The Cost Approach - North Carolina

[CraigAVC]

New construction assignment in North Carolina. Client requires the cost approach on every SFR. This review on my desk comes with a minimum land value, and a blank C.A. In the comments on the cost approach section is the following remark:

"The Cost Approach was not developed due to the recommendation to the appraiser by members of the North Carolina Appraisal Board. The members of the appraisal board informed the appraiser that the Cost
Approach is considered unreliable. The appraiser was strongly encouraged not to attempt to calculate the Cost Approach to value."

The story I got from the appraiser, was that he had been in C.E and a member of the board was in class and made a declaration. This was supposedly not an official statement from the N.C. Appraisal Board.

Has anyone else run into this, or do this? I'd like to gather some local knowledge. Thanks everyone.

 

[J Grant]

New construction assignment in North Carolina. Client requires the cost approach on every SFR. This review on my desk comes with a minimum land value, and a blank C.A. In the comments on the cost approach section is the following remark:

"The Cost Approach was not developed due to the recommendation to the appraiser by members of the North Carolina Appraisal Board. The members of the appraisal board informed the appraiser that the Cost
Approach is considered unreliable. The appraiser was strongly encouraged not to attempt to calculate the Cost Approach to value."

The story I got from the appraiser, was that he had been in C.E and a member of the board was in class and made a declaration. This was supposedly not an official statement from the N.C. Appraisal Board.

Has anyone else run into this, or do this? I'd like to gather some local knowledge. Thanks everyone.

I've never heard of such an excuse. Client assignment conditions are supposed to be met , unless appraiser feels the assignment conditions are considered unacceptable by the appraiser, then they are supposed to decline the assignment. CA for new construction is considered relevant to appraisal by many appraisers , even if it is not required by the client.

The supposed statement by a supposed board member in a CE class might have been taken out of context by the appraiser. To use it as an excuse - if nothing else shows such a level of stupidity I would not want to use that person for future orders

 

[J Grant]

Curious if this appraisal was ordered through an AMC ?

 

[Joyce Potts]

I find that the NC or any board for that matter would NOT give out such ridiculous advice.

 

[Joe Flacco]

I think most competent appraisers would say that the cost approach is applicable for new construction and should be developed. The issue with the cost approach is estimating physical, functional, and external depreciation. So even if you have a brand new house, depreciation caused by functional obsolescence could exist by building the wrong kind of house, or building too much house. You could also have depreciation caused by external factors like over-supplied market conditions. So just because it is new construction doesn't mean that it is a great indicator of value but I think done properly it provides useful info for the user.

For appraisal of properties that are not new construction or new gut/renovations I do not report the cost approach although I think it through. I still research site values, see what the existing improvements contribute and stuff like that.

 

[CraigAVC]

Curious if this appraisal was ordered through an AMC ?

No, this was a direct order.

 

[Joe Flacco]

"The Cost Approach was not developed due to the recommendation to the appraiser by members of the North Carolina Appraisal Board. The members of the appraisal board informed the appraiser that the Cost Approach is considered unreliable. The appraiser was strongly encouraged not to attempt to calculate the Cost Approach to value."

This statement is not a valid explanation for why the cost approach is developed or not. If it is unreliable, what he should have said is why exactly the cost approach is unreliable and as a result not developed. My best guess is the appraiser misunderstood what was actually said by the NC board members.

 

[J Grant]

No, this was a direct order.

In either case, there are enough competent appraisers around why have an incompetent one on the panel....

 

[J Grant]

This statement is not a valid explanation for why the cost approach is developed or not. If it is unreliable, what he should have said is why exactly the cost approach is unreliable and as a result not developed. My best guess is the appraiser misunderstood what was actually said by the NC board members.

If the appraiser misunderstood what was said, they are stupid, but they are even more stupid, and lack judgement to present it as an excuse not to develop the CA. If appraiser had presented some reasoning why they decided not to do it ( even though a client assignment condition ), that would be one thing. But this is the level of "the dog ate my homework".

 

[George Hatch]

CE instructors are arguably engaged in appraisal practice and have ethical obligations when acting in that role. With that said, I have had the personal experience of course participants re-imagining my comments to justify some weird thing they wanted to do, albeit never a comment that was actually about the technical aspects of appraising. So the possibility exists that this instructor didn't exactly say what was attributed to them.

The test for SOW decisions has two parts - expectations of the power users and the actions of the appraiser's peers in such an assignment. BOTH tests apply so even if this appraiser (or this instructor and board member, if that's what they said) could make the case that the appraisers peers think the CA is unreliable in a new construction assignment (which they can't) they wouldn't be able to say the same about the users.

And lastly, even if the appraiser could escape the CA on the basis of reduced reliability the user expectations for this assignment still called for it so - as noted above - that makes it one of the assignment conditions that the appraiser agreed to meet on the contractual basis when they took the assignment.

If this appraiser thought this request would detract from the credibility of the report then their options were to either renegotiate the terms of the assignment prior to accepting (agreeing to meet) those terms or to withdraw from the assignment. In no case does the appraiser have the discretion to simply blow off a client request like that on the unilateral basis.