Reconciliation of Approaches

[CANative]

I consider the potential income and apply reasonable multipliers or cap rates as the case may be. I jot it down. I don't present this analysis in the reports (unless I need to.) The same for costs. Just looking for indications of reasonability.

 

[DWiley]

My point is: Why even use the phrase "not applicable?"

Perhaps one would use that term because SR 1-6 says, "An appraiser must reconcile the applicability and relevance of the approaches..."


As for the OP, I have observed that among appraisers it is very common for one to perceive the way they do (or write) something as the (only) acceptable way to do it. State board members do not seem to be exempt from this malady.

To make a blanket statement that one cannot address a reporting requirement in a certain number of sentences is, to be kind, silly. What if the appraiser writes in the style of Faulkner?

 

[Michigan CG]

I'm just saying it's not a good habit to state an approach is "not applicable" just because it is difficult. For almost all of the assignment types that get discussed in the forum (with the exception of the commercial section) it's a bad idea to casually state that an approach is not applicable. For virtually all residential assignments all three approaches are capable of being applied.

Greg,

Sometimes I think you like to argue for argument's sake which is OK, but it is playing Devil's advocate.

The income approach is not applicable in all residential assignments and not applicable in most (in my area). Consider my neighborhood where the typical rent is $1,500/month which would not even cover a typical mortgage in this neighborhood. The GRM is about 190 because the landlords just want to cover some of the expenses until the market recovers.

Most residential properties that are investment properties in this area have GRMs of about 70ish. I have at least four comps showing $1,500/month +/- in the neighborhood.

COST approach being applicable to almost all residential properties. Seriously. Cost approach being applied to a 100 year old home? 50 year-old home? 20 year-old home?

The Cost approach in these property types will be based on the Effective Age. Where does that Effective age come from? PFA is where it comes from.

So if your argument of not applicable is an applicable phrase considering much of the data is not reasonable in some cases (GRM of 190) and PFA Effective ages.

Unless someone id prepared to write 100 pages for a residential report showing where they came up with an reasonable Income and Cost Approach showing all the work the approaches are sometimes just simply not applicable.

 

[Mike Seward]

Why not just say this:

The cost approach was considered, but not developed due to the subject's age and limited land sales. The income approach was considered, but not developed due to lack of recent, reliable rental data.

Or, if the CA is developed,

Secondary weight (minimal weight, no weight) was given to the cost approach due to limited land sales (and the subject's age). The income approach was considered, but not developed due to lack of recent, reliable rental data.

 

[goumcanes]

Why not just say this:

The cost approach was considered, but not developed due to the subject's age and limited land sales. The income approach was considered, but not developed due to lack of recent, reliable rental data.

Or, if the CA is developed,

Secondary weight (minimal weight, no weight) was given to the cost approach due to limited land sales (and the subject's age). The income approach was considered, but not developed due to lack of recent, reliable rental data.

I use a very similar statement with one exception. I never say there is a lack of recent rental data as any good litigator could rip that statement apart by simply bringing in one of those rental books available at every grocery store, gym, etc....

I just state that as the scope of work did not indicate the subject property to be utilized for rental income purposes and this method does apply.

 

[CANative]

Unless someone id prepared to write 100 pages for a residential report showing where they came up with an reasonable Income and Cost Approach showing all the work the approaches

Ah.. so you agree with me.

Originally Posted by CANative
I'm just saying it's not a good habit to state an approach is "not applicable" just because it is difficult.

 

[Mike Seward]

I use a very similar statement with one exception. I never say there is a lack of recent rental data as any good litigator could rip that statement apart by simply bringing in one of those rental books available at every grocery store, gym, etc....

I just state that as the scope of work did not indicate the subject property to be utilized for rental income purposes and this method does apply.

Good point, although, are those grocery store books reliable in that they only show the asking price, not the final rented price?

 

[Don Clark]

Greg,

Sometimes I think you like to argue for argument's sake which is OK, but it is playing Devil's advocate.

The income approach is not applicable in all residential assignments and not applicable in most (in my area). Consider my neighborhood where the typical rent is $1,500/month which would not even cover a typical mortgage in this neighborhood. The GRM is about 190 because the landlords just want to cover some of the expenses until the market recovers.

Most residential properties that are investment properties in this area have GRMs of about 70ish. I have at least four comps showing $1,500/month +/- in the neighborhood.

COST approach being applicable to almost all residential properties. Seriously. Cost approach being applied to a 100 year old home? 50 year-old home? 20 year-old home?

The Cost approach in these property types will be based on the Effective Age. Where does that Effective age come from? PFA is where it comes from.

So if your argument of not applicable is an applicable phrase considering much of the data is not reasonable in some cases (GRM of 190) and PFA Effective ages.

Unless someone id prepared to write 100 pages for a residential report showing where they came up with an reasonable Income and Cost Approach showing all the work the approaches are sometimes just simply not applicable.

I want to see him argue with the former Chair of the ASB, Danny Wiley:Eyecrazy:

 

[DWiley]

I want to see him argue with the former Chair of the ASB, Danny Wiley

He certainly would not be the first.

I am working on a case right now that involves proper report content. Three past ASB members have supplied statements that the content of a certain section of a report does meet the reporting requirements of USPAP. That state still intends to have a formal hearing on the matter.

 

[CANative]

I want to see him argue with the former Chair of the ASB, Danny Wiley:Eyecrazy:

I always agree with Wiley. But only because he makes sense.