Is The Cost Approach A Real Thing?

[RCA]

... and it seems like they just make up some information and throw it into the cost approach section.

Oh yea. "make-up".

You use the Cost Approach to get a value for improvements of a comparable and then subtract that from the net sale price to get an estimate of the land value. Then you add the that estimated land value back on to your estimate of the cost value of the improvements to get total value - which by definition is the net sale price. Cat chasing its tail, kind of. But if you do this for a number of comparables, you can probably develop a model for land value in terms of $/sf for lots. Then you can apply that to you subject to estimate the value of the land/lot. Then use the CA to estimate the value of the subject improvements. Add the two to get an estimate of the value of the subject property. Certainly this is better than nothing.

 

[Surf Cat]

Five pages of cost approach blither and the op, aside from his/her opening questions/ comments....hasn't asked, commented, or replied to anything. What a jip....

 

[Terrel L. Shields]

Five pages of cost approach blither and the op, aside from his/her opening questions/ comments....hasn't asked, commented, or replied to anything. What a jip....

OP is enjoying the clown show...no time to post.

 

[andrew81]

The 30-second CA process that a lot of appraisers use should never be assumed to be well refined.

I am posting this as a generality that every appraiser already knows. It can take 30 seconds to develop an opinion. However, that 30 second opinion is based on years of research.

I'm a form filler appraiser and do not include the cost approach except for the few times a client requests it.

With my limited knowledge and experience I find it interesting that when I actually do fill out the CA section of the form it takes about 30 seconds. And somehow magically it comes close to the SCA. I do not alter the numbers to "make it happen". Filling out the CA section of the form can take 30 seconds, however, the research and development can take hours or even days. Yes, I must admit that I use online marshall and swift SwiftEstimator by corelogic. The most time consuming portion is researching and verifying land sales. There are basically 0 (zero) land sales on the MLS, only a few agricultural each year. To find land sales still requires going to the court house and sifting through the sales documents. I perform the research of land sales about every 2 or 3 months when doing a land only appraisal and keep the information on file when needed.

 

[Terrel L. Shields]

There are basically 0 (zero) land sales on the MLS,

Where are you? Long Island? LA County? One guy complained no land sales in San Diego County...I found 600 on Zillow???

 

[andrew81]

Where are you? Long Island? LA County?

Yep, Illinois is Long Island and/or LA County.

I am in the western part of Illinois along the Mississippi River. Otherwise known as Forgottonia.
https://en.wikipedia.org/wiki/Forgottonia

One guy complained no land sales in San Diego County...I found 600 on Zillow???

You are referring to this post, in this same thread.
https://appraisersforum.com/forums/threads/is-the-cost-approach-a-real-thing.237512/post-3370595

...

Ok I'll play along. Zillow does has one land/lot sale in the last 36 months in my zip code, sale price $1,500. I haven't looked on MLS or online sources in years. The best source is assessment records.

It was purchased by someone with a tax bill address 275 miles away.

Here is the google street view, gis, and online county record of the one zillow land/lot sale.

 

[J Grant]

Where are you? Long Island? LA County? One guy complained no land sales in San Diego County...I found 600 on Zillow???

Well you are not in SD county, Terrel. I have a good friend that appraiser in San Diego County ( she lives there ). SD County is huge - much of it is populated, but there are also a few sizeable areas that are agricultural or vacant land. Likely, the majority of the Zillow sales is in THOSE areas and not the highly populated areas people complain about lack of land sales in.

It is the same way in my county, Palm Beach County - it is very large, much of it popular, yet a large watch west is agricultural of vacant. An area person can say oh Eurkeka!! Look at all the land sales I found in PB County!! Yes, but most of them are not anywhere near or ocpmargel to the built-up areas where the bulk of residential appraising takes place.

 

[Terrel L. Shields]

where the bulk of residential appraising takes place.

There were plenty of small lot sales to develop a CA. look for yourself - zillow - mark sold, deselect all categories and selct lots/land

 

[andrew81]

There were plenty of small lot sales to develop a CA. look for yourself - zillow - mark sold, deselect all categories and selct lots/land

I know this post wasn't directed to me, but also, I never said I couldn't find land/lot sales to support a cost approach. I said, "The most time consuming portion is researching and verifying land sales. There are basically 0 (zero) land sales on the MLS, only a few agricultural each year. To find land sales still requires going to the court house and sifting through the sales documents."

 

[George Hatch]

Well you are not in SD county, Terrel. I have a good friend that appraiser in San Diego County ( she lives there ). SD County is huge - much of it is populated, but there are also a few sizeable areas that are agricultural or vacant land. Likely, the majority of the Zillow sales is in THOSE areas and not the highly populated areas people complain about lack of land sales in.

It is the same way in my county, Palm Beach County - it is very large, much of it popular, yet a large watch west is agricultural of vacant. An area person can say oh Eurkeka!! Look at all the land sales I found in PB County!! Yes, but most of them are not anywhere near or ocpmargel to the built-up areas where the bulk of residential appraising takes place.

I appraise in SD county and I can appraise land parcels anywhere in town. Including the older areas that are fully built out. Same throughout the other counties in this region. It just takes more time, effort and research than pumping out a 1004 on a tract home, and it usually requires the use of a wider geographic area and more adjustments to compensate for location and other attributes. Bear in mind that the buyers/sellers of land parcels are not the same as for properties with an existing use.

The main reason to not use a CA is if none of the market participants are using it. Which is almost always the case for existing uses. Just because it's possible doesn't automatically make it necessary to get to MV. I daresay the inclusion of a CA in most SFR assignments calling for it will be driven by the user's request, not the appraiser's need of it to get to MV.

"Cost approach was not necessary to develop an opinion of MV but is included solely at the Client's request."

If/when that's the case.