Is The Cost Approach A Real Thing?

[DevinMcD]

Can someone try and explain the cost approach? I am a trainee and just submitted my work samples to BREA for review (5 samples?!), and I do not really understand the cost approach enough to be asked about it. More often than not there are zero land sale in the same zip code as my subject let alone a comparable lot. I have spoken with a few appraisers and it seems like they just make up some information and throw it into the cost approach section. Is there a comment that appraisers are putting into the text addendum that explains what is going on or are we all just hoping that the state does not get a copy of the report? Am I supposed to break down every aspect of the dwelling from the cost of 2 by 4s to the cost of the tile grout or is there an "easy" way to arrive at a cost per square foot in my market area?

Please Help!

 

[Dublin ohio]

Can someone try and explain the cost approach? I am a trainee and just submitted my work samples to BREA for review (5 samples?!), and I do not really understand the cost approach enough to be asked about it. More often than not there are zero land sale in the same zip code as my subject let alone a comparable lot. I have spoken with a few appraisers and it seems like they just make up some information and throw it into the cost approach section. Is there a comment that appraisers are putting into the text addendum that explains what is going on or are we all just hoping that the state does not get a copy of the report? Am I supposed to break down every aspect of the dwelling from the cost of 2 by 4s to the cost of the tile grout or is there an "easy" way to arrive at a cost per square foot in my market area?

Please Help!

There are various published sources for the building data for the cost approach and there is more than one way to determine site value. Allocation, extraction, depreciated cost analysis

 

[Fernando]

You need to brush up on cost approach especially different ways in determining land value like extraction and such which I forget. Discuss reproduction and replacement cost and all that BS.
Then you would sound like you know what you are doing.

 

[Dublin ohio]

You need to brush up on cost approach especially different ways in determining land value like extraction and such which I forget. Discuss reproduction and replacement cost and all that BS.
Then you would sound like you know what you are doing.

Just a heads up DevinMcD. "Pay no attention to the man behind the curtain"

 

[Fernando]

You don't have to write pages of the Cost Approach like Dublin wants you to do.
Just state why the Cost Approach is not the best approach (state reasons) and not applicable to Fannie Mae or such and you'll be fine.
Just like HBU. State it and explain more with those canned comments you should have. You'll learn, grasshopper.

 

[Dublin ohio]

You don't have to write pages of the Cost Approach like Dublin wants you to do.
Just state why the Cost Approach is not the best approach (state reasons) and not applicable to Fannie Mae or such and you'll be fine.
Just like HBU. State it and explain more with those canned comments you should have. You'll learn, grasshopper.

Just a heads up DevinMcD. "Pay no attention to the man behind the curtain"

 

[Artemis Fowl]

https://www.boe.ca.gov/proptaxes/pdf/ah53120.pdf

Specific to assessing but good to know anyways. Extremely similar to M&S Costbooks.

 

[Tim Hicks (Texas)]

I still do the cost approach on just about every appraisal. They are quite relevant on new construction for fairly new homes. Marshall and Swift is very reliable around here. Most times I hear there are no lot or land sales I find quite the opposite. Made up cost approaches and made up land values come back to haunt you under review.

 

[Fernando]

You need to know your area. Around here, there are hardly any land sales which is why Cost Approach is not very reliable (say something like that if your area is like that).
Depreciation is also difficult to determine (say something like that).
If new home, the actual cost of construction is more accurate than an old building.
Know the advantages and disadvantages of the Cost Approach.

 

[Artemis Fowl]

Former member MCG was very diligent about tracking land sales in his area he would use for his work. He would get his data from mostly from visiting local assessor offices for sales. MLS does not have everything. I do a combination of Land Residual, Allocation and Sales to help determine values in developed areas. Helps to have access to multiple years' worth of multiple databases.