Extraction Method

[Deleted member 152047]

Maybe @George Hatch can weigh in. At the risk of sounding like an a**hole, I don't have the time, nor the inclination to look through appraisal texts to support common appraisal knowledge. We are here to advise, it is your job to do the legwork.

 

[alebrewer]

Using only the subject to extract the depreciated cost to get the land value indication does not work because because it is only one indication and could be anything. If it's a sale then it's telling you what one person is willing to pay. If it's a refi or something, then there isn't even that. If you're using your own opinion of value, then there is not support for anything.

The extraction example in The Appraisal of Real Estate uses 4 sales, none of which are the subject.

I feel like I'm beating my head against the wall... of course you have a 'true market value' if it's a refi - you have your professional opinion of the market value of the subject property as of the effective date of valuation. I'd hope you have adequate support for that?...

 

[alebrewer]

Maybe @George Hatch can weigh in. At the risk of sounding like an a**hole, I don't have the time, nor the inclination to look through appraisal texts to support common appraisal knowledge. We are here to advise, it is your job to do the legwork.

who is 'we'? And why would you offer advice that is not documentable? And while George Hatch may well be an expert on the topic, I really doubt if he would put himself above The Appraisal of Real Estate. I can even direct you to the specific page in the text I quoted: My edition is the 12th, and the quote is from pages 336-340. And yes, it does sound a bit like an a**hole to assume you know more than I about the subject... sorry my friend, but it really does.

 

[Deleted member 152047]

who is 'we'? And why would you offer advice that is not documentable? And while George Hatch may well be an expert on the topic, I really doubt if he would put himself above The Appraisal of Real Estate. I can even direct you to the specific page in the text I quoted: My edition is the 12th, and the quote is from pages 336-340. And yes, it does sound a bit like an a**hole to assume you know more than I about the subject... sorry my friend, but it really does.

It is supported throughout appraisal text and coursework. See @CANative 's response above on how they implement the methodology in the appraisal of real estate.

 

[Hondo]

This is from AI Appraisal of Real Estate, 11th Edition, page 89:
In the valuation model, land value estimate is a separate step. The most reliable
way to estimate land value is by sales comparison. When few sales are available, however,
or when the value indications produced through sales comparison need additional
support, other procedures may be applied. The procedures used to obtain land value
indications are: sales comparison, allocation, extraction, subdivision development, land
residual, and ground rent capitalization. These techniques are described as follows:

1. Sales comparison. Sales of similar, vacant parcels are analyzed, compared, and
adjusted to provide a value indication for the land being appraised.

2. Allocation. Either sales of improved properties are analyzed and the prices paid
are allocated between the land and the improvements, or comparable sites under
development are analyzed and the costs of the finished properties are allocated
between the land and improvements. Allocation can be used in two ways: to
establish a typical ratio of land value to total value, which may be applicable to the
property being appraised, or to isolate the value contribution of either the land or
the building from the sale for use in comparison analysis.

3. Extraction. Land value is estimated by subtracting the estimated value of the
depreciated improvements from the known sale price of the property. This
procedure is frequently used when the value of the improvements is relatively low
or easily estimated.

 

[alebrewer]

It is supported throughout appraisal text and coursework. See @CANative 's response above on how they implement the methodology in the appraisal of real estate.

Again - the more observations you have, the stronger your support. I've NEVER argued that - and will never argue that. I've simply stated that, according to The Appraisal of Real Estate, only one observation is required...

 

[alebrewer]

This is from AI Appraisal of Real Estate, 11th Edition, page 89:
In the valuation model, land value estimate is a separate step. The most reliable
way to estimate land value is by sales comparison. When few sales are available, however,
or when the value indications produced through sales comparison need additional
support, other procedures may be applied. The procedures used to obtain land value
indications are: sales comparison, allocation, extraction, subdivision development, land
residual, and ground rent capitalization. These techniques are described as follows:

1. Sales comparison. Sales of similar, vacant parcels are analyzed, compared, and
adjusted to provide a value indication for the land being appraised.

2. Allocation. Either sales of improved properties are analyzed and the prices paid
are allocated between the land and the improvements, or comparable sites under
development are analyzed and the costs of the finished properties are allocated
between the land and improvements. Allocation can be used in two ways: to
establish a typical ratio of land value to total value, which may be applicable to the
property being appraised, or to isolate the value contribution of either the land or
the building from the sale for use in comparison analysis.

3. Extraction. Land value is estimated by subtracting the estimated value of the
depreciated improvements from the known sale price of the property. This
procedure is frequently used when the value of the improvements is relatively low
or easily estimated.

Thank you!! In case others may have missed it, "3. Extraction. Land value is estimated by subtracting the estimated value of the depreciated improvements from the known sale price of the property. This
procedure is frequently used when the value of the improvements is relatively low or easily estimated."

Notice that 'property' is singular...

 

[alebrewer]

It is supported throughout appraisal text and coursework. See @CANative 's response above on how they implement the methodology in the appraisal of real estate.

and again, sorry, but I'd probably rather document my workfile with support from a recognized and authorative text than from CANative (no offense CANative).

 

[Deleted member 152047]

and again, sorry, but I'd probably rather document my workfile with support from a recognized and authorative text than from CANative (no offense CANative).

Your interpretation of the text is incorrect. Also, how is it that you are so confident in your depreciation estimates? What support do you have for that facet of this calculation? I can shoot holes in your limited scope of work all day and so will any reviewer worth their salt. You work in a property type where there is a plethora of data and are refusing to go out and find extraction comparables.

 

[George Hatch]

I'm not sure why this is even a debate. I can't think of any type of analysis we do where applying it to more relevant data is not the preferred mode of execution over applying it to fewer data or just one datum.

And that goes double for land-value-by-I-backed-into-it.