Is The Cost Approach A Real Thing?

[George Hatch]

By the time your assignments include new construction or major fixers you will need to understand the cost approach.

Supporting the land value requires some competency in appraising vacant parcels, so you'll have use for that skill, too.

Note that the market area for a vacant SFR lot is usually going to be much larger in geographic area than the market area for an existing SFR. And the time frame will extend far further back than 6 months.

I'm currently appraising (updating, actually) an appraisal on an SFR lot in Rosemead. Same old thing - not enough of the sales data that I wished I had so I'll have to extend out until I find what I need. A couple of the sales I'm going to use were marketed as beater SFRs that sold for land value. I always sift through old expired listings to see if they ever sold afterwards without making it into the MLS. I also check the sales history for new construction - sometimes there's a recent site acquisition there.

Extracting land value from an existing SFR sale is a last resort. Everything else failed. I appraise a lot of land - more than most CGs. I haven't had occasion to use extraction in a long time.

IRL we have to work with what we've got, not what we wish we had. Walking away from an assignment just because it's hard doesn't solve the client's problem.

 

[George Hatch]

BTW, if you want to use a cost source that the BREA isn't going to hassle, you might consider using the Board of Equalization's cost data.

AH 531, Residential Building Costs - Board of Equalization

www.boe.ca.gov

 

[Artemis Fowl]

BTW, if you want to use a cost source that the BREA isn't going to hassle, you might consider using the Board of Equalization's cost data.

AH 531, Residential Building Costs - Board of Equalization

www.boe.ca.gov

Yes use this one...my link was to 2020

 

[Terrel L. Shields]

I would love to look at the MLS in the areas where people say there are no land sales. And what about the sale of lots outside the MLS? No one is mandated to use only MLS sales. It just takes more time to research them.

You have several steps in the CA

Vacant Land Value
Building Value (cost book)
Allowance for site improvements and utilities
Soft costs (permits, etc in new property)
Depreciation from all sources.

Now as for those pesky lot sales you say do not exist....What are all these? This is LOTS only in San Diego County courtesy of our old friend, Zillow

 

[J Grant]

In built-up areas with few or no land sales, extracting a land value suffices, even if some dislike the idea of "backing in to it "- run a rough CA on a few comps of their sales price and then minus out the value right there on the C grid of the deprecated improvements and it gives a pretty good rough idea of the extracted land value.. Lookiing at the assesor card break down of land to value estimates helps too as a support.i

Don't try to represent it as more accurate than it is in the report. State that due to lack of land sales, it is an estimate derived from extraction and that the cost to build/replace figured can vary per individual contractors or cost of materials.

I look at it as mainly getting a rough of the land to improvement value ratio or seeing when the house is so deprecated or it hardly contributed to value anymore ( at which point HBU will be to remove it )

 

[andrew81]

https://www.mckissock.com/appraisal/continuing-education/california/the-cost-approach/

 

[Raven59]

Can someone try and explain the cost approach? I am a trainee and just submitted my work samples to BREA for review (5 samples?!), and I do not really understand the cost approach enough to be asked about it. More often than not there are zero land sale in the same zip code as my subject let alone a comparable lot. I have spoken with a few appraisers and it seems like they just make up some information and throw it into the cost approach section. Is there a comment that appraisers are putting into the text addendum that explains what is going on or are we all just hoping that the state does not get a copy of the report? Am I supposed to break down every aspect of the dwelling from the cost of 2 by 4s to the cost of the tile grout or is there an "easy" way to arrive at a cost per square foot in my market area?

Please Help!

First, although probably an honest answer, I would look elsewhere for advice than those who "make up some information and throw it into the cost approach" Scary. Take a cost approach class and obtain data from a reliable data provider. Learn how to use that data and properly apply it to the local market. Talk to local builders. You don't need a magic statement to cover your butt...you need to know how to properly develop the cost approach. If you know how to do that the magical answer/statement will present itself. Curious - how do you support site adjustments in the sales grid? Several techniques were suggested that could help in developing and supporting a site value opinion. Guessing will not meet the minimum requirement of support.

 

[Fernando]

As an appraiser even a trainee, one needs to know the three approaches. To be confuse regarding the Cost Approach is what's wrong with USPAP.

 

[J Grant]

In my area, not all of it, but in much of it, the high rate of built out makes land sales scarce.. In areas of older houses, it becomes easier because when the old houses become depreciated, they sell mainly for land value, which may demolished or rebuilt to the studies. They thus are not listed as vaatn land but as SFR. It takes patience to ferret them out.

Imo, land values are tricky. A builder subdivision is basically the builder making up their own lot prices after cutting up a bigger land section into smaller sites. Their lot premiums are ridiculous and made up and often never hold up in the open resale market.

 

[Tim Hicks (Texas)]

In my area, not all of it, but in much of it, the high rate of built out makes land sales scarce.. In areas of older houses, it becomes easier because when the old houses become depreciated, they sell mainly for land value, which may demolished or rebuilt to the studies. They thus are not listed as vaatn land but as SFR. It takes patience to ferret them out.

Imo, land values are tricky. A builder subdivision is basically the builder making up their own lot prices after cutting up a bigger land section into smaller sites. Their lot premiums are ridiculous and made up and often never hold up in the open resale market.

I laugh at builder lot premiums. They we even have them on the smallest lot or the lots that back up to busy roads or electrical lines. They almost never translate to the resale market.