Cost Approach In New Construction

[Michigan CG]

You mis-read his comment. He says, and I agree, that cost figures need to be rounded to a fairly large number (i.e., to the nearest $5k), because using more granular numbers suggests the approach is more accurate than it is.

And I agree with you that the final cost approach can be rounded although the automated form supplies the exact number. What I was saying was that many of the cost approach numbers are made up. When an appraiser puts in $80/SF for the GLA instead of the $91.26 that would have been supplied by M and S it is obvious that they are making it up. Why would they not put in the real number for the line items and then round the end result?

 

[Tim Hicks (Texas)]

You mis-read his comment. He says, and I agree, that cost figures need to be rounded to a fairly large number (i.e., to the nearest $5k), because using more granular numbers suggests the approach is more accurate than it is.

That is not your point. Your point was "Hold on there now. The fact that M&S spits out cost to the penny suggests the input was comprehensive enough to result in cost to the penny per square foot. I can tell you with absolute certainty that no one has sufficient information to feed to swiftestimator (or to look every item up in the M&S book) to actually professionally rely on the resulting costs to the penny per square foot. It's as if we completely ignore all concepts of handling significant digits just because the book and the app give us those pennies.
I have been wondering if it's actually dishonest to report the cost approach to the penny, because doing so implies you actually have much much much more reliable input data that you actually have."

You were talking about price per square foot. George is stating the results should be rounded. Whether I agree with that does not matter. The cost approach is an approach to value. It is not any more exact than the other approaches to value. If its not rounded, it still not does not mean it is the exact cost. It is an estimated cost. None of the approaches have to be rounded, but appraisers do round their opinion of value because it is not an exact science.

My point is use the cost manuals and use their figures because that is your source. Whether or not you round your final results on any approach to value is entirely up to you, but at least your source is documented.

 

[BarrySW1963]

...

Rationalizing that the cost approach is not reliable because it is not exact is really like saying the entire appraisal process is not reliable because it is not exact either.

This seems to have started an argument because I said that reporting cost numbers to the penny isn't reasonable. When we report cost numbers to the penny per square foot, we are implying that the approach is exact. If the results are reasonably rounded, and commentary is clear, then there is no problem.

I'm a little baffled for some of the posts here by what seem to be intentional mis-reading of comments, then piling on of assumptions, then arguing against that, as if arguing against straw men is actually productive.

 

[Michigan CG]

If M and S reports $81.26/SF then that should be put in the report.

GLA $81.26 x 2,000 = $162,520
Garage $25.15 x 576 = $14,486
Basement $22.28 x 1,000 = $22,280
TOTAL: $199,286
Reconciled Cost Approach: $200,000

 

[Tim Hicks (Texas)]

This seems to have started an argument because I said that reporting cost numbers to the penny isn't reasonable. When we report cost numbers to the penny per square foot, we are implying that the approach is exact. If the results are reasonably rounded, and commentary is clear, then there is no problem.

I'm a little baffled for some of the posts here by what seem to be intentional mis-reading of comments, then piling on of assumptions, then arguing against that, as if arguing against straw men is actually productive.

Hello kettle, re-read your own comments in this entire thread. Using documented cost numbers is not stating that the approach is exact. It is reporting the documented estimated costs correctly. I am baffled that some think they should not use the published cost figures as it is a industry wide reliable source for cost estimates, not exact costs.

 

[bnmappraisal]

When an appraiser puts in $80/SF for the GLA instead of the $91.26 that would have been supplied by M and S it is obvious that they are making it up.

I don't think rounding your example to $90/sf would be so misleading or "bad." makes it easier for the user/client IMO. If they went to a builder/contractor, is the builder/contractor going to say "Yea, cost to build is $91.26/sf" or is the builder/contractor going to say "It's about $90-95/sf to build" ?

$80/sf vs M n S figure of $91.26 - I agree, that seems made up!

 

[Tim Hicks (Texas)]

I gave the main reason I utilized the exact M & S cost numbers in my reports. If and when (and everybody will be) your reports get reviewed, you need to have support for all your approaches to value. If you actually use the M & S figures, you have documentation to support it. Don't be naïve and think you will not be reviewed. I have done hundreds of reviews (mostly for Fannie and Freddie) and eventually everybody gets reviewed because of foreclosure, audits, etc. Heck, Fannie even sent me one of my own reports to review. I sent the assignment back with notes about why it was a properly supported appraisal report. Even if you agree with the final opinion of value, you have state whether the cost approach was supportable and could be replicated. They don't think the cost approach is exact. They realize it is estimated costs. They just want it done correctly and supported by documented data.

Why would anybody want to do it any other way based on that information alone?

 

[Michigan CG]

I don't think rounding your example to $90/sf would be so misleading or "bad." makes it easier for the user/client IMO. If they went to a builder/contractor, is the builder/contractor going to say "Yea, cost to build is $91.26/sf" or is the builder/contractor going to say "It's about $90-95/sf to build" ?

$80/sf vs M n S figure of $91.26 - I agree, that seems made up!

The source is M and S and if the source says $91.26 then I am going to put in $91.26. Rounding is done in the reconciliation of that approach. A reviewer is certainly going to question the $90 immediately.

 

[BarrySW1963]

Can y'all post some screenshots of some of your cost approach report addendums? i.e., screenshots of pg. 3 on a URAR, plus the supporting doc/commentary from a report?

Basically, I'd like to see how far down the rat hole you go in the details of the input to be comfortable with the reporting of the output.

Edited: time to open the kimono, gentlemen.

 

[gregb]

Attached is a repair estimate a friend completed, although not exactly what alintx is seeking.