Question regarding Cost Approach!

[Couch Potato]

What about my Ouija board? As long as it says I have the same thing the doctor says I have, then I feel the board is accurate.

Charge at least $900 for that.

 

[Mark to market]

What about my Ouija board? As long as it says I have the same thing the doctor says I have, then I feel the board is accurate.

I think the point is more about reasoning and rationale, then the specific method. If a test has the same characteristics as random chance... BTW, USPAP doesn't require the unecessary.

So we don’t go to far off course. The comment about it being fairly accurate when it straddles the sales approach is in reference to the EI, as I feel good about my other variables.

To suggest that 4 months of consistent results is random is …….. not credible.

 

[incognito]

No comment. I would hate to hurt anyone'SS feelings...

 

[Joyce Potts]

So, as long as it matches the sales comparison. That sounds like all the reason in the world for not doing it in the first place. I have a roulette wheel works the same way. As long as it is close to the sales comparison, I feel it is fairly reliable.

Where else does one extract the obsolescence if not from the Sales Comparison/Market Approach? You call that backing into it?

If you have a handle on the site value by either SALES or EXTRACTION, especially with sales of newer improvements with little depreciation, and you add in the reasonable, estimated COST to replace/reproduce the improvements vs. what the market is telling it's currently paying for suitable alternative substitutes, that's a text book illustration of external obsolescence. No?

 

[Fred]

I am not sure I follow, Joyce. If you didn't do the CA, then why would you need "the obsolescence?"

 

[timd354]

99% of the b.s. caused by the cost approach could be eliminated by making mortgage brokers and lenders obtain an estimate of the insured value or insurance replacement cost from a homeowner's insurer, then they would have no need to require the cost approach in most cases. We all know that the lenders usually could give two cents aboout the cost appraoch except for using it to determine whether or not the hazard insurance policy is sufficient - despite the disclaimers that we all have explaining that the cost approach should not be used to determine the level of hazard insurance, etc. In many areas where I appraise, there are virtually no available individual building lots (I appraiser mainly in urban and densely developed suburban areas), so there is no point to the cost approach. Additionally, doing the cost approach on any house more than few years old is just completely ludicrous in most cases.

 

[Fred]

99% of the b.s. caused by the cost approach could be eliminated by making mortgage brokers and lenders obtain an estimate of the insured value or insurance replacement cost from a homeowner's insurer,

The same percent would be eliminated if real property appraisers didn't make believe it wasn't for insurance.

 

[timd354]

The same percent would be eliminated if real property appraisers didn't make believe it wasn't for insurance.

I think that many appraisers realize that the cost approach is being required by their clients in order to be used for insurance. There are a few clueless appraisers who don't realize this, but they are beyond help anyways. However, most appraisers keep on doing the cost approach even when it is of no use for valuation purposes because the cost approach is required by the client. In many cases, the choice is to do the cost approah or lose the client.

 

[Mark to market]

Good morning all,

I am always looking for ways to improve, if you have a better way of determining EI then the market, please post it.

 

[incognito]

Mark, Santora has already stated

I am not sure I follow, Joyce. If you didn't do the CA, then why would you need "the obsolescence?"

What SS appears to be saying is that we just do not do the cost approach, and that we will then never need to worry ourselves with issues of functional obsolescence, external obsolescence, EI, physical depreciation, RCN, effective age REL, and all of that stuff that goes along with the cost approach. Think of the money the publishers could save if they just removed all of that stuff from the Books and manuals!

Seriously, Mark, you have run into a member who has his search engine set to the words "cost Approach" in this forum, and he pounces in with this constant anti CA rhetoric over and over and over. Unfortunately it, and he, sidetrack every thread that starts to this same all to familiar conclusion...

For years now he keeps saying he is going to write a book exposing the cost approach, and suggesting eliminating it from use. I guess the publishers are just not knocking down his door, yet. (can't imagine why?)

Mark, you will even find resistance to the concept of EI here. It didn't appear in the major appraisal texts as an entity until the '80s I believe. However, call it what you want, if the well supported and properly completed cost approach suggests a value indication significantly higher or lower that a sales comparison approach, SOMETHING is amiss. Could be EI, functional, external, but at least it opens our eyes to the discrepancy (AND that discrepincy COULD be in the Sales Comparison Approach!). For that reason alone, the CA is valuable.