Cost Approach and those who "mail it in"

[CANative]

Fiddling around with GRMs on SFRs is an interesting diversion on a slow day but that's about it. If you keep a running tab you can do a test for reasonableness on the calculator in a few seconds. About the same as guessing at a site value, $/sf of RCN, and % depreciation based on a guess at the EA.

There's no reason to take all this to full development and including it in a 1004 for a lender.

 

[J Grant]

I actually think an IA on res property would make sense, at least for the underwriters, it is req in tenant occupied or investor purchase. It can show the gap between income value and SCA. In this low sale price market, the IA can be higher than the SCA, which is why many astute investors are purchasing now.

 

[CANative]

I actually think an IA on res property would make sense, at least for the underwriters, it is req in tenant occupied or investor purchase. It can show the gap between income value and SCA. In this low sale price market, the IA can be higher than the SCA, which is why many astute investors are purchasing now.

No it's not. You just have to provide a rental survey and sometimes an OIS. That's not an IA.

 

[Pittsburgh Pete]

[/b]

This is one of the unsupported, arrogant statements I refer to. I am bringing out legitmate arguments on why the approaches can differ, and you counter with...."You clearly don't understand the cost or income approach"....I can say the same about you, or anyone on this board. Making sweeping statements like this as if you were elected appraisal God and nobody else can question anything you say...I don't think you understand how it comes off sounding.

I don't really care how it comes off sounding. I'm merely telling you like it is. When you can make statements like "The GRM is rental income annual divided into sales prices, not extraced (sic) from sales...."

You can say I don't understand the cost or income approach but you'd be wrong. Some of your gross misconceptions are out there for everyone to see. Those that have a strong background in appraisal theory and technique know that you have some gross misconceptions.

Not an elected (or even appointed) appraisal God, but I know my stuff. No brag, just fact!

 

[J Grant]

Originally Posted by AnonApprsr
All three approaches are a market approach. I don't understand statements that differ. The cost is based on the costs in the current market. The sales comparison approach is based on sales in the current market. Income approach is based on incomes available in the current market.

Thats why its called MARKET VALUE .......

No, that's why it is called MARKET DATA.

The appraiser gathers maket data on the three approaches, verifies, analyzes etc, then the three approaches yield the indicated values, THEN the appraiser decides which one, or two, or three of the indicated values should be relied on/weighted as a credible support for the appraiser's OPINION of market value.

Your theory suggests that all three approaches should always yield market value, and if they don't , play with the data till they do.

 

[Pittsburgh Pete]

I actually think an IA on res property would make sense, at least for the underwriters, it is req in tenant occupied or investor purchase. It can show the gap between income value and SCA. In this low sale price market, the IA can be higher than the SCA, which is why many astute investors are purchasing now.

Sorry but still another ignorant statement (please note that ignorance reflects "lack" of knowledge). Investors would be buying because the sales prices (used in the SCA?) make economic sense in light of rent levels and demand. Lower sales prices will yield lower market extracted GRMs--can you see the connection? The approaches are all inter-related.

Will be in FL next week--need a private seminar? Give me a few hours and I may be able to straighten out your more egregious misconceptions (hey, I'm an optimist)!

 

[CANative]

play with the data till they do.

It's called sensitivity analysis.

If it doesn't make sense play with it until it starts to not make sense again. Then stop.

 

[Pittsburgh Pete]

Originally Posted by AnonApprsr
All three approaches are a market approach. I don't understand statements that differ. The cost is based on the costs in the current market. The sales comparison approach is based on sales in the current market. Income approach is based on incomes available in the current market.

Thats why its called MARKET VALUE .......

No, that's why it is called MARKET DATA.

The appraiser gathers maket data on the three approaches, verifies, analyzes etc, then the three approaches yield the indicated values, THEN the appraiser decides which one, or two, or three of the indicated values should be relied on/weighted as a credible support for the appraiser's OPINION of market value.

Your theory suggests that all three approaches should always yield market value, and if they don't , play with the data till they do.

And your theory suggests that they don't. All three approachies yield an indication of market value. The appraiser determines which approach has greatest applicability given the quality and quantity of data analyzed and the "leaning" of the current market.

 

[J Grant]

Investors would be buying because the sales prices (used in the SCA?) make economic sense in light of rent levels and demand. Lower sales prices will yield lower market extracted GRMs--can you see the connection? The approaches are all inter-related.

Yes, the approaches are all interconnected, and when we divide sales prices by GRM the value can be SCA value...however, on the accompanying income and expense statement, that spells it out in real dollars . Does the rental income support, or exceed the expenses (including mtge ), or does the income not support the payments? This, the profit after expenses, is how investors measure whether to buy our not.

In the previous high price market, the income did not cover expenses, no matter how an appraiser played with the GRM , so how did you account for that?

Underwriters rely heavily on that as well, which they should.

 

[J Grant]

And your theory suggests that they don't. All three approachies yield an indication of market value. The appraiser determines which approach has greatest applicability given the quality and quantity of data analyzed and the "leaning" of the current market.

They yield an indication of value, derived, of course, from market data. The appraiser forms an OPINION of market value relying on any or all of the value indicators from the three approaches.

One of your group, (forgot which one), posted that there is no such thing as market value, only the appraiser's opinoin of market value, which is an important statement.

The language after each approach say so. At the bottom of cost approach, for final tally, it says "indicated value by cost approach", not "indicated market value by cost approach", and ditto for the other two value approaches.

It does not ask for apprasiser's opinion of MV till after the reconciliation, where the appraiser states which of the value approaches were relied on, or not even developed, and explains why.