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Maybe My Fellow General Appraisers Can Help

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Justin Gohn

Thread Starter
Sophomore Member
Joined
Dec 6, 2005
Professional Status
Certified General Appraiser
State
Pennsylvania
Oh My Gosh! Help!

Okay, I am doing a report on new construction for a AMC.

In the cost approach, I provided 7 land sales to set my site value.

I used Marshall and Swift as my Cost Manual.

I then added in my estimate of Entrepreneurial Profit into the Cost Approach.

The manager at this AMC is telling me to remove Entrepreneurial Profit from the Cost Approach since the home is "not being developed by a develper or entrepreneur".

I do not seem to have the vocabulary to explain why Entrepreneurial Profit must be added and it is getting very infuriating.

I even sent PDF pages of "The Appraisal of Real Estate, 4th Edition" which details the Cost Approach and the concept of Entrepreneurial Profit.

I know some of you may say I should use the term Entrepreneurial Incentive instead, but for now, I would like to put that aside.

Does anyone here know anyone, say, in a high position at The Appraisal Institute that I could get on a conference call that could help me explain?
 

Justin Gohn

Thread Starter
Sophomore Member
Joined
Dec 6, 2005
Professional Status
Certified General Appraiser
State
Pennsylvania
I posted this in the "General Forum", but I got no help.

Here it is:

Okay, I am doing a report on new construction for a AMC.

In the cost approach, I provided 7 land sales to set my site value.

I used Marshall and Swift as my Cost Manual.

I then added in my estimate of Entrepreneurial Profit into the Cost Approach.

The manager at this AMC is telling me to remove Entrepreneurial Profit from the Cost Approach since the home is "not being developed by a develper or entrepreneur".

I do not seem to have the vocabulary to explain why Entrepreneurial Profit must be added and it is getting very infuriating.

I even sent PDF pages of "The Appraisal of Real Estate, 4th Edition" which details the Cost Approach and the concept of Entrepreneurial Profit.

I know some of you may say I should use the term Entrepreneurial Incentive instead, but for now, I would like to put that aside.

Does anyone here know anyone, say, in a high position at The Appraisal Institute that I could get on a conference call that could help me explain?
 

Jerry Bone Jr

Senior Member
Joined
Feb 23, 2004
Professional Status
Licensed Appraiser
State
Oregon
I think "Entrepreneurial Profit" is included in the M&S cost numbers. In M&S, see page 2, dated 3-2008.
If you still want to include "Entrepreneurial Profit", simply add it in to the base cost.
 

Justin Gohn

Thread Starter
Sophomore Member
Joined
Dec 6, 2005
Professional Status
Certified General Appraiser
State
Pennsylvania
Thanks for taking the time to read and respond Jerry, I do appreciate it.

However, unless something radical has changed with Marshall and Swift, Entrepreneurial Profit or Entrepreneurial Incentive are not included in Marshall and Swift.

Fundementally, it would kind of be impossible for them to add Entrepreneurial Profit to their cost estimates.
 

AnonApprsr

Elite Member
Joined
Jan 21, 2008
Professional Status
Certified Residential Appraiser
State
Massachusetts
I'm relatively sure that the Entrepreneur incentive/profit is included in the $/SF cost.
 

redfish

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Joined
Sep 2, 2007
Professional Status
Certified Residential Appraiser
State
Michigan
Does M and S have ent. profit/incentive built into the cost figures already?
 

Justin Gohn

Thread Starter
Sophomore Member
Joined
Dec 6, 2005
Professional Status
Certified General Appraiser
State
Pennsylvania
No, Entrepreneurial Profit or Incentive is not include in Marshall and Swift.
 

leelansford

Elite Member
Joined
Mar 29, 2002
Professional Status
Certified Residential Appraiser
State
Illinois
Perhaps in the current market there is no room for EP?
 

Justin Gohn

Thread Starter
Sophomore Member
Joined
Dec 6, 2005
Professional Status
Certified General Appraiser
State
Pennsylvania
leelansford:

I agree with you, in many markets there is not place for EP, but in this particular market there most certainly is.

It is a modest EP, but it is definately warranted.

This property is in a section of the Philly suburbs that is not getting hit as hard as many places across the country.

It is also a high value home.

Personally, I am very close to 3 developers of similar high-end homes, and they are currently pricing in profit to their ongoing projects.

While it is taking around 150 days to absorb similar projects, they are being absorbed, with profit, however modest that profit is as compared to several years ago.
 

Stephen J. Vertin MAI

Senior Member
Joined
Jan 17, 2002
Professional Status
Certified General Appraiser
State
Illinois
Redfish: No M&S does not have EP built in.

Justin: EP is typically provided if the market indicates such. It is not an appraiser number pulled out of his/her magic bag of tricks. Generally in down markets no EP exist. Why? Because no one can sell what they are building. Ergo; no EP. The most common error I see is an appraiser adding EP and then claiming external obsolescence exist. If there is external obsolescence there would be no profit. The fastest and most common way in determining EP is by interviewing developers. Currently many have time on their hands to talk. Keep an open mind. The reviewer may have a valid point concerning EP but can not express himself correctly. In most current markets I think you will find little, if any, EP. You do not have to, nor should you, add EP with little or not market support.
 
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