I think I will throw in a curveball.
WRT my market area, for appraisals of existing homes, the CA is simply meant as a check on the validity of the SCA. If the CA is $1.3M and the SCA opinion is $1.5 that is usually considered reasonable. The older the home, the less reliable and less useful the comparison of course.
But in such cases, the CA is meant to answer the question, why should you pay such and such for an existing SFR, when you can go out and build one for less money? Well, the answer for most would be that they either don't have the time to deal with it, or the knowledge to be their own developer. So, the assumption is that most would have to hire a developer to deal with the issues. However, that is really not necessary as most General Contractors can take care of everything just fine. They have a ready buyer and are pretty much ensured of payment - depending on the details of the contract.
The point is, in using the CA for existing homes, I am not sure that introducing the EP, especially the standard EP, is even appropriate. The Contractors Profit is all the General Contractor typically deals with. He is quite capable of locking all estimated funds in advance of construction; ....
Of course, no one wants to talk about this sort of thing, and would rather just sidestep the discussion, - because, for one thing, you need EP to bridge the gap to SCA and for another thing, everybody just does it. However, point being, all such discussion is kind of fruitless, the approach is seriously incapacitated to begin with.
My point is consistently, on this forum, - yea, there is a hell of a lot of BS in appraisal. This is of course another example. I would keep going back to Eratosthenes fairly exact and simple calculation of the circumference of the earth around 200BC. You really have to ask yourself how it is that people, smart people, could not figure this out for another 2000 years. Columbus was off by 25% compared to Eratosthenes 3%. Having an IQ doesn't mean much without the right kind of motivation and focus.
A very good book I can recommend is "Superhuman: Life at the Extremes of Our Capacity". I like this from the section on focus:
"One day we were visited by a highly respected master from another club. He was an old man, and we were given the honor of facing him in combat practice. He held his shinai carelessly, drooping almost, so it grazed the floor. When it was my turn he seemed to be looking away, lost in thought. I was facing him in the usual pose, shinai raised and poised. Yet when I went to attack him—it would require only a small, fast movement to strike his head with my sword—he moved in a way I couldn’t afterward adequately describe. With insane rapidity yet somehow also with apparent casualness, he raised his weapon and struck my helmet before I could complete my strike. Immediately afterward he took on once more the appearance of a distracted old man. For the merest instant he had revealed his true self. Okay, the anecdote may say more about my poor technique than it does about the old man’s Yoda-like ability, but when he had left, my kendo sensei said the old master had extraordinary powers of concentration and reaction, honed over many decades of practice. He lived in the now. The old man encapsulates what we’re going to explore in this chapter: the ability to focus, to concentrate, and to react. Attention is a quality like the flame of a candle. It is ungraspable yet needs tending; it is always moving; it changes as you look at it. It is the “now” we live in. This is going to sound like a Zen koan, but those who can master the now will be able to perform at a higher level. Those who can focus their minds can achieve great things. …. (Hooper, Rowan. Superhuman: Life at the Extremes of Our Capacity (Kindle Locations 1239-1250). Simon & Schuster. Kindle Edition. )
Getting back to the CA. No one replied. Sensing I suppose a trap.
Yea, the EI and EP are BS for the CA, residential appraisal of existing construction.
It's "CONVENIENCE". Yea. People don't go out and build their own homes because they don't want to deal with it. You can add all kinds of ifs, and buts. But it comes down to CONVENIENCE. The gap between the true cost and market value is convenience. You could measure it. You could make some tables. EP is effectively the same as Convenience. Only Convenience has absolutely nothing to do with profit.
EI? What good is EI? Whatever the contractor makes it, if it is too high, it will sell for MV and EP wins, - simple as that. If it is too low, of course it gets raised to MV and EP wins. EI is for the CA NONSENSE.
And EP is a misnomer. It is what the home buyer is willing to pay for an existing home, new or used, above the cost of construction, and, well, the consumer doesn't know a thing about the costs. It is for the convenience of not building his own home.
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