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Cost Approach and Townhomes!!!!

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Josh Shapiro

Member
Joined
Jan 17, 2006
Professional Status
Certified Residential Appraiser
State
Florida
Does anyone here see the relavence in completing the cost approach for a townhome? I don't see how it is possible without being able to rebuild the entire structure itself (2,3,4-6 unit) per Building. Would that not be the correct way to determine cost to build new of each individual unit? Also as for the land value in a townhome. Yes technically they own the land underneith their home, but realistically, it's worthless. What are they going to do, tear their unit to the ground and sell off there 2000sqft lot in the middle of 3 units. Sorry if I am just rambling here, had a long day today. Couldn't seem to get off the phones with out of the blue request and rookie UW's. I think Ill go to bed now......good night. I have a waterfront manufactured home on stilts with breakaway 1st floor walls to do at sunrise. Can't wait for the insurance to get pulled on this one.
 
Gosh, Josh, You've got it!

For the same reason even Fannie doesn't have a CA on the
condo form, it would not be applicable for a townhouse. Its a
spec product. Now if only the UWs would recognize a house
over 15 years old does not needing a CA and only a MA. Someday
the form committees will be as smart as field appraisers.

elliott
 
People who don't understand the Cost Approach think that it's not applicable.
 
Josh,

You are right. But could you come up with cost to build the entire 4 unit, and then divide it by 4? I am just asking. :huh: I am not sure.

I belive you got a reasonable point.


.
 
Jerry,
Please don't tease us. Tell us what we don't understand
about a valuation approach that is requested by lenders
for casualty insurance and is really only applicable if
a couple wants to build a new house on a lot they inherited
from their Uncle Milt.

elliott : )
 
Today I saw an end-unit, 2-story TwnHm built in 1981....and the client wants a C.A. There is another 6-unit building to north, and an 8-unit building to the south. I did NOT get to also see the inside of the other 5 units in the subject's TH building. Interior units experience the common-wall with a neighboring unit. Each owner gets to update and improve the INTERIOR of their homes as they wish, even as to have differing window quality from one's immediate neighbor. Flooring materials, fixtures, counter tops and utility units (age and quality) can all differ by nature of any owner's choices and rights to improve. The land area "with" the subject TH is .0227 acres....not very much ! There are no .0227-acre "site" sales in this 25-yr. old neighborhood.

We all know why the client makes such a C.A. request......and so I asked the h/o to provide for me his current hazard insurance policy statement page so that I can refer to its numbers/data as other input within my report.....as I also will direct the client to Fannie's Q&A #12 from Nov. 1st of 2005. (I ask all h/o's now to share their (current !) insurance coverage data just the same as to ask about HOA fees, or age of furnace or roof, etc. Just another piece of data to gather.) Some of the phrase-wording in that ?#12 is useful to repeat in one's report, especially when the client does not reveal the purpose/use for their C.A. request. It appears this insurance policy is collective of the 6 units of their building, with a component of one's monthly HOA $fee being acknowledged by h/o as "being for hazard insurance". I will suggest to the client that they have a pow-wow with the insurance provider AND the h/o to determine if the CURRENT amount of coverage meets all of THEIR needs. No....I am not going to attempt to re-build the 6-unit building......as I do NOT know the interior finish details nor conditions of the other 5 units......and not likely or reasonable to determine a "land value" for just the subject unit !

Basically, the C.A. is NOT applicable to this subject property, while the recent sales of other very similar TwnHms on this street and nearby will be VERY supportive in concluding a current MV for the subject. Sometimes it's reasonable and applicable......and other times not. I will likely express what needs to be expressed, and see if the client can accept adapt knowing that a requested component of "information" they sought lacks any reliability to support the MV opinion which is shared.
 
I am not saying the CA is applicable for market value here - but I don’t see how the principles upon which the cost approach for market value is justified are any less applicable here than anywhere else.

If you believe
1) that people make pricing decisions based on the cost of acquiring a “similar site” and adding improvements of “equal desirability and utility” (and you believe that it is physically possible to build improvements of “equal desirability and utility”); and
2) appraisers can create an analytical model that replicates this process and its results;
then why would the model cease to function when subject is a townhouse (or a condo, etc.)?

We all know why the client makes such a C.A. request
Do we? If lenders are interested in cost approach to insurable value, then shouldn't all discussion of the relevance of the cost approach to market value cease? :icon_smile:
 
Josh,

Yes it can be done. Data is right in Marshall & Swift.

But listen to Steven as well. He makes a completely valid point about the approach not being tied to market value if they want to use it for insurable value. The two are different concepts entirely.

Brad
 
Townhomes not always a condo

Townhomes are not always a condo. They sure are not in my state. A CONDO IS A FORM OF OWNERSHIP< NOT AN ARCHETECTURAL STYLE. We have townhomes here that are also not in a PUD or have a HOA or any fees. I have seen several townhomes rebuilt here after burning down. Gee, I wonder how the builder figured out the cost?:shrug: :rof:

I don't see why doing the cost approach for most any type residential property, with the exception of a co-op or a condo in a high rise would be a problem. :shrug:
 
Brad,

Question please, If one knows that the client intends to use the CA for Insurance purpose.

Does the ppaiser have a responsibility under USPAP to identify the definition of value for Insurance purposes?

What the heck, lets go for the biggey, does the appraiser have a resposibility as spelled out by SR-1 and SR-2 as it applies to hazard Insurance?

If yes, why?

If not, why not?
 
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