DCF or Direct Cap

[Fred]

Paul,
I made no specific reference to any of your comments to Scott. I previously thanked you for your assistance in this matter. It seems obvious that we cannot communicate on this matter.

For example, from your last
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Would it surprise you to learn that market data does not confirm the hypothesis that fee simple interests sell at the equivalent of market rent capitalized at market rates?” (May 30th 10:40pm)

You have clearly stated a position but have provided NOTHING to support it, and continuing to throw “prove it” back at me is a cop out. "
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What looks to me to be a question with a question mark is construed by you "clearly stated...position."

 

[Paul Ness MAI]

We can communicate, we just don't agree.

By your “clearly stated position" I was referring to the sum of all that you have posted to date on this topic...something to the effect that the income approach estimates the leased fee interest and can not be used to estimate the fee simple interest.

I was referring to that position and with this particular quote you were insinuating that there is proof for your position, which you have not produced. You keep saying “prove it” to me, while you can apparently assert something without having to prove it. But again I have at least made an attempt to prove my position and it's documented in all these threads. I have politely and quite seriously asked in previous posts for you to provide some proof or support for your position, but you always skirt that one, and I have again reached exasperation with you and really don’t care anymore.

I feel like we are beating a dead horse and would like to close this incredibly frustrating discussion with a quote from Eddy Ketchursid, who said “if your horse is dead, for goodness sake – dismount!” Time to end this lunacy!

Have a good weekend Steve. I am getting ready to head out to Camden Yards for the crack of the bat, the cheers of the crowd, a crabcake, and the smell of BBQ wafting up from Boog’s Place. The Orioles are playing the Dodgers in a cross-league series. It’s the first time the Dodgers have played in Baltimore since they played the O’s in the 1966 World Series, which was the series that initiated my interest in baseball as a youngster. Pat, I'll eat an extra crabcake in your honor!

In the future, I'd like to learn more about the appraisal business in the VI's, i.e. how much commercial work can there be? What kind of property is prevalent, etc.

 

[Fred]

Paul,
We don't even agree about what the disagreement is. If you would answer the questions I ask instead of twisting them into straw men, the apparent disagreement might even disappear. By the time you are done restating my posts, I don't agree with them either.

I will be in New York for several weeks. I can, but will not be, accessing the chat room from there (obviously). You would like it in New York We have a REAL baseball team.

 

[Fred]

Mets fan? Well that explains everything.

Doesn't seem like the Mets are old enough for three generations. You must be going back to the "original" Mets - or Dem Bums - as day was called in the 50s.

Even in baseball you guys can't tell fee simple from leased. The Yankees ARE home-grown - Posada, Petit, Rivera. Jeter, Soriano and Williams. We even got more ployoff homes out of Strawberry than you guys.

Summer of 69? A series of accidents. Shoe polish and ice cream cones

 

[Fred]

Paul,
I think this series of quotes shows the continued miscommunication.

This is from Terry’s thread, "is the income approach always viable" - Wed May 22, 2002 10:05 pm. It contains the 8 word phrase that you concentrate on and some others that you overlook:
"The income approach appraises the leased fee interest… but I suppose you could extract an implied cap rate or multiples from user purchases."
The FULL paragraph considers income cap for fee simple interest (prices paid by users of property as opposed to investors in rent streams) and even considers the most extreme possible application of that idea – SFR’s!

For some reason you only see those first 8 words and overlook the rest. Your May 30, 2002 7:37 AM Poll Post question mangles the idea into:
"...the income approach must only be used to appraise the leased fee interest of a leased property" and you (repeatedly) attribute the "must only" qualifiers to me. That is not what I said. (See my bolded quote at the top of this post).
On May 31, I noted the misrepresentations in your Poll Post by saying:
"the part I take exception to is the insertion of words like never, always, only and attributing the idea to me. "
The point did not sink in.

On June 7, you snip-quoted these 8 words out of context the rest of the paragraph,
("The income approach appraises the leased fee interest"), bolded them for effect, but again missed the rest of the paragraph, the part that refers to fee simple.
Later, on June 7, when I commented that we were not communicating, you said
"We can communicate, we just dont agree. By your clearly stated position…that the income approach estimates the leased fee interest and can not be used to estimate the fee simple interest…"
Again, you attribute this statement to me which is clearly different than what I said. (See my bolded quote at the top of the post).

