Mike and Austin,
Trying to find value with the cost approach in a 100%-built-up area is like trying to make a Rum-and-Coke without the Coke.
Isn’t the principle that the so-called “prudent” person won’t buy existing improved property ('Alternative A') for more than the cost of building a new one ('Alternative B')? If Alternative B is not physically possible because there are no vacant sites, then in what way is the cost of the non-existent Alternative B relevant to the pricing decision?
Also, Mike, you might consider the hypothetical assumption you are imposing on the assignment. A vacant site in a 100%-built-up area is “contrary to what exists.” You are not figuring the actual market value of the land, because there are no actual land sales. You are figuring a hypothetical land value – what you think it would be worth if it existed. If the government decides to widen road or put in better infrastructure, they will have to take some land and then these hypothetical assumptions would be “necessary.”
The recipe for the cost approach calls for separate building contribution AND actual land value, just as that other recipe called for rum AND coke. You may be happy imagining you have both ingredients, but I think you just imbibing the rum. I don't drink.
If you were making a list of when the cost approach can’t possibly work, wouldn’t the situation where there is no vacant land be close to the top of the list?
Trying to find value with the cost approach in a 100%-built-up area is like trying to make a Rum-and-Coke without the Coke.
Isn’t the principle that the so-called “prudent” person won’t buy existing improved property ('Alternative A') for more than the cost of building a new one ('Alternative B')? If Alternative B is not physically possible because there are no vacant sites, then in what way is the cost of the non-existent Alternative B relevant to the pricing decision?
Also, Mike, you might consider the hypothetical assumption you are imposing on the assignment. A vacant site in a 100%-built-up area is “contrary to what exists.” You are not figuring the actual market value of the land, because there are no actual land sales. You are figuring a hypothetical land value – what you think it would be worth if it existed. If the government decides to widen road or put in better infrastructure, they will have to take some land and then these hypothetical assumptions would be “necessary.”
The recipe for the cost approach calls for separate building contribution AND actual land value, just as that other recipe called for rum AND coke. You may be happy imagining you have both ingredients, but I think you just imbibing the rum.
I don't drink. If you were making a list of when the cost approach can’t possibly work, wouldn’t the situation where there is no vacant land be close to the top of the list?
