No consideration for Cost Approach on a one month old property.

[Gobears81]

Please share some of those misconceptions. Best to get those cleared up if possible.

I try to be open-minded, but the most common rationale that I use for omitting CA is the subjectivity involved in estimating depreciation. Even if I have depreciation comps, there might be such large differences that it has limited applicability. But a one-month old home is like determining the value of a vehicle that just drove off of the dealership lot. Why wouldn't you consider what it costs to build? A prospective purchaser is undoubtedly thinking about that.

Other misconceptions:
Cost approach value is typically higher
Only one poster mentioning EO/ FO for a multi-million dollar home (ties into the above)

 

[Sadie]

The GRM is not auto-calculated and the1025 is a non-UAD form. Regardless, even if your software does auto-populate and doesn't allow you to change and lock the field, you can't let the form drive the results. You should be using market rents to develop the GRM.

Look at the top of the Sales grid. If you don't use the 1025 form, then you have an excuse. UAD has nothing to do with this and the auto calc has been there as long as I can remember, at least back to 1998.

 

[CGinMN]

Sounds like you have a lot of software issues.

What do you do when one of the units is owner-occupied?

 

[alebrewer]

I try to be open-minded, but the most common rationale that I use for omitting CA is the subjectivity involved in estimating depreciation. Even if I have depreciation comps, there might be such large differences that it has limited applicability. But a one-month old home is like determining the value of a vehicle that just drove off of the dealership lot. Why wouldn't you consider what it costs to build? A prospective purchaser is undoubtedly thinking about that.

Other misconceptions:
Cost approach value is typically higher
Only one poster mentioning EO/ FO for a multi-million dollar home (ties into the above)

Great points.

RE the 1st - I somewhat disagree that a borrower is comparing 'apples to apples'. I agree that a buyer should consider the cost to build as an alternative to buying a home, but the CA doesn't account for the opportunity cost of not having a home for 6 months to a year. Surely that is a pretty significant consideration as a buyer? Rent for 6 months to a year? Loss in accrued appreciation over that year by not having purchased an existing home, etc. (assuming an appreciating market, of course).

RE the 2nd - fully agreed

RE the 3rd - I see the same when mentoring - the lack of consistency between the approaches developed. Which is another reason I generally advise against completing the CA for assignments reported on the 1004 - you're certifying you didn't put any weight on it - why expose yourself?

 

[Gobears81]

RE the 1st - I somewhat disagree that a borrower is comparing 'apples to apples'. I agree that a buyer should consider the cost to build as an alternative to buying a home, but the CA doesn't account for the opportunity cost of not having a home for 6 months to a year. Surely that is a pretty significant consideration as a buyer? Rent for 6 months to a year? Loss in accrued appreciation over that year by not having purchased an existing home, etc. (assuming an appreciating market, of course).

A lot of hypotheticals here that may or may not apply in every situation, but those types of issues seem to fall right into the consideration of entrepreneurial incentive - ie the additional compensation that one expects for the trouble to coordinate a property being constructed. EI on owner-occupied properties tends to be more subjective, as there are often intangible motivations for construction, but certainly still a necessary consideration.

 

[Gobears81]

RE the 3rd - I see the same when mentoring - the lack of consistency between the approaches developed. Which is another reason I generally advise against completing the CA for assignments reported on the 1004 - you're certifying you didn't put any weight on it - why expose yourself?

I can't figure how to have multiple quotes in the same post But I'm a little bit out of my league here as I haven't completed a form report in a long time. I recall a time when I appraised a house and tried to give weight to the CA - my dad (and mentor) said at the time that I can try to justify that in the report, but it will never fly with underwriters. That probably hasn't changed since, which is unfortunate, as the CA tends to be unfairly disparaged as the ugly stepsister of valuation approaches

 

[alebrewer]

I can't figure how to have multiple quotes in the same post But I'm a little bit out of my league here as I haven't completed a form report in a long time. I recall a time when I appraised a house and tried to give weight to the CA - my dad (and mentor) said at the time that I can try to justify that in the report, but it will never fly with underwriters. That probably hasn't changed since, which is unfortunate, as the CA tends to be unfairly disparaged as the ugly stepsister of valuation approaches

I don't know that I'd say it's unfairly disparaged. I'd probably cite the following for why I personally don't trust it: there are so many subjective pieces that go into the development, that - for me - it really does raise the issue of 'credible' (estimating TEL, estimating effective age, estimating the replacement cost, estimating local multipliers, estimating contributory value of site improvements - you get the point). (2) the way it's developed by most appraisers I've seen - it's not extracted from the market at all.

That said - the last CA I developed was a CA only appraisal - it was a narrative, and the CA was about 7 pages long. IF someone takes the time to actually extract TEL from the market, and IF someone has solid local cost figures to weigh against the cost guides, and IF someone actually separates the forms of depreciation (instead of just using the age-life), then yeah - I'm on board with that. Problem with that is that I can write 4 SCA's in the time it took me to do that one CA. And when you're appraising SF residential - (1) the users don't want the CA, and (2) they're not going to compensate you for appropriate development of the CA. Now - some would say compensation should not correlate to quality, but it absolutely correlates to the amount of time I'm willing to spend developing an appraisal.

 

[Sadie]

Sounds like you have a lot of software issues.

What do you do when one of the units is owner-occupied?

Not software, its the form. If you don't regularly use the 1025 form, then this is a non issue for you.

If O/O well it really screws up the auto calc. use it for SCA but not for GRM calc. Same problem with vacant units.

 

[George Hatch]

Most appraisers are not including all the adjustments to the base costs they're using. Just as one example, fees and permits alone can vary from one town to another, even within the same region. These cost services don't adjust for that.

I've had lots of assignments over the years where my hard costs came in similarly to the contractors. I've had some come in higher than their costs and a similar number where I came in lower. By the time you compare these contractors *to each other* you can figure out pretty quickly that some of these bids are heavily padded whereas a few others are running lean to the point where they'll need to hit the property owner up again before they can complete the project to specs.

 

[Deleted member 157170]

Not software, its the form. If you don't regularly use the 1025 form, then this is a non issue for you.

If O/O well it really screws up the auto calc. use it for SCA but not for GRM calc. Same problem with vacant units.

Yea agreed. The 1025 auto calculates it for you for each individual comparable in the form on the sales comparison grid. But it doesn’t auto populate the GRM in the reconciliation. I use total and it does it automatically for each comp you enter. Owner occupied units screw up the calculation and you have to explain it. You don’t have to use those sales as your rentals, but since they’re theoretically your best sales, why wouldn’t they most likely be your best rentals as well?

If I have an half owner occupied unit will likely just find another comp to replace if I can. Otherwise you just use your judgement.