Extraction Method

[CANative]

Replacement Cost Value (Insurable Value)

"Insurable value is the value of an asset or asset group that is covered by an insurance policy. Insurable value may be based on the replacement or reproduction cost of physical items that are subject to loss from hazards. This value is often controlled by state law and varies from state to state."

Source: The Appraisal of Real Estate, 13th Edition, Chapter 2, Page 32. Published by The Appraisal Institute.

The scope of work for this assignment included development and reporting of "Replacement Cost Value" if the subject property is located within a FEMA Special Flood Hazard Area, which it is. For that reason, the cost of the foundation is included in the value as is the full cost of plumbing and electric.

I have relied primarily on the Marshall & Swift Cost Manual (online version SwiftEstimator) which uses a 1.21 local cost modifier which, for this region and at this time, is somewhat low due to continued impact of a series of destructive wildfires in both Lake and Mendocino Counties. I have adjusted the local modifier to 1.35. Additionally, per Appraisal Institute presentation entitled "2013 Appraisal Institute Annual Meeting, Turning Vision into Action," the cost variance between new construction and reconstruction is 15% and I have made an additional 15% adjustment to the M&S costs for a total modifier of 1.5.

Demolition, debris removal, depreciation, land value and entrepreneurial profit or incentive not included. Replacement costs used with like-kind materials at today's cost and under current building codes. A separate highest and best use analysis was not required for this the Replace Cost Valuation.

See the following Cost Analysis sheet for estimated replacement costs.

It is my opinion that the Replacement Cost Value of the subject improvements is $218,459 (say $220,000.)

 

[George Hatch]

I use a different cost source for insurable value than I use for the CA to MV. But other than that I'm doing what you do; include the additional definition of value and provide a quickie explanation of the difference between an insurable value opinion vs a CA to MV.

 

[CANative]

I use a different cost source for insurable value than I use for the CA to MV. But other than that I'm doing what you do; include the additional definition of value and provide a quickie explanation of the difference between an insurable value opinion vs a CA to MV.

I'm poor.

 

[Terrel L. Shields]

I'm poor.

The cruel pinch of want is why we all have to work .... I liked the old Boeckh system because it provided both a replacement cost new or click a button and you got reproduction costs (insurance) cost. It was usually about 15% higher than replacement cost.

 

[djd09]

Quantifying accrued depreciation is always the weak spot.

just let a third party do that.

 

[CANative]

Quantifying accrued depreciation is always the weak spot. Testing the approach against new construction in various situations readily enables us to calibrate the other elements.

If one does not mind calculating costs by hand (as opposed to the automated calculations from commercially available cost services) the CA BOE's residential cost handbooks have cost tables for pre-1990 construction as well as post 1990 construction. It also includes EI. So, two of the three can be calculated and supported.

 

[Terrel L. Shields]

If one does not mind calculating costs by hand (as opposed to the automated calculations from commercially available cost services) the CA BOE's residential cost handbooks have cost tables for pre-1990 construction as well as post 1990 construction. It also includes EI. So, two of the three can be calculated and supported.

I have used Means, National, & local costs all as a comparison when dealing with some building types. OTOH, I've ignored cost books valuing a lot of agricultural type buildings... actually found the CA BOE book quite useful for a lot of agri building types. Made way more sense than some of the costs found in NBC or R S Means.

 

[Carnivore]

I have used Means, National, & local costs all as a comparison when dealing with some building types. OTOH, I've ignored cost books valuing a lot of agricultural type buildings... actually found the CA BOE book quite useful for a lot of agri building types. Made way more sense than some of the costs found in NBC or R S Means.

I like RS Means for renovation cost. Interestingly Craftsman has some good stuff also, and they have been rolling out new cost service items lately. On-line and Hardbook stuff. They are worth looking at because lord knows our business cost keep going up and downward fee pressure is never going away.

Craftsman Book Company Publishers of Construction Books & Software

Craftsman publishes books and software for construction professionals. Publishers of National Estimator Cloud, Construction Contract Writer, National Construction Estimator, National Appraisal Estimator and More.

www.craftsman-book.com

Just my Opinion: I know the cost services do their best to create useful, up to date and as accurate as possible data. But Builders, Renovators joe the Carpenter, because they compete with each other are all liars. Why would you reveal to a competitor your bottom line Margins. They won't. I think the cost services establish fairly accurate actual cost of materials, regionally adjusted for inflation. The labor cost, They probably get that from government sources. Real Property acquisition cost are fairly accurate because a portion of that is public. Even there if you get some of that from MLS, the Brokers don't actually reveal what they were actually paid in commission. Brokers will reveal what percentage they will split to cooperating brokers on the listing But without aide of the settlement , you don't really know that either.

Just my thoughts of why Cost Approach is not something you can be always be certain about. I always see it as something to support your SCA. Higher, nearly the same or maybe even a reasonable amount lower. It is often said that the SCA can't be more than the cost approach. That statement presumes a consistent definable level of accuracy in both Approaches. Yet we all know and generally agree the market is imperfect.

Just rambling. i am interested in your thoughts.

 

[CANative]

Just my thoughts of why Cost Approach is not something you can be always be certain about. I always see it as something to support your SCA. Higher, nearly the same or maybe even a reasonable amount lower. It is often said that the SCA can't be more than the cost approach. That statement presumes a consistent definable level of accuracy in both Approaches. Yet we all know and generally agree the market is imperfect.

Just rambling. i am interested in your thoughts.

I don't agree with that point of view. I think it is used as a rationale for avoiding the approach at all costs.

 

[George Hatch]

Anecdotal - I just completed a CA on an SFR that's partially built and which has a 4ac site with a grove in a semi-rural area of San Diego County. It was a complicated appraisal problem overall, the particulars of which I won't go into here. But I had great land sale comparables located in the subject neighborhood, and physical depreciation wasn't a factor.

Without engaging in any hocus-pocus my CA and SCA came in so close to each other that I don't like it.

I was given a 2018 appraisal on the property, performed by an appraiser who put considerable thought into his analysis and there was a lot of overlap in the costs when considering we were using different cost references. One big difference is that I opined to an underlying site value that was 40% lower than the other appraiser. That's because I used actual site sales data and he did "extraction" despite the easy availability of comparable site sales data.

I work in Southern Calif, including some of the urban areas, and a certain percentage of my book of work consists of land appraisal assignments or proposed construction. I *rarely* run into an SFR assignment where there actually is no relevant site sales data. And the reason I say that is because the geographic range for SFR parcels in an urban/suburban setting is usually far wider than the geographic range for the finished or existing home. Except perhaps for the projects with significant common elements you usually don't need site sales in your immediate neighborhood to figure out what the site values are.

Put it this way: If your subject was built out as a subdivision home in the middle of a 400-unit subdivision and it burned down and your assignment was to value a vacant site in the middle of that subdivision you would usually not have to resort to land value by extraction in order to value that lot. You can usually find vacant land sales data to use and then make location adjustments if/when necessary. Which often it won't be. Not even in the urban areas.