Is The Cost Approach A Real Thing?

[Ariba]

If you have a 200 tract development and buyers are paying the prices for the upgrades, thats market data. I get the upgrade list from the builder with the cost of the upgrades.

Does that also apply to the lot premium that the builder charges, "that's market date" or do you draw the line there?

 

[George Hatch]

A land sale is a land sale. When appraising such, the most similar comps are other land sales.

 

[J Grant]

Does that also apply to the lot premium that the builder charges, "that's market date" or do you draw the line there?

It's all data, or market data, including the lot premium, This does not mean the appraisal opinion of the market value matches dollar for dollar the cost of the upgrades/builder lot premium

This is why it is critical for the appraiser to use additional comps than just the builder's new home sale prices, which are added up, cash register style. Any resales of homes sold and /or listings right there in the new home community will reveal whether the lot premium or upgrades are returned in the sale prices of a house that is 6 months or a year old - and then outside sales of recently built houses in similar communities will also reveal it.

The builder's 50k lot premium might return 50k on the resale market, or 20k, or 60k....that is what makes new construction appraisal difficult. If we just rely on the builder's new home sales of course, the CS price will make it ( typically). But if we do additional research, it may or may not make it - and if it is supported by re-sale and outside sales, it is a much stronger appraisal.

New construction prices are pre-set by the builder, and a builder encourages buyers to use their "preferred financing"- an affiliated lender, usually the same one that financed all or part of the construction, gets a reward by being the "preferred" lender who the builder entices browsers to use with offering incentives of ' free" upgrades or paid closing costs. That preferred lender usually rubber stamps each and every sale price in their valuations/appraisals- ( another reason the builder wants to use them)

 

[NC Appraising]

Does that also apply to the lot premium that the builder charges, "that's market date" or do you draw the line there?

I am speaking on the behalf of the "Preferred Appraisers of America Association", a national organization that benefits the builder and the lender.

It is the belief of our organization that our appraisers must give all value to all of the upgrades, lot premiums, and must not deduct any builder concessions, especially not any rate buydowns that are artificially keeping prices high, etc. This benefits the buyer, builder, lender and agents. In turn, this keeps our appraisers employed.


If you are interested in joining our organization, please contact the AMCs or lenders and ask to join their panel of preferred appraisers. Remember, they have preferred appraisers because they know the builder's product better than anyone else. Wink.

 

[alebrewer]

No one is mandated to use only MLS sales. It just takes more time to research them.

Only, in Texas - if you don't have MLS, you don't know what the real price is/was unless you have a HUD1... goes for the parts of OK that I appraise as well.

 

[alebrewer]

- Land value by I-backed-into-it (sales comparison conclusion - depreciated costs = site value) is meaningless all by itself.

I thought this was exactly the definition of one of the methods of developing the CA? Per The Appraisal of Real Estate: "Extraction: A method of estimating land value in which the depreciated cost of the improvements on the improved property is estimated and deducted from the total sale price to arrive at an estimated sale price for the land; most effective when the improvements contribute little to the total sales price of the property."

I mean - If you know what the value of the improved property is - and you accurately assess the depreciated value (contributory value) of the improvements - the site value has to be what is left, is it not?

 

[Terrel L. Shields]

There are basically 0 (zero) land sales on the MLS,

Our MLSs have a separate category for land/lots. I am surprised to find there are MLSs who do not list land sales.

 

[Terrel L. Shields]

goes for the parts of OK that I appraise as well.

?
All counties in OK are mandated by law to have public records and document stamps.
I've worked Marshal and Johnson Counties before. They have good records.
But if I can locate the deed, then I might be able to find the buyer or seller.

 

[alebrewer]

?
All counties in OK are mandated by law to have public records and document stamps.
I've worked Marshal and Johnson Counties before. They have good records.
But if I can locate the deed, then I might be able to find the buyer or seller.

That's correct. And on the deed it says $10 plus OVC.

 

[Ariba]

Simple question, how many times have any of you so-called experts on the cost approach favored the cost approach over the comparable sales approach? We are talking about mortgage transactions for a lender. I venture to say ZERO.