Mandatory Cost Approach

[Mr Rex]

That would depend on how in depth the cost approach was developed.

If any portion requires input from any of the other approaches, then it is as useful as teats on a boar hog, with requisite "in depth" narrative to describe why the boar hog teats were developed to begin with.

 

[Eli]

For example, give me land sales by

If any portion requires input from any of the other approaches, then it is as useful as teats on a boar hog, with requisite "in depth" narrative to describe why the boar hog teats were developed to begin with.

Some people relate value to cost. It is just as simple as mud.

 

[Riick]

As Mr. Rex said, the CA is generally useless, and is "required" so lender has a basis
for how much insurance to require the buyer to carry.
That it's a *very* bad basis is not something they care about.
In markets I've seen over the last, say 25 years, I wonder how many of the buyers
really considered building their own home.1% ? 2% ??
Isn't that (build your own) the very bedrock of the CA?
A comparison of what it would cost to build the same house.
....and isn't that same bedrock shifty when you, the appraiser, have to *estimate* the amount of

Physical
Functional &
External depreciation​

 

[Jambalaya]

I always develop the cost approach. I don't even think about not doing it. probably less than 1% of my 1004's are sent without the cost approach completed.

 

[Terrel L. Shields]

but my basic cost approach instructor said that it is actually the worst, and I tend to appreciate that stance. A reason for omitting the sales comparison approach would be the lack of sales meeting the parameters identified by the market as suitable alternatives

The CA may be marginally useful, and it may not be NECESSARY. It is APPLICABLE if there are improvements. So don't confuse "applicable" with "necessary".

 

[jay trotta]

If you have Land Sales to support the Greater similarities of the Subject parcel, OK
If you have support for the Replacement Cost for the dwelling within a 5-10 year period and a market based (supported) depreciation method - OK

For those who can in turn produce the RC in 5-10 minutes, hmm

IMO - Insurance purposes / Mortgage Debt are 2 different issue's, as Fire Loss Insurance covers only the Dwelling and Not the land; The MV covers the particulars Sold in the transaction, Dwelling & Land as a Whole (Market Indicators), it would appear that apples & oranges are being reflected.

 

[Terrel L. Shields]

IMO - Insurance purposes / Mortgage Debt are 2 different issue's, as Fire Loss Insurance covers only the Dwelling and Not the land; The MV covers the particulars Sold in the transaction, Dwelling & Land as a Whole (Market Indicators), it would appear that apples & oranges are being reflected.

All approaches rely upon "Market Data" and therefore are each part of a three legged stool - one supporting the other. I can balance on one, just like I did years ago with a milking stool. But 3 are much better support.

If you depreciation is market derived, then the CA (replacement) is not difficult to calculate quickly. To derive that accrued deprecation (which is all that USPAP requires) then you run the CA on the comps backward and extract the accrued deprecation and compare to your own.... So, without doing that, what speculative method do you use to arrive at a defensible age-condition (effective age) adjustment?

 

[Gobears81]

and how are you extracting this depreciation? Via the Cost Approach or the Cost Approach reconciled against the SCA? The SCA stands on its own as a mirror reflection of the market. The Cost Approach always has another approach in the picture and is not reflective of the mirror without the extra reflection.

Comparable sales that are exclusive of those considered in the SCA can be used to extract depreciation.

If any portion requires input from any of the other approaches, then it is as useful as teats on a boar hog, with requisite "in depth" narrative to describe why the boar hog teats were developed to begin with.

I find that properly developed, all three approaches glean from other approaches. Obviously, functional obsolescence could be extracted from sales. An adjustment in the SCA could be extracted from capitalization of rent differences, or an ICA item. Differences in costs could be used to support adjustments, although this would obviously need to be done with care in lieu of whether the cost differential translates 1 to 1 in differences in value.

 

[Eli]

The tune I am hearing is sweet. See, it is the harmony that counts. The cost approach and income approaches can send off fireworks in the final reconciliation in some cases. They can say I need to dig deeper to find out what is going on here before I complete this assignment and give my final reconciliation and opinion of value. They kind of operate like a check and balance system. For many years on almost all commercial assignments, we did all three approaches on every assignment if it was applicable. The income approach was usually not applicable on places of worship, so it was not even applicable so it couldn't be used unless the property had a different highest and best use than a place of worship. In a single family residential neighborhood, the income approach is not applicable when the owner occupancy rate is a very high percentage ("meaningless" might be better than "not applicable"), but if you don't have rent comparables, the income approach is basicly not applicable.

 

[Adios]

I disagree with your premise. So I seldom try to rationalize not doing a cost approach.

I could not agree more. I always found it a valuable exercise . It is a sanity check. Reconciliation of multiple approaches is a lost art.