Sufficiency Of Cost Approach?

[CANative]

 

[hastalavista]

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Although they didn't say it (and wouldn't say it), one of the "other" cost services that Assessors use (especially for commercial work) is MVS.
CAN knows this first-hand, and I've seen the assessor's appraisers sitting outside of the tax hearing room with their MVS books madly calculating things out at the last minute.

 

[CANative]

 

[Mark K]

It's easy when you make up numbers.

If your remark is referring to my example those are the numbers from my last new const. appraisal.

 

[CANative]

If your remark is referring to my example those are the numbers from my last new const. appraisal.

Since EI might be 10% of total project cost ($35,000) for a total of $385,000 and the market is only returning $350,000 then there might be some economic obsolescence that you are not accounting for.

And Average Joe is still getting EI... but instead of taking it as a cash profit he's taking it as an amenity profit (living there.)

 

[Peter LeQuire]

All the recognized text, every peer review (and every non-peer review article I've read) says the same thing about costing surveys in general and MVS specifically: EI is not included in contractor's profit.

Can anyone show me one recognized source, one peer reviewed (or a legitimate non-peer reviewed) article that says, "One doesn't have to consider EI because it is included in MVS' contractor's profit."

Just one?

How many of the single family residential loans that have been purchased by the GSEs that were predicated, in part, on appraisals in which a cost approach, based on the Residential Cost Handbook, was done, in which EI was not addressed?

 

[Michigan CG]

How many of the single family residential loans that have been purchased by the GSEs that were predicated, in part, on appraisals in which a cost approach, based on the Residential Cost Handbook, was done, in which EI was not addressed?

1. How many people back into the cost approach?

2. What percentage of people who CLAIM to use a Cost Handbook actually do?

 

[Peter LeQuire]

1. How many people back into the cost approach?

2. What percentage of people who CLAIM to use a Cost Handbook actually do?

1) I don't know - I'd reckon it's fairly common.

2) 100% of the people in my office do - I can't speak about anyone else.

But, whether backed into or derived from a cost handbook, were such appraisals' cost approaches universally defective because they did not address EI as a component of the cost approach? If so, were those appraisals not flagged as such during the process of underwriting, post closing quality review, or pre-foreclosure analysis?

 

[CANative]

How many of the single family residential loans that have been purchased by the GSEs that were predicated, in part, on appraisals in which a cost approach, based on the Residential Cost Handbook, was done, in which EI was not addressed?

Although entrepreneurial profit (after this EP) has only recently been formally recognized as a separate item of cost (The appraisal of RE, 1983) in the cost approach, it is evident that it has been recognized by appraisers in developing their reproduction or replacement cost estimates. If appraisers had historically omitted this important element of cost, their estimates of market value developed by the cost approach would have been consistently lower than their estimates of market value by the sales comparison and income capitalization approaches to value. This has not been the case. The only logical explanation is that appraisers have incorporated EP into their coast approach estimates by either including it in their reproduction cost estimates or underestimating depreciation to account for it. Either way, it has been included in their estimates. If it had not, their value estimates by the cost approach would have always been low, which is certainly not the case.


Include a separate cost item for EP is obviously a more desirable, and technically correct, methodology. However, appraisers must recognize that, historically, they may have built this cost factor into their estimates of value by the cost approach. Thus, they may need to adjust their methods of estimating reproduction and/or depreciation so as not to count this item of cost twice.

J.D. Eaton, MAI, SRA – Real Estate Valuation in Litigation – Appraisal Institute.

 

[Peter LeQuire]

Maybe that's the "backing in" residential appraisers are accused of?