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Cost Approach Almost Double!

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AppraizinAZ

Junior Member
Joined
Dec 31, 2006
Professional Status
Certified Residential Appraiser
State
Arizona
I rarely have a problem with a cost approach but this one is giving me trouble. I use National Building Cost for my cost approach and it has always been extremely close and is very detailed. My problem is I have a 3 story 6900SF Santa Barbara/Tuscan style property. ALL COMPS are model matches in the subdivision. CRAZY right? However, my cost approach is coming out almost DOUBLE my final opinion of value.

Does anyone have some guidance on this one? I've never run into this problem before and I'm scratching my head! Thanks in advance for thoughtful responses.
 

BRCJR

Elite Member
Gold Supporting Member
Joined
Sep 20, 2005
Professional Status
Licensed Appraiser
State
Virginia
Do the cost from M&S and compare to the other cost data results.
Go to Lowes or Home Depot and ask them to run costs on the subject for you.
Something is skewed.....
 

J Grant

Elite Member
Joined
Dec 9, 2003
Professional Status
Certified Residential Appraiser
State
Florida
It's selling for less than cost to build. It happens. The problem is appraiser manipulating data on cost approach to make things line up, rather than seeing what results are.

Other things to consider however are if land value is correct. If these homes are selling for less than cost to build, could be an over improvement. Or not. Sometimes the two simply don;'t match up. If one applies market obs ( loss of value ) to cost approach it then comes down closer to sale values.
 

TRESinc

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Joined
Dec 1, 2011
Professional Status
Licensed Appraiser
State
Ohio
1234567890
 
Last edited:

hastalavista

Elite Member
Joined
May 16, 2005
Professional Status
Certified General Appraiser
State
California
It's selling for less than cost to build. It happens.

Exactly; run another cost simulation.

The problem is appraiser manipulating data on cost approach to make things line up, rather than seeing what results are.

Two for two!


Look; I'd have the same reaction as you, ("how can this be?") if I my results were that disparate. But, if after I double-checked my analysis and used another costing source (which I have access to; not everyone else does, but it may behoove you to pay for a one-time service for this) and the results are not materially different, then I know two things:
1. H&BU as vacant, at this time, is not to build the same house, because it isn't financially feasible (almost certainly isn't)
2. I have some depreciation due to some form of obsolescence (could be functional, could be external (i.e., economic)) that has to be accounted for in the Cost Approach analysis.

Good luck!
 

Terrel L. Shields

Elite Member
Gold Supporting Member
Joined
May 2, 2002
Professional Status
Certified General Appraiser
State
Arkansas
There is a land value problem or an obsolescence hidden somewhere if your costs are correct. Can you obtain the year of construction and the original cost to build? Try a historical multiplier (NBC has a table in the book) and see how it lines up with your estimate. I have found NBC and Means can over-price a house and M & S used to be notorious for over pricing low end homes in our market but were much better for middle and higher quality housing.

Also, how does the cost per SF match other non-3 story buildings in area of similar quality. Careful with the book. You may have a 2 story with a finished attic and using that you might find the unit price fall substantially.
 

AppraizinAZ

Junior Member
Joined
Dec 31, 2006
Professional Status
Certified Residential Appraiser
State
Arizona
Thanks all but this home is VERY nice, built in 2007. Not a finished attic, it was built by the builder that way. Here's some more info, I've done it through two cost approach suppliers and my result is the same.
First Floor 2489SF
Second Fl 2984SF
Third Floor 1202SF = 6675 SF minus stairways
Add attached casita +294 SF = 6822 SF
County assessors is including the casita in the total GLA. I didn't and was using it as additional like the external items like built in BBQ, fireplace and pavers.

No land sales that aren't over acre to multi acre in this area surrounding about 10 miles with exception of mobile home parks. So I can't even back into it, Tax assessors is at $77K

There is nothing external nor functional obsolescent about it with exception of it being on the far outskirts of town. Residential surrounding it.

I so appreciate any answers which might be helpful.
 

jay trotta

Elite Member
Joined
Feb 8, 2004
Professional Status
Certified Residential Appraiser
State
Connecticut
What numbers did the assessor come up with on the Dwelling Only ?? What depreciation impact is noted ?

Would also research Local Insurance Replacement Cost figures (Local Insurance Companies) get a few to several different Co. input; Measure all of this against your estimates and try to determine if the software calculations are off.

Had that happen several, maybe 15 years ago.........drove me nuts, a glitch in the system.

Good Luck
 

Restrain

Elite Member
Joined
Jan 22, 2002
Professional Status
Certified General Appraiser
State
Florida
Run an extraction back out of your sales. Extract the land, etc to get to the residence, calculate the $/SF, then use a probable depreciation rate to get the reproduction cost new. Just because Craftsman or M&S says something should cost $X/SF, doesn't mean that a particular builder did in fact spend that or that the market actually demonstrates that cost.

Sometimes M&S is pretty close, other times way skewed.
 
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