Cost Equals Value, Or Not

[Tim The Enchanter]

So, I have a subject condo sold last year for $900k. The owner gutted it and spent a reported $400k on remodeling. I have a long document of invoices and a spreadsheet of the high end costs. It's quite nice, as you might expect. I just hope he doesn't think $900 + $400 = $1300, or somehow $1400 or more. If so, there is some major disappointment on the way.

Guess I will put a statement prominently that cost does not equal value.
No comment on was this a good investment. But I hope you really like it, and plan to stay a long time.
That will not go in the report either.

Numbers adjusted slightly to protect the innocent.

 

[Terrel L. Shields]

Are you charging extra for the economics lesson?

 

[Tim The Enchanter]

Are you charging extra for the economics lesson?

No, the fee is fine, fee is good. The extra comments are for the borrowers benefit / edification/ don't call back.
Love this client.

 

[J Grant]

I write something along the lines that adjustment reflects market reaction to contributory value of upgrades/remodeling, not dollar for dollar cost. good luck!

 

[Mike Garrett RAA]

Just ask that to some one buying a new car.

 

[form1025]

What do comparable renovated condos yield in the market place ? Sometimes value exceeds cost.

 

[J Grant]

sometimes value exceeds cost, sometimes its equivalent, other times there is a loss...at which point its a super adequacy or over improvement.

Line up the remodeled or luxury upgrades sales comps , make any appropriate adjustment and market will speak.

 

[BRCJR]

Never liked the comment "cost does not equal value" because sometimes it, in fact, can or does.

 

[TRESinc]

The extra comments are for the borrowers benefit / edification/ don't call back.

unless you found a way to add that comment on the same line as the appraised value it will most likely go unread...

 

[Terrel L. Shields]

sometimes value exceeds cost,

Under classic appraisal dogma, when "value" exceeds cost it is either because the income (blue sky, excess profits, etc.) is higher or the person is stupid (ie- the cost to build new on new lot is less than they would pay.) The alternative is that there is no comparable lot to develop and in that case, the value is reflecting the underlying scarcity of the land (value should be accrued to the land, not the buildings).