Appraised value different from sales comparison value.

[CANative]

Do you need me to spell it out any more clearly?

Yes, please.

 

[Mr Rex]

FWIW .. I remember doing an appraisal with negative value.
Lot was worth $250- $500, but the structure was so bad, it needed demolition.

Lot was worth more than zero.

 

[CANative]

It's not that I disagree with you. In fact I was kind of with you until you wrote:

An appraisal with no cost approach is always a sign of appraiser overconfidence, or incompetence

Do a search of this forum going back almost 5 years and look for my name and the words cost approach. After you have spent a couple of days reading them we can have a discussion.

 

[Mile High Trout]

Greg, I digress

You cought me on the soapbox with that one.... But I maintain the appeal that to omit the cost approach is like calling yourself a Sally. Man up and do it every time. It's an important check to your own work. Many appraisers do not know this, because of "juggling" & "backing into" methods that they learned from their mentors. Marshall & Swift is not always accurate either. So there are some cases where the cost approach is not credible, in comparison to the market approach. But in most streamlined developments, it is a very effective check to value. The market approach should always be your final value, but the cost approach is a breakdown of expected value, based on national building trends, & extrapolated land value. I think that to remember the "principal of substitution", should help clarify my thinking, as to why these approaches are relevent to each other, and why the cost approach is an important benchmark indicator.

I can't figure out how to make my profile read certified!

 

[Abester]

All approaches are supposed to be market approaches if the purpose of the appraisal is to form an opinion of market value.

Since Steven is not here to say it, cost does not equal value.

 

[Mr Rex]

Streamlined developments? You mean where the market data is so overwhelming that costs are meaningless? Have you ever attempted to do the Cost Approach on a house using any other method except M&S or other national data? How many local builders do you cross reference to check the accuracy of the national data? I think I hear a warning. Beep, beep, beep.

 

[PropertyEconomics]

Mike. The three approaches to value oftentimes do not match up on a final appraisal. Many lenders & institutions insist that they should, but they are incorrect. The cost approach should ring in higher than the market approach, in a declining / distressed market. The cost approach should come in lower in a rising / bubble market. Land value should fluctuate up and down, to somewhat align these numbers, but they are only the same in a truly stable market.
The cost approach is an important benchmark value to indicate runaway or depressed markets. Marshall & Swift uses benchmark estimates to determine average building costs. If your subject home is outside of these ranges, that tells you the market is fluctuating, & land value is on the move, along with actual home valuation (not necessarily building costs). In many distressed markets, an income approach may yeild the highest value, as absorbtion rates increase for rentals, & decrease for private homes.
The cost approach should never be undeveloped, because it is a very important check to value, with every appraisal. An appraisal with no cost approach is always a sign of appraiser overconfidence, or incompetence. If you come up with two different figures, you must decide on one, & talk about that reasoning in your reconcilliation. The market approach is most relevent, & the cost approach may indicate to you weather a liberal or conservative approach to valuation is warranted. To adjust the land value to more closely align these numbers should yeild the most consistent results, & keep your provider happy.

Jeremy Hall
Jeremy Hall Appraisals
Thornton, CO

m2: :icon_idea:

Should make for a good conversation with Mr Santora.

 

[Abester]

If market data were perfect and perfectly applied, and the value conclusion is market value, why shouldn't all approaches applied reflect the same exact conclusion?

 

[Fred]

Steven Santora... is your cost approach "keyword" alarm not firing???

How's yours working? It's funny. I got a private message, too.

 

[Abester]

Steven,

I am not nearly as eloquent as you are on this subject. I'm kind of a hillbilly - not that there's anything wrong with that!