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Cost approach

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Diana Malcolm

Thread Starter
Junior Member
Joined
Mar 4, 2003
Professional Status
Certified Residential Appraiser
State
Washington
I am getting back into appraising after a few years off. I am working for a large firm and just getting set up. They are providing county records and E&O insurance and I have to pay for everything else.
In the past, I used the Marshall & Swift, carefully doing the math for all improvements. (I even put the M & S page number in the report to make it easy for the underwriter to check my numbers.) If I ever got hauled in to court, I had all the documentation.
In conversing with my new boss, he told me that a co-worker had a "free source" for the cost approach and I said "hook me up!" So I get an email explaining the "method" he uses.
It's basically extraction; he takes 3 sales of new construction, extracts the site value, subtracts $20k for landscaping, $30k for garage and divides the remaining amount by square footage of improvement. Then he has a range of sf costs to pick from.
Is anyone using this method? (It apparently is recommended by a highly regarded appraiser in this area. You would recognize the name)
It seems vague and what if there is no new construction in the area? What if it's a 100+ year old mansion converted to a 4-plex with brick foundation?
Is anyone using building-cost.net with good results? I think I'd be more comfortable using it..M&S online is pretty costly.
thanks, Diana
 
Last edited:

Oregon Doug

Senior Member
Joined
Jan 15, 2002
Professional Status
General Public
State
Oregon
Diana – What you've been doing in the past sounds fine. Leave tracks in your work file about how you got to where you got to – keep on keepin’ on.

His method sounds a little flimsy. I have used extraction and allocation methods in the past to pull land values out from under homes in fully built out areas, but I’m not comfortable using that method develop improvement replacement costs.

M&S is pretty costly (and not as accurate as I’d like,) but it’s a recognized source.

Welcome back,
Oregon Doug
 

Kevin A. Spellman

Senior Member
Joined
Aug 30, 2003
Professional Status
Certified Residential Appraiser
State
Massachusetts
I have and will not use technology for the cost approach. I’m fortunate to receive new construction assignment on a regular basis and review budgets and the contracts. This source of data cannot be replicated on-line.

When I do research for new construction assignments, I review the building permits and then the land sales. I believe you have to be reasonable with a cost per square foot for all the improvements and understand the cost to bring the utilities on site and then assign a price for the landscaping.

The cost approach does not have to be precise, just reasonable and be a reflection of the market conditions.
 

Terrel L. Shields

Elite Member
Gold Supporting Member
Joined
May 2, 2002
Professional Status
Certified General Appraiser
State
Arkansas
It's basically extraction; he takes 3 sales of new construction, extracts the site value, subtracts $20k for landscaping, $30k for garage and divides the remaining amount by square footage of improvement.
What about a house selling for $45,000??? I like extraction when you have new sales but I'd prefer a bid from the contractor on the actual amount spent on landscaping and interview the builder to determine contributory values and see how that compares to the actual bid. In our area most builder spend less that $5000 on landscaping and entry and patio are included in the house bid. Locally our driveway builder bids at $3 per SF for sidewalks and drives. That is calculatable.

Is anyone using building-cost.net with good results? I think I'd be more comfortable using it..M&S online is pretty costly.
Try the Means Residential SF Costs Book ($39.95)...or National Building Cost Guide ($33). RS Means has been around since 1942. Means is owned by Reed Construction Data. www.rsmeans.com Or buy one in Barnes-Noble or order on line at Amazon. The 2008 National Building Cost Manual is published by Craftsman and their website is www.craftsman-book.com YOu can actually buy a site license and access all their books at one price on line. I have a small spreadsheet table for both Means and NBC and simply input the data from the books.
 

Couch Potato

Elite Member
Joined
Mar 15, 2004
Professional Status
Certified Residential Appraiser
State
North Carolina
I am getting back into appraising after a few years off. I am working for a large firm and just getting set up. They are providing county records and E&O insurance and I have to pay for everything else.
In the past, I used the Marshall & Swift, carefully doing the math for all improvements. (I even put the M & S page number in the report to make it easy for the underwriter to check my numbers.) If I ever got hauled in to court, I had all the documentation.
In conversing with my new boss, he told me that a co-worker had a "free source" for the cost approach and I said "hook me up!" So I get an email explaining the "method" he uses.
It's basically extraction; he takes 3 sales of new construction, extracts the site value, subtracts $20k for landscaping, $30k for garage and divides the remaining amount by square footage of improvement. Then he has a range of sf costs to pick from.
Is anyone using this method? (It apparently is recommended by a highly regarded appraiser in this area. You would recognize the name)
It seems vague and what if there is no new construction in the area? What if it's a 100+ year old mansion converted to a 6-plex with brick foundation?
Is anyone using building-cost.net with good results? I think I'd be more comfortable using it..M&S online is pretty costly.
thanks, Diana
No, it' basically PFA.

Yes, it is a very common to use PFA.

M&S online is only costly if you create a new estimate for each job rather than changing the data in an old estimate to create a new one. For a dollar a day, you can use M&S online for all your reports.
 

Diana Malcolm

Thread Starter
Junior Member
Joined
Mar 4, 2003
Professional Status
Certified Residential Appraiser
State
Washington
Thanks, Oregon Doug, for the welcome back, and all for the helpful links and advice.

I am going to show my ignorance again and ask: what's PFA??
 

MDD1970

Freshman Member
Joined
Feb 23, 2008
Professional Status
Appraiser Trainee
State
Arkansas
Great topic! My personal thoughts are that if you are in a larger populated area, Swift can be very useful for residences. If the population count is smaller or more rural influence, data from local contractors might be more helpful as long as you can back it up.


My 2 cents.
 

Thomas Fiehler

Senior Member
Joined
Jun 2, 2003
Professional Status
Certified General Appraiser
State
Ohio
PFA=Pulled from air. Not to be ocnfused with SWAG=Wild *** guess. Sounds like they are closely related.
 

Fred

Elite Member
Joined
Jan 15, 2002
Professional Status
Retired Appraiser
State
Virgin Islands
PFA=Pulled from air. Not to be ocnfused with SWAG=Wild *** guess. Sounds like they are closely related.
Note to be confused with a WAG, a SWAG without the "science," or a SOPE (seat-of-the-pants estimate).
 
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