I buy a vacant lot for $300,000 and build a 5,000 sf home for $700,000 for a total expenditure of $1 Mil.
The problem is I built it in an area where the surrounding homes are generally 3,500-4,000 sf with a predominant value of around $700,000.
After adequate market exposure, the highest offer I had on the property was $800,000. Therefore, there appears to be $200,000 worth of obsolescence. Correct?
1 - Is that an example of functional or locational obsolescence?
2 - What went down in value? The lot or the improvements?
3 - Without the market reaction to the finished product, how else do you measure the obsolesence?
