Cost Book Resources

[bradellis]

Folks,

Before you abandon the cost approach, you might want to consider this:

It is the only approach that requires the appraiser to get into the dwelling to gather data and the only approach that cannot be done totally by a computer. If you do it right, you will be surprised at how many times it can save your Fannie (pun intended).

To our fellow who started this string- you can buy the M&S book. You can also join NAIFA and get a discount on it and NAIFA offers this M&S course- again at a discount to members.

Brad Ellis, IFA

 

[jtrotta]

Bradellis; must agree with you 100%; if you are in the business, it is my opinion you should do the cost to build. There is ample information from various company's from all over the country, but in essence, you should know costs (from your local builders) in your area.

You should have some idea of what Land Costs are in your area also, as that is part of your job; along with costs for Wells & Private Sanitary Systems or costs related to tie into public sewerage systems.

If you elect to "back into" this approach, I hope to not ever run into you in a court room situation, as you will loose 8)

 

[AC King]

To cost approach advocates:

How do you obtain land value estimates in an area where there have been no land sales in over twenty years? How do you determine the effective age of fifty year old homes? Both numbers are very critical to a supportable cost appoach to value. Cost approaches to value include too many variables for market derived data. To better understand this refer to M&S for exceptions in labor surplus, tract building, etc.

Residential appraising is still best determined by sales comparison of recent, similar properties in a competing neighborhood. What are buyers and sellers doing? This is paramount in new and preowned homes.

 

[Anonymous]

AGREE entirely with Brad Elllis. The cost approach is VALID in most Residential work and Extremely important in much commercial work. Yes too many appraisers do the Sales App FIRST - not necessarily bad but can bias you. I see some extremely skewered rural appraisals where appraisers attempt to adjust the land value to meet their sales expectations with land values extremely out of whack. Normally this means lowballing the land value to meet a preconcieved idea of land to building ratio (i.e.-site value not exceed 25% of total)
There is a connection between replacement cost and reproduction costs. The failure to understand functional or external obsolescences are a failure of the appraiser, not a failure of the Cost Approach.
The original post remarked about appraisers PFA (pulled from a....ir) which I unfortunately agree is the way most do, but they SAY they got the number from M & S. Boeckh and M & S are now merged. I like Boeckh software better. It does have a survey point system. Used accurately, it will generally get you into the class of building. It will calculate depreciation if you let it. It is a defensible number. I use it on every rural appraisal with a dwelling, even if I have to take a huge Functional Ob. deduct overall for the improvements. Likewise I use Boeckh Ag Cost Guide as superior to M & S. I do use the M & S Valuation Quarterly.
But as long as you do not need a M & S costing for HUD ...there is a cheap alternative that I have frequently compared to local costs and find to be quite adequate. These are Craftsman Book Building Cost Manual. Cheapo, under $40. In general, I find quarterly updates are so small as to be a waste of time....Costing out a building is a judgment call just like sales approach. You are not parsing pennies, but likely within a dollar or two. If you ever go to court you best have a cost approach....you will get barbequed for not, no matter how residential it is. You also ought to have at least 3 land sales to back up your site values. I find land values are usually PFA. The Cost Approach is an important tool for every appraiser.

 

[Anonymous]

King said << How do you obtain land value estimates in an area where there have been no land sales in over twenty years? >>

You do that the way the Cost Approach classes teach. Sales comps are only one of several methods of estimating land value. Allocation, abstraction, development costs, ground rents, residual methods, etc. I frankly have never seen an area where there were absolutely NO land sales. Even a fully occupied subdivision surely has nearby subdivisions that are being developed. But in the most compacted urban areas I know, a careful search of the public records (not just the MLS) will find numerous sales of vacant lots or lots with derilict buildings being redeveloped. Further, the Cost App is applied as the single method in many states for ad valoram purposes. If they can do it, so can i. The same market forces exist. the same market data exists. If you parse the data correctly you arrive at not only SALES data, but COST data (depreciation, obsolescence, etc.) Even income info from the market can provide a guide for making rational estimates of functional obsolscenses.

 

[AC King]

Terrel,

Texas is a nondisclosure state. There are no data sources for the general public to obtain sales information other than MLS or direct contact with the parties involved in real estate transaction.

Abstraction and allocation require that somewhere in the not so distant past there are comparable sales from which to gather sufficient data to use in formulation of the abstraction and allocation methods for land sales.

New subdivisions in this area do not have individual lot sales from a willing buyer to a willing seller. Typically a large tract is purchased and subdivided with land values set by the developer for sell to individual or tract home builders. So, in fact, there are still no true means of determining land sale values.

No two homes have the same amount or quality of updating and remodeling. No matter what is used to estimate effective age, it is still a guess. There are too many variables to quantify supportable data for comparing the effective ages of preowned homes.

The well informed chiefs at Fannie Mae figured this out several years ago. Subsequently, they devised the 2055 and other shorter residential appraisal forms to omit the cost approach on typical residential properties. There were just too many variables to depend of that approach to value.

I do not wish to discourage anyone from using whatever means is supportable to form an opinion of value. However, the cost approach is just not very reliable is this market area.

 

[Tom Hildebrandt]

AC

If there is development in your market, data for land values can be derived.

The cost approach may not be the preferred approach for most residential sales, but the ability to use this approach with confidence in your professional judgement (not guessing but applied professional judgement) in regards to issues involving depreciation, effective age, obscolescence, etc is essential in other aspects of the appraisal process such as highest and best use and costs to cure.

It is also essential for complex assignments in order to isolate individual issues relative to a solution of such problems as the contributory improvements of a particular component oftern posed by a client.

Appropraitely applying the cost approach is like any other appraisal skill, it must be regularly used or competency is lost.

Regards

Tom Hildebrandt GAA

 

[G-man]

These are Craftsman Book Building Cost Manual. Cheapo, under $40. In general, I find quarterly updates are so small as to be a waste of time....Costing out a building is a judgment call just like sales approach.

Interesting solution to finding replacement/reproduction costs. As another appraiser who works out of his home, I am always looking for more resources to use. Thanks very much.

 

[Mike Garrett RAA]

Every appraiser should have available to them a Cost Book...my personal choice and the industry standard is Marshall/Swift. It isn't cheap. I would prefer to have it on computer rather than a book which has to be updated quarterly.

After investing in one, read the darn thing from cover to cover and learn how to use it. There is so much good stuff in that book you could spend a year covering it all. I try to cover portions of it with my students in the Registered Appraisers course.

Every appraiser should know how to do a cost approach appraisal. If you can't find lot sales....extract them! Remember if you are doing FHA and it is new construction...they require a modified cost approach be included.