Cost Approach and those who "mail it in"

[DMZwerg]

Okay, it will explain EI/EP....but does it say WHY the cost approach, which is cost to build

Huh.
My mentor must have really screwed up when he explained it to me because he told me Cost Approach was one of the three approaches to value (as in Market Value) and was basically made up of the value of the land vacant plus depreciated COST (replacement or reproduction depending) of the structures.

Odd how if cost approach and cost are the same thing and cost approach has cost in its definition that it would then be infinite recursion

 

[J Grant]

Good link, CaNative

 

[JamesRockford]

This Cost Approach Argument is Hilarious.

And a big waste of time.

 

[J Grant]

Cost Approach:

A set of procedures through which a value indication is derived for the fee simple interest in a property by estimating the current cost to construct a reproduction of (or replacement for) the existing structure, including an entrepreneurial incentive; deducting depreciation from the total cost; and adding the estimated land value. Adjustments may then be made to the indicated fee simple value of the subject property to reflect the value of the property interest being appraised.

Nobody can agrue with the definition, and though it says to include an entrepeneurial incentive, it does not spell out whether the entrpreneurial inicentive should be equivalent to that a developer would charge.

The definition does not define what amount if EP is reasonable, or excessive, nor does it state WHO is supposed to be doing the building...seems like a composite builder an appraiser bases the approach on, with cost figures found by survey/and or using the cost manuals available. It seems that some appraisers might use a relatively fixed EP, and others giving great range to EP to move with the market.

The definition leaves it up to the appraiser to derive their own assumption of "Who" is building and what profit they are charging, and whether the profit is reasonable and supportable in the market.

 

[Michigan CG]

And a big waste of time.

For those who do not know how to properly develop it or properly use it.

 

[DMZwerg]

I'm so not good at shutting up...

<snip>

See where this is going?

Me neither.
Joe is a member of the Society of Creative Anachronism specializing in glass works who also owns his own sawmill, 800+ acres of land, a brick quarry and, through an arrangement with a bricklayer, can trade bricks for mortar and cement and through another contact can trade bricks for all his plumbing supplies and fixtures. He makes his own cedar shingles as well so his net out of pocket cost for his house is zero for the foundation, zero for the lumber, zero for the roof, zero for the glass (hand blown using charcoal he made himself), zero for the cedar siding, zero for the fixtures ... therefore the total cost in money is $142.73 for the door locks and hinges. Since his cost is $142.73 is that what the house is worth? :new_smile-l: Would EI be a factor in the sale price or should he foolishly accept only $142.73 plus the value of the land he built on?

I think she is just yanking everyone's chain!

If she wasn't so consistent in her arguments in the SCA and MV discussions as well I would be tempted to believe you, and I was thinking the same thing at first (about a year ago) as well

 

[hastalavista]

And a big waste of time.

What activity are you saying is the waste of time: reading the link or completing the cost approach (or both)?

 

[JamesRockford]

What activity are you saying is the waste of time?
Reading the link or completing the cost approach (or both)?

Reading the thread.

 

[hastalavista]

Reading the thread.

Funny.
I agree; a waste of time for those who:
A. Understand the CA inside and out and could care less if anyone else understands it.
B. Do not understand the CA and have no desire to understand it.
C. Think they know it but do not know it, and are unable or unwilling to recognize that shortfall and take corrective action.

So far, I'd say only one poster falls into one of the above groups (and it isn't J Grant).
:new_smile-l:

 

[PropertyEconomics]

And a big waste of time.

I thought you were so busy that you 1) Had no time to post here and 2) Thought those that posted here were bored and out of work.

I see you keep coming back though ... are you hooked?