I have just completed a New Construction report and have an issue that I am mulling over. The purchase contract price for the subject (including lot) is $300,000+/- . My final opinion of value is at $250,000. My Cost Approach value is $325,000 (Marshall & Swift). I am trying to determine what factors are at play for the discrepancy between my value and the Cost Approach value. I am very confident that my value is accurate. Any thoughts?
*Marshall and Swift have different quality ratings, did you use the appropriate one?
*Is your land value supported?
*I would get the builder's cost breakdown, they have one.
*Are your comparables new construction?
*If so, are they of the same quality?
*Is there any new construction in your area or is this one of the few?
*It could be that you have external obsolescence in the market that makes in not financially feasible to build.
*Did you develop a good Highest and Best Use of the property?
H and B sample from a report:
HIGHEST AND BEST USE: The subject property is located on 11.00 acres MOL of land. A Highest and Best Use analysis has four factors; legality, physical possibility of improvements, financial feasibility of the improvements and maximum productivity of the land (what will make the property worth the most).
It is legally permissible to improve the property with single-family housing on the subject property, and it is also physically possible to do so. Additionally single-family housing would improve the land to its maximally productive use.
The question of financial feasibility is questionable in that it is not uncommon at the current time for new construction to cost more than the market is willing to pay. In order for the property to be financially feasible as a single-family home the constructions costs plus the land acquisition cost would need to be less than the Market would be willing to pay for it once it is completed. If the acquisition cost of the land and the improvements to the land costs more than the market is willing to pay then single-family improvements would not be financially feasible at this time and would indicate the property Highest and Best Use as continued use as agricultural/vacant land at least in the interim until the housing market somewhat stabilizes.
