Is The Cost Approach Flawed?

[Ariba]

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

Hey, you got a college degree bro?

At least you finally got one thing right, you don't know my market. Not bad for one with an apparent college degree.

 

[Ariba]

Wrong again. Cost books have regional adjustments./QUOTE]

You need to get out more and talk to builders about Marshall & Swift? How many builder would be out of business if they solely relied on M&S. Have you ever really looked at these regional adjustments? Regional adjustments are as flawed as the CA.

 

[Howard Klahr]

median price of a house in Cincinnati, OH at $156,800 and Denver, CO at $384,300.

You are erroneously assuming that the "median priced" homes are equivalent

the majority of appraisers do not, not that it really matters.

Once again, the issue is the practitioner not the technique / method / approach. And yes this really is an issue. Many do not have sufficient tools to reflect a minimally equipped tool box let alone a proper understanding of the process.

My concern is when a State Board reviews an-appraisal they expect the lot or land value estimate to be supported by lot or land sales

No actually the state board expects that whatever method / approach / technique used is adequately supported and properly performed. The disciplinary actions you have seen are for those that stated they did something they really did not do.

Whats your opinion on the Statement below ?

I don't know what the reference to "nominal price" is supposed to demonstrate and "market responses to site size and lot utility" is also not sufficiently descriptive to convey the analysis performed.

Whats your opinion on the Statement below ?

I don't know what the reference to "nominal price" is supposed to demonstrate and "market responses to site size and lot utility" is also not sufficiently descriptive to convey what analysis was performed.

 

[Ariba]

OK, for all you CA geniuses, how many purchased their house or previous houses based on the CA? Did the CA have any impact on your decision to purchase the house? How many buyers buy homes their homes based on the CA, consider it, or or even know anything about the CA?

 

[DWiley]

OK, for all you CA geniuses, how many purchased their house or previous houses based on the CA? Did the CA have any impact on your decision to purchase the house? How many buyers buy homes their homes based on the CA, consider it, or or even know anything about the CA?

As my last home purchase was a new home, I definitely considered the cost approach. Just as theory states, I had the choice of buying what I bought or building on my own. So, I examined the cost of building quite extensively.

 

[Ariba]

As I my last home purchase was a new home, I definitely considered the cost approach. Just as theory states, I had the choice of buying what I bought or building on my own. So, I examined the cost of building quite extensively.

You know darn well this thread and CA discussion is not about new construction or rural house with no comparables to choose from. How about your previous houses?..

 

[DWiley]

You know darn well this thread and CA discussion is not about new construction or rural house with no comparables to choose from. How about your previous houses?..

Hey, don't blame ME for lack of precision in YOUR question. I thought the thread was about the CA

If you knew my wife at all, you would know that building a new home is ALWAYS on the table

 

[DWiley]

No actually the state board expects that whatever method / approach / technique used is adequately supported and properly performed. The disciplinary actions you have seen are for those that stated they did something they really did not do.

Ding! Ding! Ding! DIng! We have a winner !!

In my state investigator days I worked on many cases where the appraiser claimed to have analyzed land sales, but there were no such sales in the workfile. Or, they said they got it by extraction, but then could not explain the very basics of how one used extraction to get a land value. As we used to say in grade school, liar liar pants on fire

 

[residentialguy]

If you knew my wife at all, you would know that building a new home is ALWAYS on the table

... don't forget bigger and better

 

[hastalavista]

OK, for all you CA geniuses, how many purchased their house or previous houses based on the CA? Did the CA have any impact on your decision to purchase the house? How many buyers buy homes their homes based on the CA, consider it, or or even know anything about the CA?

Ok, fine. You think the cost approach is unreliable. That is your prerogative. And perhaps, when you do it in your market, you find $100k that cannot be accounted for based on cost & land value & EI, so you attribute that to excessive profits (I assume). Since you deem it unreliable, you can address it in the reconciliation and move along.

The only question is this: When you are required to do it (by a condition of the assignment or because, in that rare situation, it is necessary) do you do it correctly?
Do you have a recognized source for your costs?
Do you identify and account for the various forms of depreciation?
Do you support your opinion of site value?
Since we are talking (I presume) typical GSE work, do you provide that data, as required, such that the work can be replicated and evaluated (including the data to support the opinion of site value)?

If you do, no harm/no foul and you are free to think the rest of us crazy.
If you don't, because you believe it is worthless and doesn't matter, you may get yourself in trouble if reviewed by the state (i.e., harm and foul).

You don't have to answer me, for sure. But that is the only relevant question ("do you do it correctly"), if you ask me.