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Cost approach VS Market Value

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Good discussion!

Every appraisal should consider ALL approaches to value...then discount those that do not accurately reflect the value. To say..."cost approach does not work is to say..."I am just too lazy to take the time to apply proper technique in developing it". I just love it when an appraiser says .. "Income approach not developed due to a lack of data". There is always data (at least in my market) if one is willing to go look for it. An MAI friend of mine taught me early on in my career to use this statement.

"The income approach does not apply as the subject serves it's best function as an owner occupied single family residence".

The cost approach should be worked up if nothing else than to determine the site value AND to be used as an indication of the highest value the subject would bring using the principle that a knowledgable buyer would not pay more for a "used" home than a new one. Did I say that correctly? Normally, but not always, the cost approach is higher than the sales comparison approach. When it isn't you have a good indication of a changing market with possible lack of supply or outside influences what make properties highly desirable. We see that alot in older smaller homes near a major hospital or the downtown area.

Guess that is what appraising is all about...instead of just "form filling"!
 
Agreed, very good discussion. I am an old Cost Appraiser by habit. The problem is that it is no more (or less) difficult to estimate obsolescences than it is to estimate "condition", "Functional utility" and "location" adjustments.

I do think that we can learn more by interviewing the buyers. What do they really think about the property and what do they think a feature is worth? This polling, informal as it is, may be your best measure of a defect.

The property I mentioned failed to sell, not so much because it was too pricy, but because the pool of buyers was so small. You eliminated about 99% of the potential buyers because A-it had only 2 bedrooms, thus most families would not be interested. B-it was expensive, thus eliminating all but mid-upper income folk, and C-the buyer would be willing to have a rather isolated existance far from town, etc. In fact, the buyers were empty nesters, recently married divorced folk who happened to own a bulk tank manufacturing business within 5 miles of the place. It was shown only 3 or 4 times in 3 years.
 
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