Is The Cost Approach Flawed?

[Terrel L. Shields]

but what is the average cost of labor. I would venture there is not a significant difference between framers in Denver, Detroit, Cleveland, Etc or the cost of a 2"x4". L

Wrong again. Cost books have regional adjustments. But a building permit isn't required in some rural areas. It could cost $10s of thousands in CA. Cost book base costs are a national average but the local multiplier could be .9 or 2.0...double the cost. Account for all the costs, then the rest has to be land. There is no blue sky in houses.

 

[Ariba]

Wrong again. Cost books have regional adjustments. But a building permit isn't required in some rural areas. It could cost $10s of thousands in CA. Cost book base costs are a national average but the local multiplier could be .9 or 2.0...double the cost. Account for all the costs, then the rest has to be land. There is no blue sky in houses.

Can't be wrong again if you haven't been wrong before!

How about excessive entrepreneutial/management fees profit, grred..........Also, we were talking metropolitan areas nor rural. ..........

In many cities you can buy houses similar in style, appeal, GLA, bedroom, bathroom, school district, etc. however they differ in price by $200,000 to $300,00. Land prices, labor cost, material costs, building permits, etc are not the factors in these cases So mister wrong again, what is the answer?

 

[Joe Flacco]

Can't be wrong again if you haven't been wrong before!

How about excessive entrepreneutial/management fees profit, grred..........Also, we were talking metropolitan areas nor rural. ..........

In many cities you can buy houses similar in style, appeal, GLA, bedroom, bathroom, school district, etc. however they differ in price by $200,000 to $300,00. Land prices, labor cost, material costs, building permits, etc are not the factors in these cases So mister wrong again, what is the answer?

It's your market. You should have the answer. Based on your comments in this thread, I don't know how you are licensed.

 

[Joe Flacco]

Hey, you got a college degree bro?

 

[glenn walker]

Once again I don't care about rural areas or low cost States because cost approaches where land is available is fairly straight forward but in areas like Los Angeles - San Francisco-Bay area -and the Left Coast there is a total disconnect and as far as time permits-environmental impact reports it can take as long as two to five years to build a new home -unless it's in an-out lying area far from employment centers etc. So my question was whats the best way of handling it when clients want and expect a cost approach even when it makes no sense ? We are not talking $100K to $200K properties but insane prices of $750K to $1,200,000 million plus for 60 to 100 year old homes on city lots ? HELLO PLEASE READ THE QUESTION especially if you are a California Appraiser working in high cost areas.

 

[Joe Flacco]

Once again I don't care about rural areas or low cost States because cost approaches where land is available is fairly straight forward but in areas like Los Angeles - San Francisco-Bay area -and the Left Coast there is a total disconnect and as far as time permits-environmental impact reports it can take as long as two to five years to build a new home -unless it's in an-out lying area far from employment centers etc. So my question was whats the best way of handling it when clients want and expect a cost approach even when it makes no sense ? We are not talking $100K to $200K properties but insane prices of $750K to $1,200,000 million plus for 60 to 100 year old homes on city lots ? HELLO PLEASE READ THE QUESTION especially if you are a California Appraiser working in high cost areas.

What makes no sense?

 

[Joe Flacco]

What you have is high site values.

 

[Michigan CG]

How about excessive entrepreneutial/management fees profit, grred..........Also, we were talking metropolitan areas nor rural. ..........

Last week there was a thread where it was disclosed that the impact fees to build a house in DC are in excess of $50,000 before the first nail is driven. While the cost of a 2" x 6" are relatively the same in the country the soft costs are still soft costs and EI does not decrease because of this.

As to the argument about excessive greed, or profit, that argument does not hold any water as excessive profits breeds ruinous competition, an economics 101 basic.

 

[Dublin ohio]

How about excessive entrepreneutial/management fees profit, grred[/QUOTE

Somewhat of an extreme situation which really has little bearing on the generally accepted concept of the cost approach except in extreme situations. One would think, all things being equal. An informed buyer would avoid neighborhoods of that type like the plague. But your market might be different.

In many cities you can buy houses similar in style, appeal, GLA, bedroom, bathroom, school district, etc. however they differ in price by $200,000 to $300,00.

How about location, location, location within the city and same school district. Generally speaking. Not all neighborhoods within a city with same school system are the same. Pretty simple concept. There are many examples in the metro area I appraise in. Similar houses on similar lots. But the homes on the west side of town sell for 100k to 150k less than the homes on the north side of town and the homes on the east side of town sell for 50K less than those on the west side.. No difference in school system, access to amenities, built up etc. So what is the difference? Site value. Why is there a difference? Location, location, location. IMHO. A fairly basic concept when it comes to real estate.

 

[glenn walker]

Gee we have high site values - guess without my college degree I wouldn't have figured that one out -- Thank God for State Colleges and Liberal Arts Degrees : ) LMAO