Definition of Cost Approach

[BGHomeOwner]

I'm having a problem with the methodology being utilized for the calculation of the valuation of my property for tax purposes. I'm not seeking legal advice or anything like that. What I'm looking for is to figure out if I've somehow missed something in the defintion of the Cost Approach method or if I'm having the wool pulled over my eyes.

My county describes their methodology as follows...

"Your home and any other structures on your land are values using a market-calibrated cost approach derived from sales in the local market. Cost approach value is based on the cost of replacing an existing structure with a similar one. Assessment staff collects building data relevant to the way people make decisions about which house to buy such as style, quality, size, age, condition and other specific characteristics. Market-calibrated cost tables are applied to this data to arrive at a replacement cost for each building. Depreciation, which is also derived from the market, is then subtracted from that cost based on the age and condition of the structure in question. Building with similar characteristics have similar values across the county."

Can this be described as anything other then a cost approach? I'm now being told this is a "hybrid" of the comparable sales and cost approach methodology. Have I totally misunderstood the definition here or is there actually enough wiggle room in the industry that somehow this would not be a cost approach method regardless of their "market calibration" concept?

Thanks in advance for any responses......

 

[Zambendorf]

Sounds like your tax authority has subscribed to an AVM service (computer model).
It may be a challenge for you to replicate their number.
You can get the cost approach from swiftestimator (likely part of the engine used by the AVM has the same engine).
Use it to help catalogue your homes details then go have a chat with the tx authority to see what details they used.

 

[Paul Isolda]

All mass appraisal is done by computer model. It's not a traditional avm. There are market influences on any cost approach but a cost approach is a cost approach and a sales approach is a sales approach. Trying to say their method is a hybrid of the two is a bunch of bull. There should be a definition of value somewhere in the State statutes as to how your assessments are derived. As far as I know it's ultimately a market value that has to correlate with the cost because the assessor has to show the break down of value between land and buildings. If you have legit. sales that are truly comparable to your property and they refute the value arrived at by the assessor, bring those sales to them and ask them to change your assessment. Better yet, hire a good local appraiser who does tax appeal work.

 

[Terrel L. Shields]

it's ultimately a market value that has to correlate with the cost because the assessor

I would describe it as a Cost Approach which is vetted by sales using a complex Appraisal Valuation Model. They use a regression model that may or may not be accurate or may or may not "capture" all the items in a property. Therefore, say the R Square is 0.67, only 2/3rd of the price can be supported by the regression. that is not an unusual or "inaccurate" results, but simply means they don't know what drives one-third the value. So they fill in the gaps by guessing. Typically, they derive the land value from vacant land sales. They "adjust" the age, condition, and quality to arrive at their value. it is slightly better than throwing a dart.