USDA 'requires' Cost Approach for CONDOS

[Eli]

First line was good. I'd stop there. In order to build that condo, that's what you'll need. They don't sell holes for you to build.

Idk. If that was all I had maybe in some cases. It seems like they are wanting more and more.

 

[Eli]

First line was good. I'd stop there. In order to build that condo, that's what you'll need. They don't sell holes for you to build.

Ok another thought is Estimated cost of subject improvements less depreciation equal indicated value of improvements (subject unit only) + add contributory value of remaining site improvements and add value of land based on H&B use as if vacant on a Prorata basis of land value as if vacant and other site improvements (parking, etc etc)

 

[residentialguy]

I like "Condos are integral parts of the total project and connected and share the same roof with one or more other units, the cost approach is impractical for estimating the value of any given unit as the cost to build one requires the cost of the total project".

 

[Meandering]

"Yes, you can value an individual condo unit using the cost approach."

Sorry D,

Appraisers, Don't let your eyes fool you.

You are appraising the fee simple interest, subject to the rules/ownership and rights of the HOA and Declarant. If you are appraising the fee simple of the UNIT OWNER, what does the UNIT OWNER own? What the unit owner owns should be detailed in the deed and/or the condo papers.

Here, typically, the UNIT OWNER owns the interior space between the walls, floor and ceiling. There is nothing to construct. No costs for the square of air, so to speak. Unit Owners might own carpet, top flooring and cabinetry in some projects here, but typically do not own exterior walls, roofs or ceilings.

The HOA may own all the things your mind wants to cost out to build, but is that the interest you are appraising? The ownership of the HOA?

Does the unit owner carry insurance on the building? Or, on their personal property contained in the building?
If the building burned to the ground, does (do) the unit owner(s) have the right to construct new units?

Before you can "cost" anything, you need to know what the unit owner owns, which might not be any part of the building, or may be only the top floors, fixtures and cabinets, and in some cases, they might not own that much, but rather have a deed that can best be explained as a glorified "right to use".

Otherwise, do not mix the ownership interests of different parties and call it the value of a singular party that may not own what you are costing.


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[residentialguy]

Good post, Marion

 

[hastalavista]

"Yes, you can value an individual condo unit using the cost approach."

Sorry D

No, more like "sorry, Marion".

If you don't think you can conclude an indication of value for an improved property on a site, then I suggest you stop doing the cost approach altogether.
As to the ownership rights, just as the cost approach always concludes the Fee Simple interest, property rights adjustments (in whatever form they exist) are applied after that conclusion.

Like I said, Marion, I wouldn't do it and wouldn't recommend it. I'm sure you wouldn't do it and wouldn't recommend it.
But don't say it cannot be done, because it can (although I don't know who might do it).
If you want to say, "Well, in real life, it probably would never be done"; I would agree with you. But probably doesn't mean "never", and it doesn't mean "cannot".

 

[residentialguy]

So, you're MV is $5 million for that 20th floor condo. Land value is 150 million. Cost of construction is 200 million for the Highrise.
MV for the house down the street is 1.8 million. Land value is 1 million. Cost of construction is 800,000

Now...they were both razed. Vacant land. How much would it cost to build the house and how much would it cost to build that 20th floor condo?

 

[residentialguy]

Reminds me of a story.
Scientist went to God and said, we can create life from dirt just like you God.
God says, Oh really? Prove it.
The scientist said No problem, I'd be happy to.
So the scientist bends down and scoops up some dirt...
God says..."No no...get your own dirt"

 

[David Mescon]

It can be done, however, how many non-commercial appraisers are truly qualified to perform a thorough HBU analysis, value the underlying land and determine the DRCN of all of the improvements, (including all common elements)?

 

[Meandering]

No, more like "sorry, Marion".

If you don't think you can conclude an indication of value for an improved property on a site, then I suggest you stop doing the cost approach altogether.
As to the ownership rights, just as the cost approach always concludes the Fee Simple interest, property rights adjustments (in whatever form they exist) are applied after that conclusion.

Like I said, Marion, I wouldn't do it and wouldn't recommend it. I'm sure you wouldn't do it and wouldn't recommend it.
But don't say it cannot be done, because it can (although I don't know who might do it).
If you want to say, "Well, in real life, it probably would never be done"; I would agree with you. But probably doesn't mean "never", and it doesn't mean "cannot".

D,
D,
D,

You can estimate the cost to build any building.

But your are not estimating the cost to build a building.

You are valuing the PROPERTY RIGHTS.

It is the Cost Approach to VALUE of the PROPERTY RIGHTS you are appraising.

One of which, does NOT include the right to build a condo, or re-build the condo, if the rights you are APPRAISING are the RIGHTS of the UNIT OWNER and NOT the RIGHTS of the OWNERS of the IMPROVEMENTS.

You have to first understand what the UNIT OWNER owns and has RIGHTS to.

If the unit owners own the top floor coverings, then there is a cost to replace. If they do not own anything attached to the land, or attached to the walls/floors/ceilings, then they own a square of air, with no cost to rebuild, but rather a substitution cost to replace, see Sales Comparison Approach.

It is the same reasoning that you do not include the costs to replace all access roads to a house, when you are doing a cost approach on a house, because the owner of the house does not OWN the roads, but rather has a RIGHT OF USE of the roads, and can not go out and replace the roads, because, THEY ARE BEYOND THE PROPERTY BOUNDARY LIMITS of what a typical home owner owns, and has rights to. Yes, they may impact the value of the subject's property rights, but those are considerations EXTERNAL to the property rights you are appraising.

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