Sufficiency Of Cost Approach?

[CANative]

Local builders should (must?) also be a consideration though. Yes?

 

[CANative]

Because in most cases where it claims that level of accuracy, the Cost Approach was manipulated and 'backed into' to make it fit.

Not me. I usually do the cost approach first and it's amazing how close it is once I get all the comps in and adjusted.

 

[BarrySW1963]

...

Fences, IMO, are similar to walkways, driveways (hardscape or flatwork as it is called) and landscaping. I've always considered this to be site improvements and have identified them below the RCN line. Are you sure that fencing is included in the M&S improvement section? But, as to its significance, I don't think it is a big deal.

Thank you. I should clarify. When using the swiftestimator version offered by a la mode, if you identify a component at all, it rolls it in (the software does not line-item anything out) to one big number. You can fiddle with the software to calculate it with and without it, but you have to go through a secondary process of screenshotting/printing to capture the contributory cost. The online version offered at swiftestimator.com works differently than the a la mode version, in that it line-items additional components out, so they can be reported on a different line.

BTW, CANative asked if you include EI (Entrepreneurial Incentive) in your analysis. Since he opened that can of worms, I'll let him advocate for its inclusion (which I agree with). Whether you do or don't, I advise you to understand what it is and how it impacts the Cost Approach Analysis, and then form your opinion if it should be included or not. This way, you'll be able to defend your position if ever asked..

So, looks like 4 &5 are site prep, but not landscaping, hardscape or fencing.

And, no EI.

Can you share a link for your favorite source for how to determine EI?

Thank you!

 

[Howard Klahr]

Can you share a link for your favorite source for how to determine EI?

Developer surveys, review of development costs and sale prices of newly constructed properties and market extraction.

 

[hastalavista]

Local builders should (must?) also be a consideration though. Yes?

Sure, if one has the data. The failure (I presume) in some reports is that the "local builders" has become part of the boilerplate. When asked, there are no "local builders" or those builder's costs may be 10+ years old (the last time the boilerplate was updated).

 

[CANative]

EP (entrepreneurial profit) is what a developer makes after all is said and done and the property has sold. EI (entrepreneurial incentive) is what the developer thinks he will make before going in and building something (or another way of looking at it what a developer would need to incentivize him to undertake a project.)

EI is derived from the market. There is no book or source for it. And it can and does change with the market. It's low or non-existent in markets where supply exceeds demand by a high amount and it's very high in a market where demand exceeds supply by a wide margin. IMO, in a stable market, a reasonable argument or estimate of EI would be in the 10% to 15% range of total costs. It's not perfect but it would be hard to argue against a lower or higher amount.

There are some who might post that the notion of EI is nonsense or that it is included in the cost books or is non-existent. But that is not logical. If there were no EP, and thus EI, then a developer would not bother with the risk, time and costs associated with undertaking the project and nothing would get built. And that is clearly not the case. I can suggest some reading materials if you like.

 

[hastalavista]

Can you share a link for your favorite source for how to determine EI?
Thank you!

Yes- the sources cited in post #14.

Not trying to be "cute". EI is one of the most difficult things for a residential appraiser* to obtain because most of us do not regularly deal with developers so we can ask the questions. And, for many developers, they combine two hats (they are a contractor and developer) and the "blend" their contractor profit along with their investor requirement. So, while elusive (sometimes) to obtain, it can be done.


*although my status is "certified general" I was a residential-only appraiser for the first 17-years of my career and I still do residential mortgage work. So, I'm wearing my "residential-only" hat in this thread.

 

[CANative]

 

[gregb]

Have never considered disclosing the name of the builder (for the cost breakdowns) in the appraisal report. Need to think about the confidentiality issue, unless the builder has given an ok to disclose.

 

[CANative]

Why would the appraiser owe a duty of confidentiality to a third party such as a builder?