Cost approach for condo unit

[moh malekpour]

Has anybody done cost approach on a new condominium unit? I am going to appraise a new condo and thinking to give the cost approach a try because the project is new but I am not sure it is practical or not due to the common area and land ownership. Your comment and experience appreciated.

Moh

 

[Dee Dee]

Moh,
The Cost Approach is not necessary for condominiums, as you will find in the standard condominium report form.
Don't make your job any harder than it already is. :wink:

 

[Tim The Enchanter]

The cost approach is not applicable to the appraisal of condominium units.

Put that in your appraisal. :wink:

 

[Mike Garrett RAA]

Where is it written that a cost approach doesn't apply? You should consider all approaches to value and then use the ones that are most applicable. The condo form does not have a cost approach because it is usually the least reliable and quite difficult for the average appraiser.

 

[jtrotta]

Perhaps in your state the prospectus may very, but from what I've read, your are in actuality buying from the paint in; this would mean the association owns the building, your CF covers the cost of maintenence for both the building and the grounds. Note, if you have an "inner wall" plumbing problem, they come and fix it, and your not liable for any damage, why, cause they "own it".

When you buy insurance for your unit, note- they are covering mostly "personal property" and not your building. the Master Policy covers the buildings; liability; etc.

Soooo, to answer your question - why would you develop something that is not applicable 8O :?:

8)

 

[Bill_FL]

I have never done a cost approach on a single unit in a condo. I have been asked a few times for it, my response was to ask the underwriter how they would reccomend coming up with the contribution value for the cost approach of the common elements.

I dont do the cost approach on attached homes (townhouses) that own their pad style lot either. I put in the cost approach comments that there are two issues that prevent the development of the cost approach. First is developing a reasonable estimate of the site value. One can not purchase an empty lot in any of the similar developments known by the appraiser. One must purchase a unit, with the lot, therefore there are no sales of just the lots from which to develop a reasonable site valuation. The use of extraction to arrive at the site costs would not be possible as the appraiser has no methods known to him to estimate the contribution value of the common elements of the development.

 

[Mike Garrett RAA]

Past president (5 years) and board member (10 years) of Condo HOA. Lived in condo for 13 years. Still not confortable doing a cost approach on one....BUT I know it can be done and is done quite often.

 

[Paul Ness MAI]

We've been down this road not too long ago. Condominium ownership includes the interior of the unit and an undivided share of the common elements, including the rest of the building, site improvements, any amenities and of course the underlying land.

In completing the cost approach on a condo, would you estimate the depreciated reproduction cost of all the improvements and the land value, and then calculate the proportionate interest to the subject condominium unit based on the percentage allocated to the unit that is found in the condo documents? How does this reflect market value? Would a potential buyer exercise this approach when considering the purchase of a condo unit? The cost approach may be applicable, but is it really relevent in the valuation of a single condo unit?

 

[Bill_FL]

Paul,

That is correct. You brought to the surface my point, what is the contribution value of the common elements.

Many associations now have multiple parcels. some buildings own a portion of their road/parking. Others were surveyd to not own it. Some of the raods/greenways are owned by the association, etc. Even if you attempted to apply the precentage owned of undivided interests stated in the docs or deed, it would not come out right because of the way the developments are plated.