To All,
Unfortunately (for me), I do not usually read all the posts in these long strings- but this time, I did.
Let me add some fuel to the fire.
First, and foremost, under USPAP, you must define the scope of work. My comments now will assume we are dealing with a typical assignment involving the normal prodedures- interior inspection, etc. Complete Appraisal required.
Let's start with the income approach. Someone said (IF memory serves) it was applicable only when the subject would be rented. We all know that the SFR rent schedule is required by clients in those cases.
Now, I used to be one of those guys who simply stated that there was not adequate data. Then I grew up to be an appraiser. The instigator of this was the former NAIFA Ed Director, Gary Hall, form Belleville, IL. In teaching his JC classes, he gave students extra credit for research in finding homes that were rented out when sold. Result? Hundreds of them. So, Gary began using the income approach on all his assignments. Got me thinking. too. So, I did my own research and guess what? In my suburban markets there was almost always adequate data! So a big percentage of my reports had the approach.
Is it perfect? No. Is it useful? Depends upon the market or sub market. Just do not dismiss it out of hand just because you are lazy or make the possibly erroneous assumption that there is not adequate data. Only you will know that, and you can only know that if you do the work.
Incidentally, for those who have concerns over AVMs- they cannot do this approach. No data bases.
The cost approach. I continue to be a big believer. I cannot tell you how many times it has saved my bacon. Frankly, I believe that our texts really mislead us on this approach- and I have found that this may be the primary cause of the approach not working out.
We are told that the effective age of a home is subjective. I disagree. Since the market assigns depreciation, you can derive the effective age from analyzing the market. Sure, it means that you must begin with some supportable estimate of total economic life; however, once done, all the rest can be easily derived from the market.
If you really do the market abstractions, it will open your eyes.
About the only time I do not do this approach is for PUDs where the common elements have no market or condos for the same reason or for historical properties where the historical component is attributable to the improvements. That is because you simply cannot reproduce or even replace some value components like the contributory value of an architect who is already dead. I can rebuild a Frank Lloyd Wright house to the exact specs and design- and it may contain a value component based upon his design, BUT it can never again be a FLW house. He's long gone.
And, it is yet another approach that cannot be done by an AVM.
Now, for the Sales comparison approach- two points. While an AVM does do this approach, it cannot really analyze what you can. It does not know about ocean or golf course views and the like. It cannot easily account for upgrades, etc. But, I run one on every assignment I do (when available). Why? Because it gives me data- sales. Sometimes this data is not easily available elsewhere. When my own home was appraised last month, I ran one. Found a comp right in my area that did not appear in MLS, AIRD, or anywhere else, except for public records. We gave it to the appraiser, and he responded- thanks, I did not find this data- and he used it, after doing some investigations on it. Now, are these "comps"? Not always. But, lots of them are. Think my clients are upset when I tell them I analyzed 15 sales and chose the 5-6 most relevant ones? Guess again.
Next, that AVM may well turn up in the reviewer's work. When I look at and consider the same data he/she is using, it is not easy to question my work. They might try, but they will get nowhere.
I think we should all remember that we are being paid for our opinions and that those opinions must be based upon some measure of analysis that corresonds to the scope of work.
IMHO, the days of 3 comps showing what the market is are long gone.
Do your best work. Consider all the data you can reasonably get your hands on. Consider all these approaches. Only then will you produce a considered analyzed opinion of value- and it will continue to make you a valuable commodity in your market.
Brad Ellis, IFA, RAA
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