abstraction and the cost approach

[Renee Borne]

what is this? I was told there was no such thing as abstraction for site value. I don't use this. If the cost approach is not requested or needed to support value I don't use. I am reviewing an appraisal and they used "abstraction" why don't they just search for vacant land in the city (which there is) and use that. sounds like someone not doing their job. What do you think. Had a class the other week and teacher also said no such thing as abstraction in cost approach.

Thanks

 

[Tawfik Ahdab]

Abstraction is a misuse of the term "extraction", a site valuation technique..

 

[Ryan Bailey]

I work in the Greater Phoenix Area where the majority of homes are located within a planned developments and are tract homes. Determining actual lot value is very difficult so depending on what the assignment calls for I will sometimes use this comment and use he extraction method...I haven't had any comments or concerns in five years.

"Due to a lack of residential lot sales from within the subject marketing area and since the subject is located within a PUD where lot sales don't typically occur the extraction method was used in estimating the site value. This was done by subtracting the depreciated replacement cost of the improvements from the total property value to arrive at an indicated land value. It should be noted that the extraction method is less reliable than the direct comparison approach."

I use Marshall and Swift to calculate the cost of the improvements...

 

[The Warrior Monk]

You'll see "abstraction" used in reviewing a lot. Many appraisers use that statement in lieu of looking up land sales.

 

[Artemis Fowl]

ab·strac·tion /æbˈstræk

ʃən/ [ab-strak-shuh

n]
–noun
1.an abstract or general idea or term.
2.the act of considering something as a general quality or characteristic, apart from concrete realities, specific objects, or actual instances.
3.an impractical idea; something visionary and unrealistic.
4.the act of taking away or separating; withdrawal: The sensation of cold is due to the abstraction of heat from our bodies.
5.secret removal, esp. theft.
6.absent-mindedness; inattention; mental absorption.

I'd be willing to bet that most uses of this term you see while reviewing more closely resemble 2, 3 & 6...with heavy emphasis on 6. Funny how it's still the correct terminology!

 

[Steve Owen]

Good one, Artemis.

why don't they just search for vacant land in the city (which there is) and use that. sounds like someone not doing their job.

That's what it sounds like to me, too.

Extraction is a perfectly valid technique, which should provide a good indication of underlying land value and should be used when there are no valid comparable sales available within a reasonable distance and time frame... IMHO.

 

[Ryan Bailey]

It's pretty hard to find lot sales in an planned development with similar HOA, deed restrictions, etc... Yes, I could try to make adjustments for lot sales located in a custom home subdivision, an acreage style lot, or maybe find a tear down, etc... but they would be hard to justify. I'm honest and come right out and say that I couldn't do anything but abstraction method, I know many appraisers who won't disclose their methods, because they don't have one other than a SWAG. If you do a lot of MCRV's you have a shot doing the subdivision development method, but if you don't MCRV's you wouldn't have a clue and be hard pressed to get the pertinent info. I have had a lot of appraisers PREACH to me on this site, over the phone and in person that they find lot sales, but I would bet that my numbers are better than theirs.

Rant over...

 

[Joyce Potts]

You'll see "abstraction" used in reviewing a lot. Many appraisers use that statement in lieu of looking up land sales.

David,

That's a pretty broad, tainted and slanted statement, don't you think?

How about given the absence of lot/land sales, the appraiser uses the extraction method on various other improved comparables sales?

 

[Joyce Potts]

She didn't ask about your personal views or experiences in doing ga-zillions of reviews. She simply asked if about the term 'abstraction', which I think she's confusing with the often used TERM and METHOD of EXTRACTION.

Lighten up.

 

[Ryan Bailey]

David,
How do you find lot sales with similar covenants, deed restrictions, HOA's, etc...in a subdivision where a builder comes in and develops entire tracts of land. You can't justify using a custom home lot for sure. You might be able to use the custom home lot as your upper limit, and that's a big maybe... If you do use dissimilar style lots how do you justify your adjustments?

I want to know what lot sales you use in a neighborhood that has been built out for 5 years, only has 5 floor plans in it, and is surrounded by other homes in tract style subdivisions that are all 5 years old.

What type of appraisals are you talking about where an appraiser would show any of their basis for calculations, a narrative report??

Please educate me!

Thanks,
Ryan