Omitting Cost Approach

[ETex2]

Let's say you are appraising a 30 year old industrial building in a park that has been fully developed for years. No land sales within the area in the last two or three years with similar zoning; significant physical depreciation to the building. The Cost Approach would be very weak and omitting it is justified. You explain that in the report.

Do you develop a land value estimate, despite the fact that there are no truly comparable and recent land sales in the neighborhood? Why? Do you think USPAP requires it?

 

[Rob Baum]

I just happen to be facing a similar problem now.

Land value is tied directly to highest and best use, so I think that it must be developed.

It is possible that you will find that it is time to demolish the existing improvements, or you may justify updates and remodeling. I don't think you would be able to do either of these without a separate land value though.

Even in comparing similar older buildings; you would not want to apply depreciation adjustments to the total property, but only the improvements - and again, you would need some sort of land value to do that, wouldn't you?

 

[Lost Cause]

As Usual, The Answer Is: It Depends

It is not uncommon to see appraisals without a land value conclusion. USPAP does not have any specific requirements calling for a land value to be developed.

There are, of course, many instances where a land value would be needed to assist in analyzing other aspects of a property.

 

[rbrienza]

You need to consider all approaches to value, however, any approach must be Both Applicable and Necessary then it MUST be done. If you find that an approach is not necessary or applicable you can exclude it. Just make sure you explain your logic in doing so. There are several reports that I have done that i may only do one or two approaches. I explain it in my Scope of Work discussion, and sometimes with my client.

Here is an example of what i do.

- Ray

 

[ETex2]

You need to consider all approaches to value, however, any approach must be Both Applicable and Necessary then it MUST be done. If you find that an approach is not necessary or applicable you can exclude it. Just make sure you explain your logic in doing so. There are several reports that I have done that i may only do one or two approaches. I explain it in my Scope of Work discussion, and sometimes with my client.

Here is an example of what i do.

- Ray

I understand that but that is not my question. Do you still develop a Land Value estimate when you omit the Cost Approach for valid reasons?

 

[rbrienza]

Steve....
Im sorry, I meant to include that. I do not develop the site approach, in my opinion it would not serve any purpose or add any more credibility to the report, in fact it may detract from the credibility of the report.

-Ray

 

[Vernon Martin]

A site valuation might be useful if you have reason to believe that there is a remarkably higher and better use than the current improvements. This does not often happen in industrial parks.

 

[Lee Lansford]

Let's say you are appraising a 30 year old industrial building in a park that has been fully developed for years. No land sales within the area in the last two or three years with similar zoning; significant physical depreciation to the building. The Cost Approach would be very weak and omitting it is justified. You explain that in the report.

Do you develop a land value estimate, despite the fact that there are no truly comparable and recent land sales in the neighborhood? Why? Do you think USPAP requires it?

No, USPAP does not "require" the development of any particular approach to value.

This is handled all quite nicely the Scope of Work Rule.

 

[Michigan CG]

I have a marina I am appraising right now. There will be no cost approach and there will be no land value. It would be impossible to give a credible land value estimate (guesstimate).

 

[Kali the Boston Terrier]

In regards to the world of USPAP, it is not required and each approach and its development are subject tot he following criteria...credible and meaningul. We often just focus on the credible portion of that argument, however I find meaningful a much better barometer of whether or not an assignment result is neccessary.

On the other hand, its pretty hard to back up your effective age and economic life concept without really developing a land value...how would you ever know how long a property is along its economic life if you do not know the land value?

Not sure it matters but I thought I would throw that out there for discussion purposes.