Cost Approach and those who "mail it in"

[Michigan CG]

Actually Michigan .. I hear there is a new FIFTH EDITION of the Dictionary out but I have not sprung its purchase yet ... Im sure I will though.

Besides .. I was feeling kinder and gentler this evening ... my un-nice will show up in the future Im sure ..... :laugh:

I must confess that I only have the Fourth Edition of the Dictionary and have not purchased the 13th Edition of The Appraisal of Real Estate (I have the 12th Edition)...........Am I skippy?

 

[JSmith43]

OK, JGrant, now that you have turned the corner with respect to attempting to measure external depreciation in the CA for a Market Value assignment. (PE, & others: Impressive!)

If the assignment at hand was changed from a market value appraisal to a liquidation value appraisal, how would the measurement of external depreciation vary? Would you extract it from a different type of market data or use the same pool of data, no filtering?

If you can answer this correctly, I will pronounce you cured and advanced beyond the SRA that didn't account for external depreciation. I'm pretty sure most SRAs know better than that, but it might make an interesting poll question:icon_mrgreen:

 

[PropertyEconomics]

Mentor .. I havnet seen a corner turned yet .. but I remain hopeful!!!


Michigan .. I have the Eighth through the Thirteenth Edition and I have the Second and Fourth Edition of the Dictionary ... I dont think it makes you a skippy (your word not mine) but it does make you a cheap-skate ... then again lacking the Fifth Edition .. I too am a bit cheap at the moment.

 

[Terrel L. Shields]

I have the 12th Edition

me, too. I am superstitous so won't buy the 13th ed... (I like the 10th better than the 12th though)

 

[PropertyEconomics]

Hopefully JGrant will read the prior posts and citations and offer her opinion on the texts of record ......

 

[Tim Hicks (Texas)]

FWIW,

Every appraiser in my market, and probably in the USA should be turned in to the board, including me, because what we say is "average" quality for tract built homes is really "fair" in Marshal and Swift. That is one of the reasons for the "high" cost approach.

Square sided vinyl home on a slab foudation...... fair!!! Have we ever seen a fair rated home in any appraisal? That is about as rare as appraisers marking the "increasing" box during 2006-2007. I guess they were wrong?


How about those high-end homes



How do you handle upgrades and other features?

I use fair and low quality all the time. A Fox and Jacobs or History Maker Home in this market is low quality. Boxes with minimal finish.

 

[J Grant]

Property Economics, thank you for quotes from book very informative, will get back to you later on more have to go out now.

 

[J Grant]

Mentor, quick answer before I go out...liquidation value would be a diff issue, because the EO present in the specific sales (distress, auction, court order) that were chosen for the SCA then the ec EO present in the general overall market.

The standards are diff for sales in liq value, (sold in extremely short time frame, complusion of seller to sell, so the comp sales I would use would be different...thus the diff between CA and sales would be even greater economic ext obs for that specific sale set...the question would be does it make sense to apply it, because in MV appraisal, the EO ext obs comes from the market, predominant or typical sales etc, but in liquidation value we are using a specific sale set chosen from the market that sold in liquidation terms (Sheriff sales, distress sale auctions or estate sales court order etc), therefore these sales do not represent the economic conditions present in the market so how can you get ext ex obs from a specific subset of sales that do not represent market? I might not develop the CA in such a case, or use it as replacement value only. Your answer might be different, and of course it would b easy to extract the larger ec ext from the specific low end liquidation sales and come out with a lower value CA...one would have to explain it then.

 

[CANative]

The allocation of external obsolesence is an issue for the cost approach, but not for the income and sales approaches.

You have to remember (or realize) that the cost approach is a theoretical breakdown of the property into land and building components. It is theoretical because market participants sell rights, not land and buildings.

The cost approach is important (even when you think it is non-sense or not applicable) because by breaking down the property into land and building components you can create many issues that would not be relevant in the other approaches where land is not separate from the buildings.

 

[incognito]

The cost approach is important (even when you think it is non-sense or not applicable) because by breaking down the property into land and building components you can create many issues that would not be relevant in the other approaches where land is not separate from the buildings.

Components of the CA also are the building blocks from which the HBU analysis begins (land value, as if vacant).

This might seem hokey, but I took a cost approach class online recently, mostly for the hours. I have over 30 years experience, SRA, I teach residential appraising, and am a St. Cert. General, so my "arrogance" allowed me to think this class would be a whiz and trivial. I learned SO MUCH from this class, and it is amazing how strongly the CA ties in with the overall valuation process, EXCLUSIVE of it's indication of market value. It is one of the best classes I have ever taken, because I had forgotten much of what I may have learned, and never learned near enough to begin with.

No, I am not a affiliated, but it is by Appraisal University. It is taught by an MAI (I Believe), and if you take it and tell me you did not learn anything (let alone a bunch), or if you do not walk away having gained a very strong respect for the Cost Approach (NOT necessarily as an indicator of market value but as an integral part of the appraisal process) I will, well, I will be surprised.

BTW, you get 24 CE hours, certified in most states, and several GOOD other classes (CAN, you would like the income property class, it is EXCELLENT), all for something like $129.

I bet MOST appraisers (designated as well as non) have never taken a dedicated Cost Approach Class. I don't think the AI even teaches one. Thus the general lack of knowledge of the process...