Cost Approach Help - New Construction

[George Hatch]

Of course, for existing improvements. New or proposed construction has no depreciation.

 

[John Hassler]

I should have finished my thought. “As is” as in “depreciated”, not “as is” as in “as is” or “subject to.” (That’s a lot of ases in one sentence.) Time for the OP to educate yet another underwriter.

 

[TerryRohrer]

I think the notion of "as is" value of site improvements is silly and baseless. If every residential property has a driveway, sidewalk, and water and sewer source, there are not any sound ways to gauge the "as is" value, even when new. Even if one has all those components but the sidewalk, can you really parse the value of a missing sidewalk out of the mix? I have spent hours cleaning the data to assess whether or not there is a measurable difference between a property with a well and one with a cistern, to no avail. Same with septic vs public sewer. Rarely, a difference might seem apparent, but it is just as likely to be due to another difference (I have one model here where the difference between public and private utilities can be shown, but the public utilities are on the valley floor and the private utilities are in the steep, adjoining hills...where people fight the roads every winter hauling water home every night after work or pay a premium to those whose business is to delver water, who fight the same battle for a higher price...is the difference in value due to location, or due to the difference in utilities?). I expect the results would be almost identical if one went to the trouble of compiling data that included the sizes and ages of every component. But, around here, a well could be 30 feet deep and cost $2,500 or 1,200 feet deep and cost in excess of $100,000, and a difference in value can't be measured reliably. The entire approach is diminished by forcing the inclusion of a baseless guess.

 

[George Hatch]

For most of the typical property types cost does not equal value, so it's not uncommon for different approaches to value to return different value indicators. If those components weren't accounted for at all in the cost-new then that would leave a mark.

"No discernable difference" of ( $0 ) is still a value. It we were to omit a cost from the analysis that would leave a mark on the outcome.

 

[TerryRohrer]

"As is" is not a cost, it is a combination of cost and depreciation/obsolescence from all causes. Making up an "as is" value to ensure that a mark is not left by omitting a meaningless number leaves a mark, too.

 

[George Hatch]

I think we're saying the same thing but with different accents.

"As is" or "As proposed" qualify the property attribute. Cost is a fact. Value-by-CA is an opinion which will result from (cost - depreciation).