Accurately Calculate Market Value (m = c - d + r)

[App3000]

The current equation for determining the contributory value of a feature is incomplete.


This current equation comes from the depreciated cost method which is market value (m); equals the cost to build the improvements new (c); minus any depreciation (d); plus the cost of the site (s); or (m = c - d + s).


This equation has been modified to determine the contributory value of a feature, such as an In-ground pool, enclosed deck, flooring, upgraded kitchen, bathrooms, etc., by removing the site factor (s) since it no longer applies. Leaving the equation of (m = c - d).


However, this modification has left the equation incomplete as it only works part of the time.


The correction to the equation is to add for (r) or return-on-investment (ROI), which can be a positive or a negative value.
The complete and correct equation is (m = c - d + r).


The reason the current equation would work part of the time is when the correct variable for r equals zero or (r = 0). However, when the correct variable for (r) would differ from zero (0) then the equation would produce incorrect results.


Again, the correction to the equation is to add for (r) or return-on-investment (ROI), which can be a positive or a negative value.
The complete and correct equation is (m = c - d + r).


Please see my attached report for a more detailed explanation.

 

[Terrel L. Shields]

"This report is not intended to discuss how to determine the return-on-investment"​

Therein lies the rub. If you extract the contributory value you don't need to do a depreciated cost - call it "return on investment" or not.

The buyer of a property may not even want a pool, as an example. They may have to pay for a pool to get the property. So the calculus relates to the pairing of such rather than a mechanical discount to cost. What does the general market do in reaction to a pool. Where I am, you probably would have to take a serious discount beyond mere physical deterioration. You need to estimate some discount based on the functional obsolescence it represents - a super-adequacy.

Likewise, if you have a 30 year old house, and upgrade the kitchen with granite countertops, top of the line appliances and tile floors, etc. the kitchen replaced a kitchen that was likely functional "as is" (or was) and why would we expect the new kitchen to not take on the effective age of the remainder of the house? So you have 2 issues. First the deduction for the loss of the original kitchen and the expense of the new one....

ROI is nice when you can actually determine it. Maybe the 300 SF storage shed replaces a $40/mo. storage in a local mini-storage space. There are better ways to skin a cat without getting this much hair in your teeth.

 

[Elliott]

Here's the problem, tho, there are at least 6 significant variables to the valuation of house and land components. To be able to determine value the 6th root has to be in balance with the other five. Thus,




So far no one has been able to accomplish the 6th root. Z is equal to Zestimate.

 

[App3000]

"This report is not intended to discuss how to determine the return-on-investment"​

Therein lies the rub. If you extract the contributory value you don't need to do a depreciated cost - call it "return on investment" or not.

The buyer of a property may not even want a pool, as an example. They may have to pay for a pool to get the property. So the calculus relates to the pairing of such rather than a mechanical discount to cost. What does the general market do in reaction to a pool. Where I am, you probably would have to take a serious discount beyond mere physical deterioration. You need to estimate some discount based on the functional obsolescence it represents - a super-adequacy.

Likewise, if you have a 30 year old house, and upgrade the kitchen with granite countertops, top of the line appliances and tile floors, etc. the kitchen replaced a kitchen that was likely functional "as is" (or was) and why would we expect the new kitchen to not take on the effective age of the remainder of the house? So you have 2 issues. First the deduction for the loss of the original kitchen and the expense of the new one....

ROI is nice when you can actually determine it. Maybe the 300 SF storage shed replaces a $40/mo. storage in a local mini-storage space. There are better ways to skin a cat without getting this much hair in your teeth.

ROI is not that difficult to determine if your willing to take the time to do the research. No different than determining the cost to build new or the amount of depreciation. It is just one more variable we must account for in order to be accurate and truly understand the adjustment. Also, the equation (m = c - d + r) can help you determine the ROI by solving for (r).

 

[Terrel L. Shields]

ROI is not that difficult to determine

Sure it is...

 

[glenn walker]

In my investment book If I -We can extract the contributory value it may or may not have any effect on my ROI because Contributory value is often confused with Utility Value but in reality it rarely adds any real value to the property physically or financially or increase the net cash flow or ROI.

Also contributory value is most all in the eyes of the beholder and is something where different market participants being the buyers and sellers determine. In my book to include it in your physical depreciation and then also want to include it in your ROI is a flawed model.

Example:
We had once purchased a 20 unit building that had an-Olympic Size Swimming Pool in the Center of the Courtyard. The CG who appraised it gave some big number for the pool like $75,000 and me being-young and dumb thought people would pay higher rents if they could enjoy this amenity which would also increase our ROI. We closed escrow and summer hits-Pool parties-no life guard-insurance carrier raises our premiums and finally it was a total nuisance that most of the tenants did not like and we were scared to death someone would drown in it. So we ended up in year two getting a demo-permit-breaking out the bottom and bringing in load after load of expensive fill dirt and compacting it. Then months later we found out it had not been compacted properly and more money spent. All total over a $35,000 loss all based on my ignorance of thinking like the CG that it was a positive for both contributory and ROI. After that I learned to never mix up or confuse the two.

 

[George Hatch]

ROI is otherwise called profit. Or loss, which a lot of people don't really consider unless/until they think of the investor's end in those terms.

The GSE forms and their variants use a truncated CA analysis. This is what a CA from a commercial appraisal report form looks like, and how CAs are commonly done in narrative reports. They're covering the same items but with more specificity, whereas the more abbreviated versions are aggregating these items into the price/sf itself.

 

[RCA]

The current equation for determining the contributory value of a feature is incomplete.


This current equation comes from the depreciated cost method which is market value (m); equals the cost to build the improvements new (c); minus any depreciation (d); plus the cost of the site (s); or (m = c - d + s).


This equation has been modified to determine the contributory value of a feature, such as an In-ground pool, enclosed deck, flooring, upgraded kitchen, bathrooms, etc., by removing the site factor (s) since it no longer applies. Leaving the equation of (m = c - d).


However, this modification has left the equation incomplete as it only works part of the time.


The correction to the equation is to add for (r) or return-on-investment (ROI), which can be a positive or a negative value.
The complete and correct equation is (m = c - d + r).


The reason the current equation would work part of the time is when the correct variable for r equals zero or (r = 0). However, when the correct variable for (r) would differ from zero (0) then the equation would produce incorrect results.


Again, the correction to the equation is to add for (r) or return-on-investment (ROI), which can be a positive or a negative value.
The complete and correct equation is (m = c - d + r).


Please see my attached report for a more detailed explanation.

Well yes, that equation pretty much explains things. Only it is absolutely useless. You can't actually get "r" without determining "m" and vice versa. It's a circular dependency. Of course, the caveat being that you have failed to accurately define your terms. I assume ROI is determined by the resulting market value, because otherwise the equation is not categorically true.

This is BS.

 

[jay trotta]

ROI is not that difficult to determine if your willing to take the time to do the research. No different than determining the cost to build new or the amount of depreciation. It is just one more variable we must account for in order to be accurate and truly understand the adjustment. Also, the equation (m = c - d + r) can help you determine the ROI by solving for (r).

You do realize the woman drives the deal and the man writes the check ( only to feel useful in the transaction )

 

[Terrel L. Shields]

You do realize the woman drives the deal and the man writes the check

So now with more women graduating college than men, making more money than men, still demanding "her man" make 150% of her income, and winning in court 90% of the time, why more men are asking, "Do I want to play this game?"

You can't actually get "r" without determining "m" and vice versa. It's a circular dependency.

If an easy formula, who needs us?