Cost depreciation questioned by major lender?

[NC Appraising]

How do you use those adjustments, and what impact does that have on your opinion of the value of the subject?

I'm officially closing this thread. Glenn was right....im becoming a acholoic. Lol

Watch some of the videos and take the courses from https://www.workingre.com/adjustments-sample-size-relevance-and-credible-solutions/

https://www.workingre.com/wp-content/uploads/2020/04/Determining-Land-Value-1-hour-Handout.pdf

Go argue with Scott and Richard. Share the results.

More people to argue with

Depreciated Cost, a Test of Reasonableness

With all of the clamor and excitement that Fannie Mae’s Collateral Underwriter (CU) is creating, we started working on a new article that addresses some possible solutions. In this one, we are expanding a bit on using the cost approach as a means to develop and support some adjustments. Each of...

appraisalbuzz.com

 

[Terrel L. Shields]

Hagar is not a source I trust, but again the key point is that LAND IS NOT A WASTING ASSET. IT CANNOT DEPRECIATE.

 

[Joe Flacco]

I remember MichiganCG being the king of depreciated cost. He would always talk about pole barns and how you are an idiot if you didn't use depreciated cost. lol

 

[TerryRohrer]

I'm officially closing this thread. Glenn was right....im becoming a acholoic. Lol

Watch some of the videos and take the courses from https://www.workingre.com/adjustments-sample-size-relevance-and-credible-solutions/

https://www.workingre.com/wp-content/uploads/2020/04/Determining-Land-Value-1-hour-Handout.pdf

Go argue with Scott and Richard. Share the results.

More people to argue with

Depreciated Cost, a Test of Reasonableness

With all of the clamor and excitement that Fannie Mae’s Collateral Underwriter (CU) is creating, we started working on a new article that addresses some possible solutions. In this one, we are expanding a bit on using the cost approach as a means to develop and support some adjustments. Each of...

appraisalbuzz.com

If you don't know what you meant, or what you were talking about, it is okay to say so!

 

[NC Appraising]

If you don't know what you meant, or what you were talking about, it is okay to say so!

I do. I just do not want to become an alcoholic.

Besides, anything that I say will be wrong. I've been on this forum for to long...learnt that lesson a long time ago.

I'm wrong. You are right. Lol.

 

[Sadie]

I do. I just do not want to become an alcoholic.

Besides, anything that I say will be wrong. I've been on this forum for to long...learnt that lesson a long time ago.

I'm wrong. You are right. Lol.

I think it went sideways when depreciated was added to site value, although depreciated site was not the meaning, it was a little unclear. Of course depreciated cost is relevant to extraction method .

 

[sputnam]

I was referring to depreciation being applied to the estimated site value.

Well... that makes no sense. Land doesn't depreciate in that way. Sure, the value of a site can increase or decline as the market changes... but with the possible exception of things like erosion, the land doesn't wear out.

 

[ZZGAMAZZ]

Land is not a wasting asset therefore cannot suffer depreciation. A change in value is just that. Land is valued as if vacant and available for its highest and best use. Classic appraisal theory.

So a change in the value of a property from TimeA to TimeB, absent significant upgrades and presuming nominal depreciation, accrues to a change in the site value? [I realize this is a very basic, maybe stupid, question.]

 

[Terrel L. Shields]

So a change in the value of a property from TimeA to TimeB, absent significant upgrades and presuming nominal depreciation, accrues to a change in the site value? [I realize this is a very basic, maybe stupid, question.]

From Google

The phrase "land is valued as if vacant and available for its highest and best use" is a core principle in real estate appraisal, meaning appraisers assess a property's maximum potential value by imagining it as empty land, then determining the most profitable, legal, physically possible, and financially feasible use (like a retail center instead of a single home) to establish its market value, even if a less valuable structure exists on it now.​

​

Every textbook will tell you land can change value, but it is not a wasting asset therefore, it isn't depreciated. Its value may be impacted by external forces, like being next to a powerplant but that is not because of depreciation. Buildings fall down eventually. But the land does not.

 

[TerryRohrer]

So a change in the value of a property from TimeA to TimeB, absent significant upgrades and presuming nominal depreciation, accrues to a change in the site value? [I realize this is a very basic, maybe stupid, question.]

No. Here, during the gogo years of Covid, home prices were inflating by as much as 2% per month while site prices were mostly flat (except acreage tracts outside of towns). That is why, without land sales, the cost approach tends to be useless. Thirty years ago, most towns in eastern Montana had housing stock that was mostly 30 to 100 years old and many had not had a new home constructed in decades. I was regularly estimating external obsolescence in the 25% to 40% range...if you built a new home on land you owned, you could expect to lose up to half your investment by the time you moved in. Rates of depreciation are affected by the market and are not simply a product of age and/or pronouncements of entirely subjective "effective age."