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Deep Dive - The Cost Approach

Cost approach should be OPTIONAL in reports where the property is 50-200 years old, has had many additions/renovations, transferred many times, permits in question, many have sold off excess land from original value, code problems, etc,. You should get the idea, we are not Houdini, looking in a crystal ball, "M&S" for data.
If I NEED to support my value with the Cost Approach on most reports, I'm doing something wrong. 3-4 good Comps "should" override any cost analysis. They are Real, Local, 3rd Party (MLS) data & Known, not a database from the Cloud.
Why does the VA not require the Cost Approach? Maybe someone wants a realistic value, not an additional "approach" to deal with. Now that you old guys are ready to burn me at the stake, this approach is reliable for 0-15 yo dwellings, for valuation with newer sales. Not old dwellings transferred 5X in 35 years.

Keep in mind, it is "OUR" report, we should make the call, not just fill in boxes for someone.
 
Joe Flacco said:
How tight of an adjusted range are you guys typically working with?

I'm pretty happy if I can get to a 10% adjusted range.
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It really depends on the market and the data available. I usually want better than 10% with my best comps, but sometimes with rural and lakefront it is not achievable. If I'm not within a comfortable range on my most similar comps for a typical residential property, I'm calling agents to try to figure out if there's something I'm missing. Most times I try to talk to the agents on both sides anyway. The listing agent usually tells me something that helps explain why a sale was higher or lower.
 
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Here are some pairs I came across recently. When you see the market doing things like what the highlighted did, then you can appreciate that the market is just not precise.
 
If I saw that I would call the agent and they would likely tell me, that the first buyer/second seller overpaid then something changed and they just needed to sell it. I bet there is something else going on to be discovered. The rest of the sales are pretty tight!
 
CGinMN said:
If I saw that I would call the agent and they would likely tell me, that the first buyer/second seller overpaid then something changed and they just needed to sell it. I bet there is something else going on to be discovered. The rest of the sales are pretty tight!
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They obviously over-paid the first time. Or the history would at least suggest that. But at that moment it sold for that because there was another very close offer that drove up the price to that. And then the situation was not the same a few months later.
 
Did it sell high the first time or did it sell low the second time?
 
The fact that they listed at $1,450,000 the second time instead of $1,600,000 says something. As does the CDOM/DOM for each sale. I would guess that it oversold the first time, but maybe the second one was also low.
 
They started at $1,699,950 and it expired at $1,450,000 after 51 DOM. Then they came back on at $1,450,000 with a different agent.

It is not unreasonable to think that any sale in the neighborhood could have sold for 10-15% more or 10-15% less depending on things that have nothing to do with property characteristics. The market is just like that.
 
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