External Depreciation Adjustment

[Fnbpos]

Any time an appraisal from another passes by my desk, and many have in 30 yrs, there is a good chance that the appraiser will demonstrate an obvious lack of understanding of the Cost Approach. Call it failure of the industry to properly instruct....or call it anything you want. When I see a CA developed incorrectly, it calls into question the overall competency of appraiser and the confidence the reader will have in that report. I'm not alone....

 

[Terrel L. Shields]

The problem of course is there are no vacant site sales to be had

I see builders buy a cheap property thinking they can arbitrage the difference in what they paid and what they think a lot is "worth" and fail to realize that the buyer may also view it as a "problem" and discount accordingly. That is mostly a land value issue. Most locational externalities will affect the land value. Environmental externalities usually impact the building and possibly the land. But economic externalities usually affect the entire property. That's my story and I am sticking to it.

 

[Howard Klahr]

Environmental externalities usually impact the building and possibly the land.

Milford, New Hampshire:
Fletcher's Paint Works and Storage

Haverford, Pennsylvania:
Havertown PCP

St. Maries, Idaho
St. Maries Creosote

Walpole, Massachusetts:
Blackburn and Union Privileges

Whittier, California:
Omega Chemical Corporation

Top five Superfund sites in US, all of which are mostly contaminated land not improvements. So I guess so much for that mainly impacting the improvement theory.

 

[Terrel L. Shields]

Brownfields are one thing but a contaminated dwelling (ie. mold) well....that impacts the whole property.

 

[Howard Klahr]

mold, asbestos, etc do not impact land value because there is no contamination of the land ...

 

[gregb]

A local builder bulldozed a citrus field and did not remove the trees buried in the ground. Fifty years later subterranean termites are still infesting and thriving in the housing tract no matter what the termite inspection companies do.

 

[Terrel L. Shields]

mold, asbestos, etc do not impact land value because there is no contamination of the land ...

I would venture that is specific to the situation. In extreme cases the HBU is land and even then cost to cure is involved. Further, agricultural contamination will impact value of the land - such as discovery of oil saturated ground, or a chemical spill, again it is specific to the situation.

 

[residentialguy]

A local builder bulldozed a citrus field and did not remove the trees buried in the ground. Fifty years later subterranean termites are still infesting and thriving in the housing tract no matter what the termite inspection companies do.

That sounds like a nightmare!

 

[residentialguy]

I think I did actually. Because according to you, the total market reaction for external obsolescence was $25,000. So I just pointed out that if the site's value was actually $25,000 lower than what it would have been valued otherwise, then there isn't any more room for an adjustment to the improvements. If you make an additional adjustment to the improvements then your Cost Approach conclusion will be too low.

Cost approach has nothing to do with price paid. (albeit, it can be a good indicator) The land value would would reflect the market value for that piece of land.