How do you appraise new construction with no comps?

[J Grant]

The cost approach, like all approaches to value, if completed correctly, produces an indication of market value for market value assignments.

RE, the phrase "completed correctly". What, exactly, does that mean? Using the most reliable M and S guide? Talking to local builders? Line item for cost every light switch and piece of lumber and brick? Or maybe it means...adding in EI! Oh yes, good old EI, keep adding it in till the CA matches the MV opinion from the SCA!

I opine that when done correctly, the CA will often indicate MV, but it may differ signifcantly from the MV derived from SCA value. In that case, one or the other is more credible. The appraiser should decide whether the CA or the SCA is more credible, not make them line up.

There have been published articles about the CA having more validity as a check on MV rather than trying to use EI or ec obs to make it line up with MV from the sales approach...the articles were reporduced on the forum in the past I don't have time to find the artcies or links.

 

[BRCJR]

An opinion of market value can be extracted from a properly developed and completed/reported cost approach.

AI has a good book on the Cost Approach to Value.

 

[J Grant]

An opinion of market value can be extracted from a properly developed and completed/reported cost approach.

AI has a good book on the Cost Approach to Value.

How would you derive an opinion of market value from a properly developed and completed cost approach all by itself? What do you check the opinion against, and how do you know it is credible?

I agree, that, "an opinon of market value " can be extracted from a properly developed and completed/reported cost approach.

The question would be: Is the opinion derived from the CA credible?

And if you claim it is, by what standard is the opinon credible? By a textbook? Beyond referring to a text book, is the opinion of market value derived from the CA credible for the market and market conditions and actions of informed buyers and sellers, etc?

I find defenders of MV derived from a CA always refer back to text books and courses they have taken, yet seldom offer real world examples of how the MV is credible when measured by activity in the actual market. Denis himself, after talking up the CA, admits that he puts most weight on the SCA or income approach in his report.

 

[Abester]

If market participants are building houses in this price class but not selling them, is the cost not an indication of market reaction? Is not the market established by the "build" instead of the "buy" model, particularly if the style/size is not currently available in the local market?

 

[J Grant]

If market participants are building houses in this price class but not selling them, is the cost not an indication of market reaction?

Re, it would depend on why they are not selling them. If the new construction houses are a year or two old, then chances are, the owners just moved in, so why would they be selling them? They might start to sell after 2 or 3 years, and that is when one would see the resale market reaction to these homes

I would also want to check expired and cancelled listings, to see why none of the homes are selling. Often, times owners try to sell these homes, find there are no buyers (or at least no buyers in a high $ price range), and the homes are pulled off the market and put back on, over and over with multiple expred/cancelled listings over a period of years.

If buyers are building these homes and living in them many years because the area is so great and the homes so terrific, then I would say the market reacgion is positive for building a new home in the area.

Is not the market established by the "build" instead of the "buy" model, particularly if the style/size is not currently available in the local market?

Could you explain more about the last paragraph?

 

[Terrel L. Shields]

For secondary market, the CA is not going to cut it. Without sales, the CA is going to have a big hole in the calculation of Ex. Ob. and Func. Ob.

Go back to the lender and make them understand this is a unique property. No Fannie mae need apply. Then 1. do a narrative. 2. do a CA and a SA. 3. absolutely .... you have to go BACK IN TIME or FURTHER AFIELD... until you find sufficient market information to do the report.

I personally would not touch it for less than $3000.

 

[Ken B]

I did one like that a year or so ago. Well, maybe not quite like it; there were plenty of comps.

Terrel is just about on the money.

 

[nanzilla]

This is exactly the kind of info I was looking for in asking the question. Even though I have happily declined the order I wanted to know how it could be done by people who have had assignments like this, themselves. Thank you to all for responding.