Is The Cost Approach Flawed?

[TRESinc]

Can the cost approach provide a credible appraised value for, let's say, a 42 unit townhouse style condominium development?
And
Can the cost approach provide a credible appraised value for just 1 of the units in the 42 unit townhouse style condominium development?

aren't you a certified appraiser? you should know the answers to your questions already...

 

[Terrel L. Shields]

Most of the time you do not have a lot/site sales to use

I am fortunate enough to live in an area where towns are growing and land sales common, just remember that the site improvements must be accounted for too. Improvements+(land+site improvements)-depreciation= ca.

it may very well be the weakest of the three legged support approaches unless it is the only applicable one.

If one replies upon extracting effective age they should be very close. Guessing effective age and total life makes it highly unreliable. Likewise income app. is the outlier, if you don't get GRM right...

The SA is a historical price estimate. IA is a future anticipation of value. The CA is here, now, today. Great AJ article about that a few years ago.

 

[Mr Rex]

Can the cost approach provide a credible appraised value for, let's say, a 42 unit townhouse style condominium development?
And
Can the cost approach provide a credible appraised value for just 1 of the units in the 42 unit townhouse style condominium development?

Certainly the cost approach could provide meaningful results for the whole complex for the developer. Could the Cost Approach provide a credible value for a single unit? Certainly in the context of the Intended Use and User but may not be the best, MOST credible in the context of a single unit...

 

[Howard Klahr]

In the example I presented, would the cost approach raise a red flag?

Your example is not a cost approach issue and remains absurd on its face

Can the cost approach provide a credible appraised value for just 1 of the units in the 42 unit townhouse style condominium development?

And the hits just keep coming ...

 

[Mr Rex]

I am fortunate enough to live in an area where towns are growing and land sales common, just remember that the site improvements must be accounted for too. Improvements+(land+site improvements)-depreciation= ca.
If one replies upon extracting effective age they should be very close. Guessing effective age and total life makes it highly unreliable. Likewise income app. is the outlier, if you don't get GRM right...

The SA is a historical price estimate. IA is a future anticipation of value. The CA is here, now, today. Great AJ article about that a few years ago.

The Cost Approach can not be completed without the SCA except for new contruction. As such, it is the bastid child of the 3 legged support of value. Same for the Income Approach, in many cases there is no or little support for the income approach in many if not most residential appraisals as the SCA is far above what is supportable for the Income Approach. I appreciate you purist approach, but in the real world, the SCA rules (as it should) and the other 2 legs are prima facia dog and pony show material that in most cases is backed into.

 

[ucbruin]

Certainly the cost approach could provide meaningful results for the whole complex for the developer. Could the Cost Approach provide a credible value for a single unit? Certainly in the context of the Intended Use and User but may not be the best, MOST credible in the context of a single unit...

Thanks Rex....

aren't you a certified appraiser? you should know the answers to your questions already...

I've never had to do a cost approach on a condo so I wanted to be sure....

Your example is not a cost approach issue and remains absurd on its face

Seems to me that this thread has included many different examples of how the cost approach is relevant...
From what I've read the cost approach can disprove/prove individual adjustments in a review, it helps to defend the appraised value, etc.

I guess what you're telling me is that the cost approach wouldn't raise a red flag if the comp selection was inappropriate....

And the hits just keep coming ...

Do you have an opinion why the condo form doesn't require a cost approach?

 

[Terrel L. Shields]

In a farm appraisal, the sales approach is often the weakest approach.

 

[TRESinc]

I've never had to do a cost approach on a condo so I wanted to be sure....

so you are a form filler and not an appraiser, because if it isn't on a FNMA form or a client requirement you don't know how or when to do it...

 

[Mr Rex]

In a farm appraisal, the sales approach is often the weakest approach.

As is a Volunteer Fire Department. That hardly means that the Cost Approach is meaningful, applicable, or credible for the run of the mill SFR mortgage appraisal. I dare say even the Great Santora would not develop the Cost Approach for a typical SFR mortgage assignment, even after Joyce outed him publicily to everyone's here at the AF's loss...

 

[ucbruin]

so you are a form filler and not an appraiser, because if it isn't on a FNMA form or a client requirement you don't know how or when to do it...

I've been appraising for 30 years....
Of course I'm a form filler....
I've never claimed otherwise....

BTW...
If the cost approach is so important to support SCA, why do you think it's not required on a condo appraisal???
Howard doesn't seem to want to say why....
Damn, Howard won't even answer my question about that I've posed to him....

Do you know why it's not required to be completed on the condo FORM????