Extraction Method

[alebrewer]

Using only the subject property to extract the site value for the cost approach defeats the purpose of developing the cost approach. That is not a credible cost approach because then you are just putting in numbers in the cost approach section to match your final opinion of value. Why even do it.

Sorry, Joe, I was really talking about extracting the site value, not developing the cost approach. My only point was/is, that IF you have an accurate assessment of the market value of the subject property, and IF you have an accurate assessment of the contributory value of the improvements, then it necessarily follows that you'll have an accurate assessment of the site value. If you tell me that it's nearly impossible to derive (through the cost approach) an accurate assessment of the contributory value of the improvements, you'd get no argument from me.

 

[Mr Rex]

I'd love for you to direct me to any place where Fannie (or Freddie for that matter) has made an official statement that the appraiser can give weight to the cost and/or income approaches when reporting on the 1004. Seriously - I'm not being sarcastic.

B4-1.3-10: Cost and Income Approach to Value (04/15/2014)

 

[Zephyr999]

After reading through this (mostly) all I keep thinking is:
1) we are held against a standard of practice based on what our peers do, not don't do... 2) letting a form direct proper methodology and practice is shortsighted...
3) being 'coachable' in this world goes further in 'connecting the dots' than continuing to argue a position that does not meet #1 above.

 

[alebrewer]

B4-1.3-10: Cost and Income Approach to Value (04/15/2014)

Nowhere in that section does it say that the appraiser may give weight to the cost approach. I know I'll be lambasted that it 'infers' the appraiser may give weight to the cost approach, but that is an inference, not a statement. The reason, at least in my opinion (which isn't very popular here), is that Fannie doesn't care about the cost approach. In fact, in that section, it DOES say that, "Appraisals that rely solely on the cost approach as an indicator of market value are not acceptable." The don't care about the cost approach. They care about the sales comparison approach, hence Cert 4...

 

[alebrewer]

After reading through this (mostly) all I keep thinking is:
1) we are held against a standard of practice based on what our peers do, not don't do... 2) letting a form direct proper methodology and practice is shortsighted...
3) being 'coachable' in this world goes further in 'connecting the dots' than continuing to argue a position that does not meet #1 above.

To George's point, if someone were to judge me (at least in a professional/review capacity) based on my disdain for the cost approach, I'd be incensed - peers or no. And I can assure you that no state investigatory body would cite a breech of S1/S2 for choosing not to complete the cost approach (at least not the folks in Texas).

 

[Joe Flacco]

I wouldn't say it is nearly possible to get a fairly reliable estimate of contributory value of improvements. I mean you have to develop opinion of site value first. I might say it is nearly impossible to separate physical and functional depreciation.

 

[alebrewer]

I wouldn't say it is nearly possible to get a fairly reliable estimate of contributory value of improvements. I mean you have to develop opinion of site value first. I might say it is nearly impossible to separate physical and functional depreciation.

again, probably better fodder for a new thread, but I don't disagree with that at all. Even the textbook methodology for estimating functional obsolescence is rife with pitfalls...

 

[Zephyr999]

To George's point, if someone were to judge me (at least in a professional/review capacity) based on my disdain for the cost approach, I'd be incensed - peers or no. And I can assure you that no state investigatory body would cite a breech of S1/S2 for choosing not to complete the cost approach (at least not the folks in Texas).

IMO, choosing to not complete the Cost Approach because its misleading is not a supportable argument. The appraiser defines the SOW based on credible, not feelings. Why do you have such disdain for the approach? I'd suggest the book, In Defense of the Cost Approach as viable reading material...eye opening perhaps.

 

[alebrewer]

IMO, choosing to not complete the Cost Approach because its misleading is not a supportable argument. The appraiser defines the SOW based on credible, not feelings. Why do you have such disdain for the approach? I'd suggest the book, In Defense of the Cost Approach as viable reading material...eye opening perhaps.

Read it - and don't really disagree with it's postulates. To an earlier post, though, "And to clarify, IF: (a) the appraiser has an accurate assessment of site value, (b) an accurate assessment of RCN, (c) an accurate assessment of accrued depreciation from all forms (P,F,E), and (d) an accurate assessment of the contributory value of the site improvements, then I'll grant that the cost approach MIGHT return a meaningful estimate of market value. To djd's point, though, even the term 'market' in the type of value being appraised infers sales comparison (i.e. what the 'market' is doing). I would submit that the amount of research necessary to truly obtain accurate assessments of a, b, c, and d, make the cost approach prohibitive to perform, AND if an appraiser performs the cost approach without an accurate assessment of ALL of a, b, c, and d, he/she is potentially producing misleading results."

It is my professional opinion that I WOULD be potentially producing misleading results by performing the cost approach for residential assignments.

 

[alebrewer]

If someone thinks that entering a bunch of data into a M&S calculator, which then returns 'accurate' results, then there is nothing for me to argue with - kind of like arguing whether there is a God or not. In my opinion, though, it doesn't.