Cost Approach and those who "mail it in"

[CANative]

The development of each approach will (or might) vary depending on the type and definition of value identified (the first step.) Then and only then do you reconcile the results of each approach (the last step.)

You are putting the steps in the wrong order.

 

[J Grant]

The development of each approach will (or might) vary depending on the type and definition of value identified (the first step.) Then and only then do you reconcile the results of each approach (the last step.)

That is exactly what I have been saying.

You are putting the steps in the wrong order.

??? I have just been reiterating the steps as they are supposed to be followed, in order.

 

[CANative]

If in Step 1 you identify the type of value as Market Value how can you say that the indication of value in the cost approach is anything other than market value?

 

[J Grant]

If in Step 1 you identify the type of value as Market Value how can you say that the indication of value in the cost approach is anything other than market value?

It's not what I say, it's the development of the value indicators themselves . Depsite what you or I might want to call them, the 3 approaches are labelled value indicators on the FIRREA forms, and the 3 approaches are referred to in appraisal references/ education books, as neutral, as value indicators, with the TYPE of value assigned by the appraiser in the reconciliation...tafter the appraiser develops any of the three value indicators, in the reconcilliation, the appraiser decides, according to thier judgement, that one, or two, or three of the value indicators represents MV, or LV, or (X) type of value.

If it makes you more comfortable when developing a MV appraisal to think of the SCA value as market value, or the IA value as market value nobody can stop you, but techincally, the language and description of them, per this AI link article I posted and the other references I have looked up, refers to the 3 approaches as neutral value indicators. (I realize when we start the report we are aware of the type of value we are developing, as defined in standard 1)

Seriously, think about it. FIRREA produced a MV form, which states on the front page, purpose of the appraisal is to develop an opinion of MV, and states in the addendum the definition of MV. Don't you think, if they intended the 3 approaches to be yield Market Value in and of themselves, that they would have written, "Sales approach: Indicator of Market Value" rather than "Sales approach: Indicator of Value?"

The language on the form is deliberate and specific because it mirrors the appraisal development steps, if they intended each of the 3 approaches to yield MV, the line of value for each approach would read, "Indicated Market Value", not "Indicated Value".

The value is defined as a type of value, re, labelled "Opinion of Market Value" , only after the reconcilliation.

 

[CANative]

with the TYPE of value assigned by the appraiser to in the reconcilliatin...

This is where you are wrong. That's why this thread is so long.

 

[J Grant]

IF I am wrong, prove it! When I look at the form and the language on the form (Which mirrors the steps), I am right.

When I look at references, such as the AI link I just posted, I am right. None of the references defines the 3 approach value indicators as a type of value, they are always defined as a value indicator, (with of course it being understood that an appraiser is developing a type of value, but that type of value is not defined as such until AFTER the reconciliation, when the appraiser states that based on relying on any of the approaches to value, their opinon of (type of value), is $X.

 

[CANative]

Say you had an assignment to value a public library. You define the value as "Use Value" (or perhaps "public interest value.") The sales and income approaches don't apply. So you rely on the Cost Approach. This is a special purpose/limited market property and based on the identified type of value it would be improper to apply entrepreneurial profit as a cost element.

The development and scope of work changes with the type of value identified in Step 1.

 

[David Mescon]

Step 1) The type(s) of value to be opined to, must be determined as part of the scope of work.

Step 2) The scope of work must be determined prior to the application of any approach(es) to value.

The order of the steps above is immutable. It is necessary to determine what the job entails before starting the job itself. If the scope of the assignment calls for the development of an opinion of a property's market value, then it necessarily follows that any and all approaches utilized under the requirements of Standard 1 will yield indications of.... (drum roll)... market value. None of the approach(es) utilized will yield indications of any other type of value under this scenario. Therefore, if your assignment calls for the determination of an opinion of market value, all of your approaches will yield indications of market value - not liquidation value - not fair market value - not anything other than market value.

 

[hastalavista]

When I look at references, such as the AI link I just posted, I am right. None of the references defines the 3 approach value indicators as a type of value, they are always defined as a value indicator...

They don't indicate the type of value because that has been identified in step 1.
The steps must be completed sequentially in order to conclude credible results.

Look at the steps as a funnel, with the process moving from top to bottom: In Step 1, there are a lot of different possibilities. After completing Step 1, the remaining steps are narrowed down, based on the previous step's results. At the end of the funnel, what drips out is the appraiser's opinion of market value (yes, this is what you've been saying all along); but the market value was defined at the top of the funnel, so everything that proceeds from that point is orientated toward arriving at a market value. The cost, sales, and comparison approaches are all indications of value (what you've been saying); but what you are not considering is that they are all indications of market value since "market value" was defined in Step 1 and drives the rest of the funnel-filtration process (the remaining steps).
Now, the CA, IA, and SCA may not be equal to the appraiser's opinion of market value; that is concluded in the reconciliation process. But they are indications of market value. If they are not, then why complete the process to solve a market-value problem? m2:
The reconciliation process determines which approaches (if more than one) are considered most reliable (by the appraiser), and then the appraiser concludes her/his opinion based on all the preceding steps.
You may be correct in saying that the cost approach does not a reliable indicator of market value due to X, Y, or Z. But what is incorrect is to say that the cost approach (if developed correctly) is not a an indicator of market value.

 

[CANative]

Look at the steps as an inverted funnel

Why is it an inverted funnel? I thought that's how a funnel should be used. If the small end was up it would be an upside down funnel.