Cost Approach "violation of USPAP"

[Lee Lansford]

Don't tell me. Don't tell me.

One of those is in an AO and the other is from an FAQ in the instructor's copy of USPAP.

Nope.

Applied those old adages to this situation on my little old lonesome.

 

[Terrel L. Shields]

The Cost Approach is applicable more often than it is necessary

very concise and accurate

"A blind squirrel will eventually find a chestnut."

A-that assumes there is a chestnut to find B-it assumes the squirrel won't starve to death first C-it assumes that a hawk won't snatch him up and eat him instead.
Builders always test "Cost" against "Sales". If they cannot build a new home that costs less than it will bring, they will not build. Likewise, McDonalds isn't going to built a store in Podunk, Texas pop. 12, even if costs are low and property sales high....they want income sufficient to make it pay as an on-going concern, not concerned about the reversion value nor the market value.

It is this hoax known as Entreprenuerial Profit that %^$#s up the Cost App, not depreciation. You can calculate accrued deprecition using the same extraction techniques that you use to make adjustments in the sales approach. EP goes skyhigh in a boom, and below zero in a bust but most developers are making money on the construction, i.e.- they are the developer/builder/designer all in one. Only one facet of that has to make money if the other two break even. And I am sure a lot of so-called developers would be happy to make a decent builder profit to keep on truckn' rather than bubble up and go under like so many did.

 

[JSmith43]

It's like this:

A client asks for the appraiser to determine the air temperature in a one room country school house at the time of inspection.

The SCA loving appraiser notices several thermometers in the room and looks at them. The readings are close, but three thermometers near the center of the room are in closest agreement. For once in his life he takes the average temperature as his estimate, since these three thermometers are a model match. He EA's the calibration of each and forms an opinion of the most probable room temperature at the time of inspection.

The CA appraiser gets to work. First, he hunts down the outside temperature records for the past 24 hours (luckily there is a nearby weather station). He notes, based upon interviews with the custodian that there has been no heating or AC activity for the past several days and no one was in the building. Heck, this should be a cookie cutter for him!

He has the local utility perform an energy audit including an infiltration test. Checks the weather station again for percent of clouds the previous day. He documents his assumptions for all to see, calibrating the interior temperature estimate based upon historical exterior temperature and gains and/or losses by infiltration, direct solar radiation and other heat loading sources. The model rivals in complexity, that of an econometric model sim city residents would be proud of, not unlike an IPCC supported climate model.

He arrives at a point value room temperature estimate.

OK, I'm being a bit sarcastic.


Greg, I enjoyed reading "you know who's" musings. Thanks for sharing.

(By the time my brother in law was well enough to comment, your easement deal was settled, so I didn't pester him for a post).