Cost approach site value (sales lot vs extraction)

[Joe Flacco]

Not really. Even when I was using the URAR I would commonly modify for fees or profit when necessary.

Consider this: even within the same region the costs of the fees/permits VARIES by jurisdiction. The location multipliers in the cost services don't account for those variations.

I taught the M&S course for the Residential Cost Handbook for many years. Moreover, I'm 100% certain I have performed a lot more proposed construction on SFR assignments for FRT deals than you will ever perform in your entire career. I am disinclined to play stupid on the topic just because you don't like my tone.

Maybe. I average about two proposed construction for FRT per week. And 100% of by assignments are FRT. But that is irrelevant.

Other than that I agree with the fees / permits and the process for those varies by region. No argument there.

 

[George Hatch]

That is what I use. My own database of contracts/budgets and market extraction for inclusion of EI. I don't use cost manuals.

That's entirely reasonable. with the caveat that the contractor cost breakdowns aren't always consistent with each other or with the cost services. Some are high, some are dead on, and some are low. As you can imagine the low ones are what pose the big risk to a construction lender.

I have generally done both and have found that the cost service data is usually pretty valid AFTER I take these other factors into consideration. At the lender where I used to work they employed a professional cost estimator who went through every contractor cost breakdown on the item by item basis - long form. So we were able to calibrate the cost data pretty well. We also had our own environmental guy who did our Phase I/Phase II studies. That's how many construction loans they were doing in addition to the other loans they were making.

 

[George Hatch]

OP is a trainee who is submitting sample to the State to get their license. That's why I didn't initially get into the weeds with them about the CA for fear of overloading them. Their main point is for the applicant to show your work for your site value and to use your cost data in a reasonable fashion.

 

[Joe Flacco]

That's entirely reasonable. with the caveat that the contractor cost breakdowns aren't always consistent with each other or with the cost services. Some are high, some are dead on, and some are low. As you can imagine the low ones are what pose the big risk to a construction lender.

I have generally done both and have found that the cost service data is usually pretty valid AFTER I take these other factors into consideration. At the lender where I used to work they employed a professional cost estimator who went through every contractor cost breakdown on the item by item basis - long form. So we were able to calibrate the cost data pretty well. We also had our own environmental guy who did our Phase I/Phase II studies. That's how many construction loans they were doing in addition to the other loans they were making.

I can't speak for the cost services but I find that the cost variations are mostly due to variations in the specifications. Things like 200 series windows vs 400 series windows which also requires paint and painting labor. Differences like that.

 

[George Hatch]

There's that, too. But I've seen bids that were way too low - which can become a problem when the contractor runs out of money before construction is complete. And I've seen bid which obviously included what I refer to as the Contractor 4x4 Crew Cab Cost Multiplier. That isn't an issue with the merchant builders or the subdivision developers, but it occasionally happens with the 1-off construction projects.

Fun fact, The M&S course includes a long form Cost Approach problem at the end of the course. It usually took course participants from 45-60 minutes to complete it. That's a far cry from the 30-second CA in the URAR that the state appraisal board would commonly be seeing in the work samples they review.

 

[George Hatch]

In the proposed SFR assignments I've reviewed in the last few years it's apparently become fashionable for the appraiser to parrot the contractor's bid instead of developing their own to compare to the bid, as is explicitly specified in the SOW for those engagements. I've gotten a certain amount of pushback from some of these (veteran) appraisers for making them hold up their end of the engagement. But the purpose of having the appraiser's CA - which includes other elements the contractors don't include - is to check and see how reasonable the contractor's costs are. We've sent more than one contractor back to the drawing board when their costs didn't line up with what the cost services and other contractors have been doing.

Also, pretty rare, but there have also been a couple cases where the proposed project was a gross underimprovement for the lot/location. Enough so for the project to not be economically feasible. Try saying that in an appraisal report and not getting some pushback.

 

[Joe Flacco]

Unless it is super high end I don't usually get construction set and design plans with specific finishes.

For typical construction like $1-$2 million cost, I get preliminary plans or at best permit set with budget showing dollar amount allowances for certain items. So for typical $1-$2 million construction, if the allowances for certain items are less than others then that means they are building something not as well finished. You would have to speak with the builder to get a better idea of what is being built and what is budgeted for, but in most cases lower cost / budget = lower cost finishes.

 

[Joe Flacco]

My experience has been that the reputable custom builders don't play that game of under budgeting to win the project. And they usually have a portfolio of projects that can be referenced as representative of what is proposed.

 

[George Hatch]

As I say, probably most contractor bids are right on the money and line up closely to the cost services. My other comments are about the outliers. In my experience (a few) builders like to hide their additional spiffs in the framing, mechanical, plumbing and electrical line items; both materials and labor. It happens with remodel/rehab projects, too. You definitely want to get at least somewhat of a handle on costs if you run into an assignment involving partial construction. You can't get to an "as is" without having an idea about the outstanding costs of completion.

I just had one a couple weeks ago, beater 1000sf home from 1950 + new 3bd ADU that's currently in framing. This is not the kind of appraisal problem that an AVM is going to be able to solve.