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Cost approach on townhouse

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Steve Letchworth

Thread Starter
Freshman Member
Joined
Mar 28, 2006
Professional Status
Certified Residential Appraiser
State
Washington
I have always been informed (very possibly MISinformed) that Cost Approach shoud not be used with townhouses due to the inability to accurately value the land. I now have a lender who is insisting on having it included in a new construction townhouse. Can anybody provide a little guidance on establishing land value, if possible? Please, no "back into it" responses please.

Thanks!
 

stefan olafson

Senior Member
Joined
Apr 2, 2003
Professional Status
Certified General Appraiser
State
North Dakota
It depends on how the association was organized? Is it a townhome project where each owner owns a specific share of the land or just owns an interest in the land?

Are the townhomes attached or detached?

What do the association documents say about the property?

All should be answered before you attempt the cost approach or anything else.
 

Steve Letchworth

Thread Starter
Freshman Member
Joined
Mar 28, 2006
Professional Status
Certified Residential Appraiser
State
Washington
They are attached units. Each owner own specifice land house sits on plus shard interest in driveway, perimeter, etc.
 

Mr Rex

Elite Member
Joined
Jan 12, 2004
Professional Status
Certified Residential Appraiser
State
North Carolina
Well, the only way is a version of backing in or side stepping, since you will not find Direct Sales of similar individual lots with common areas.:huh: So you most likley will have to use Extraction or Allocation. Beep Beep, backing up. (Moanback)
 

Randolph Kinney

Elite Member
Joined
Apr 7, 2005
Professional Status
Retired Appraiser
State
North Carolina
Well, the only way is a version of backing in or side stepping, since you will not find Direct Sales of similar individual lots with common areas.:huh: So you most likley will have to use Extraction or Allocation. Beep Beep, backing up. (Moanback)
:rof: :rof:

That is the best I have ever heard. Beep Beep, backing up. (Moanback)
 

Mztk1

Senior Member
Joined
Dec 3, 2006
Professional Status
Certified Residential Appraiser
State
Florida
The new construction townhouse estimate is easy. M&S has the townhouse cost breakdown in the the MUL section of the book. You know the comps, they are generally the same as the subject and if you don't know them you should have the floorplans. Simple do a cost approach on each of your comps (once you have it down it literally takes 2 to 3 minutes for each one tops), add your site improvements which in my area for a townhouse usually breaks down to between $5 and 8K, and subtract any depreciation (which you are new so you likely won't have it). Divide the cost to build less depreciation by the sale price and that is you building value ratio, subtract it from 1.00 and that is you land value ratio. Do this for all your comps and give most weight to the most similar unit. Take your opinion of value via the sales comparison approach and multiply it by the land value ratio and presto you have your site value.

Or, of course, you can just back in, call it allocation (or extraction if your like that better) and you'll have the same result.
 
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