Earth Sheltered Home: Appraisal And Comparable Problems

[Marant]

In a nutshell...the Cost Approach is one of the three generally accepted methods for appraising real estate.

Lets say there's someone of like mind that desires a house similar to yours. Since there are no others around and yours happens to be for sale, their options are 1.) Build one like yours or 2.) Buy yours.

They know that it will cost $300K to build one like yours (just a number thrown out there, insert any you like). They start thinking. Let's see...Yours is 10 yrs. old, the furnace/AC, plumbing/wiring are 10 yrs. old, windows/doors/flooring, etc. are all 10 yrs. old. How much of a discount from new is required to entice them to purchase yours considering the physical depreciation? Is $250K a good price? $230K? You get the idea?

Normally I agree and don't really care about the cost, I only care about the value as perceived by the buyers of similar properties. However, in the case of new construction or unique homes without reasonable comps, the cost approach can be given a lot of weight in an appraisal.

The other two options for appraisers are the Income Approach or the Market (Sales Comparison) Approach.

Income Approach? I doubt that your house would be considered a good income producing property.

Sales comparison? The lack of similar houses mostly rules this one out but appraisers can distill some supporting data from the market.

So, if I am understanding what you are saying, in a cost approach there is no adjustment for obsolescence?

 

[Mark K]

As I said, 'in a nutshell'.

Of course there's adjustments for various types of obsolescence using the cost approach in an appraisal report. These can be derived from market data and applied as appropriate.

However, I doubt that a buyer for a home like yours would attempt to quantify obsolescence beyond the physical depreciation component, in spite of its inherent obsolescence issues.

 

[Marant]

As I said, 'in a nutshell'.

Of course there's adjustments for various types of obsolescence using the cost approach in an appraisal report. These can be derived from market data and applied as appropriate.

However, I doubt that a buyer for a home like yours would attempt to quantify obsolescence beyond the physical depreciation component, in spite of its inherent obsolescence issues.

But it is not out of line for me to argue obsolescence issues to the property tax appeal board? The biggest problem is how to quantify the obsolescence.

 

[Mark K]

No, its not out of line...and yes, that is the biggest problem.

 

[leasedfee]

But it is not out of line for me to argue obsolescence issues to the property tax appeal board? The biggest problem is how to quantify the obsolescence.

Obsolescence in the cost approach is measured from the comparable sales or rents. . . . . . . .
How much did your home cost to construct per square foot (excluding land)? Index for inflation. How much does that compare to the cost to construct a home like the Assessor's per square foot? Did you save monies or spend more than the generic alternative?

 

[Mr Rex]

But it is not out of line for me to argue obsolescence issues to the property tax appeal board? The biggest problem is how to quantify the obsolescence.

You are in a pickle, you are proposing going to the tax appeal board and saying in essence that you made an error in judgement and built a house of your own free will with inherent obsolescence and now you want your taxes discounted because of the choice you made. I've never heard the insanity defense used in a tax appeal but you may set a new precedent. Good luck with that.

FWIW, IIRC most tax assessors use a quasi cost approach/market approach and lacking good market data to reflect any obsolescence will place most weight on costs. So short of you supplying market data at your considerable expense (as previously noted) they have you by the short and curlies so to speak.

 

[Marant]

You are in a pickle, you are proposing going to the tax appeal board and saying in essence that you made an error in judgement and built a house of your own free will with inherent obsolescence and now you want your taxes discounted because of the choice you made. I've never heard the insanity defense used in a tax appeal but you may set a new precedent. Good luck with that.

FWIW, IIRC most tax assessors use a quasi cost approach/market approach and lacking good market data to reflect any obsolescence will place most weight on costs. So short of you supplying market data at your considerable expense (as previously noted) they have you by the short and curlies so to speak.

I beg to differ with your opinion. When we built the house we knew what we were doing and built the type of house we wanted. It is very efficient, resulting in monthly costs substantially less than a similar sized conventional house. The mere fact that we were wise ( and brave) enough to be different than the mojority to take advantage of efficiencies has nothing to do with the fact that the rest of society has not yet realized the value in our house. I fully expect that any obsolescence will eventually disappear when the benefits become more understood, but it will take a while. In the meantime there is nothing wrong with taking advantage of a potential benefit in the tax law.

BTW, I fully support your willingness to pay all the taxes requested of you, with no deductions. Bravo, Sir!

 

[Mark K]

[QUOTE="Marant, post: 2844759, member: 152279"The mere fact that we were wise ( and brave) enough to be different than the mojority to take advantage of efficiencies has nothing to do with the fact that the rest of society has not yet realized the value in our house. [/QUOTE]

Maybe many of the rest of us 'unwise' people are smart enough to realize that you don't have to live in a cave to have an energy efficient dwelling.

 

[Marant]

[QUOTE="Marant, post: 2844759, member: 152279"The mere fact that we were wise ( and brave) enough to be different than the mojority to take advantage of efficiencies has nothing to do with the fact that the rest of society has not yet realized the value in our house.

Maybe many of the rest of us 'unwise' people are smart enough to realize that you don't have to live in a cave to have an energy efficient dwelling.

Or do not have the wisdom to realize it is not a cave.

 

[glenn walker]

I fall back on my original post - In this situation I would not even get a formal appraisal because I doubt the appeals board is going to depend on a cost approach without some comparables. So simply save a lot of money and get a local Realtor to do a $150.00 broker price opinion and see what he-she thinks they could sell it for in today's market. Just have him-her find three comparables that sold for less because they had weird or unpopular designs and if those end up lower than your assessment just take the brokers price opinion to the board and see what happens. And look very depressed and helpless because bureaucrats hate anyone who shows confidence and guess what you have a 50-50 chance of winning !