We did not communicate. What you call my clearly stated position is not my position and not what I stated. I agree about the dead horse. I thought I had already dismounted, but then into this thread came another round of misrepresenting my questions and statements.

 

[spettifer]

LAKERS IN FOUR AND GET READY FOR THE PARADE.

scott

 

[jt]

Pat and Paul:

I have not been on this discussion group for quite some time. However, I have in the past contributed my opinion on various commercial topics. And, have had the misfortune of discussing [at legnth] several issues with Mr. Santora in regard to the cost approach, and more particularly effective age, of which he has no real concept thereof. I wish I could direct you to that particular thread, but it was on the old forum which I believe has been deleted. Based on my discussion with Mr Santora and other posts of his including this thread, Mr Santora falls into the category of “If you can’t dazzle’em with your brilliance, then baffle’em with your bullshxx.

I commend you two gentleman for calling a spade a spade.

Spettifer:

I usually do not offer negative comments about anyone on this forum or any other, however, there comes a time when enough is enough. When someone is seeking advice or is offering it, and it is continuously contrary to good appraisal practice and USPAP regulations, then that person should be told so. Others read, believe and respond to the cometary posed on this forum. Some appraisers like Mr Santora have their own interpretation of USPAP, good appraisal practice, and the principals thereof, and seek(no matter how wrong they may be) to address issues of which they have no concept whatsoever, and when gently corrected, will try and evade or change the subject matter completely.

Others:

This forum is a great learning tool for many appraisers, however, if misinformation is put forth by certified and/or designated experienced appraisers, who are so far off the mark that it is plainly ludicrous, then they should be reprimand so as to inform those less experienced appraisers, in the correct appraisal procedure to follow.

 

[Terrel L. Shields]

Gee...I viewed SSs comments in the light of playing devil's advocate not to disabuse the rest of us of our comfort zone. Perhaps more of the logic of the income approach should be taught. It is easy to mechanically do this, but in my forthcoming treatise on Zen and the Art of Understanding Yield Capitalization I intended to explore the wisdom of Reverse Polish Notation, which in a nut shell, reduces the number of keystrokes necessary to calculate the payment on your new stereo.

If I detect any common thread among appraisers, it is not so surprising I suppose, that it is they are opinionated. Thus opined, it is not difficult for the lay person to interpret passionate appraisal-speak as arrogance.

You know, I am still mulling over the question not attempting to interpret the inquisitor's motives. And as a person who used DCF in a modified way that few of you would recognize, I can understand the difficulty of taking a position. I think the real answer is that it depends.

What does the client want? What do the possible regulators, users, and courts think? Or do they think? Or can you defend it if forced to in a court of law? And does it actually matter. I am for simplification. I would probably call it Direct Capitalization and be done with it. I would only discuss an alternative interpretation in an academic setting.

ter

 

[Fred]

JT,
Your statements about the cost approach threads are thoroughly inaccurate:

Posted by an innocent bystander:
"Effective age? It's a made up number for accounting purposes. There is no way to quantify the effective age of a 100 year old home no matter what has been done to it. There is no way for two people to come to the same guess about the effective age of a house that is thirty years old. For tax purposes, there may be a need for effective age. For appraising residential real estate, it's the biggest guess in the guessing game. Why bother with a number that is strictly a guess?"

Your response:
“You guess(educated) until you acquire the knowledge(experience does count), The more property you see and compare, the more experience you get; this is subjective. This is where the ART part of appraising comes in.”

You also post that:
"Some appraisers like Mr Santora have their own interpretation of USPAP"

In my posts on effective age and remaining life, I did not "interpret" USPAP. I just quoted it. From one of my cost approach posts:
"USPAP Rule 1-3(a): An appraiser must avoid making an unsupported assumption or premise about the market area trends, effective age and remaining economic life.”

I left it others to reach their own opinios as to whether your "guess" method falls inside or outside the bounds of "unsupported assumption."

You say that I have "no concept" of the cost approach. Actually, I do have at least one concept - that appraiser guesses about remaining economic life do not make for compelling appraisals.

 

[Paul Ness MAI]

Apathy will get you nowhere....but then again, who cares. 8)