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new construction cost approach question

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Thomas J Kirchmeyer

Thread Starter
Sophomore Member
Joined
Apr 29, 2002
Professional Status
Certified Residential Appraiser
State
New York
The 2nd last line of the cost approach on the 1004 form states for the appraiser to input the "As-is" Value of Site Improvements. When completing an appraisal on a proposed construction and basing it off plans and specs, what would be included here? Typically on an existing home we would input the estimated cost of the driveway, well, septic, landscaping, etc. If the proposed construction plans and specs call for a concrete driveway and walkways, would you still put the estimate of those items here? It states "as-is" and there presently is nothing on the site but dirt. So the as is amount is $0? Then we would have to throw the cost of the driveway and walkways on another line above? I am just wondering what everyone else is doing here. I guess the "as-is" reference here is confusing. Since the entire report is "subject to" shouldn't the "as-is" reference be removed? If it just said Value of Site Improvements, it would be easier to answer. Thoughts?
 

Thomas Fiehler

Senior Member
Joined
Jun 2, 2003
Professional Status
Certified General Appraiser
State
Ohio
You would value the proposed site improvements and their contributory value to the site. It's the same way that you would with an existing house. I include tap in fees, driveway, landscaping, septic/well if necessary and contributory value of IG pool, tennis court, barns, etc.
 

Thomas J Kirchmeyer

Thread Starter
Sophomore Member
Joined
Apr 29, 2002
Professional Status
Certified Residential Appraiser
State
New York
I agree, but I have a valid argument that states the "as is" improvements are nothing. You are suggesting a "subject to" estimate. Its proposed construction and nothing but dirt exists as of the date of inspection.
 

hastalavista

Elite Member
Joined
May 16, 2005
Professional Status
Certified General Appraiser
State
California
I agree, but I have a valid argument that states the "as is" improvements are nothing. You are suggesting a "subject to" estimate. Its proposed construction and nothing but dirt exists as of the date of inspection.

Thomas-

Isn't your value for the under-construction home based on the Hypothetical Condition that it is complete?
If you are using an approach to value (such as the cost approach) for a HC assignment, isn't that approach subject to the same hypothetical? :new_smile-l:
 

Thomas J Kirchmeyer

Thread Starter
Sophomore Member
Joined
Apr 29, 2002
Professional Status
Certified Residential Appraiser
State
New York
So then it really is ...the "as-is" value of the Site Improvements "subject to" completion, correct?
 

hastalavista

Elite Member
Joined
May 16, 2005
Professional Status
Certified General Appraiser
State
California
So then it really is ...the "as-is" value of the Site Improvements "subject to" completion, correct?

That's how I would proceed.

Again, just to make sure we are all on the same page:

The assignment request is to appraise the subject as-if it were completed as of a current date.
We know it isn't finished so, to complete this assignment with that condition, we employ a Hypothetical Condition which presumes the subject is finished as of a current date.
The client requests (or the appraiser decides) that the Cost Approach is necessary to produce a credible valuation.
If the Cost Approach is necessary to conclude a credible value (which is dependent on the HC), then the Cost Approach needs to be completed using that same HC (otherwise, how is it relevant to the market value based on the HC)?

So, that's how I reason the issue and conclude that the HC is part of the analysis to arrive at an opinion of market value by the Cost Approach. :new_smile-l:

Others may disagree; if so, I'd be interested in hearing their rationale.
 
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