USDA 'requires' Cost Approach for CONDOS

[residentialguy]

Res-

What you are describing would be a challenging analysis to perform.
It isn't impossible and can be done.
I'll give you a simpler example:
A new 2-unit condo; each unit is identical. The project is vacant and ready for sale. The H&BU of the land is for 2-condo units. You have site value comparables (good ones). You have cost estimates (good ones). You have an excellent idea of what EI is for this type of project.
Do you think you have enough information to complete the cost approach?
Do you think if those two units sell the second after you've left the site, your cost approach value indication would have some relationship to the price the units sold for?

If you answer "no", I don't know what to say.
If you answer "yes", then the rest of the issues that are being raised (units on the 20th floor... land value that is $200 million, etc.) are just parts of the equation. Complicates the analysis but does not invalidate the method. And that is what I'm saying.

I'm afraid I must take responsibility of sidetracking this thread. The OP's original post was about USDA requiring the cost approach on an individual condominium unit. No one who has posted so far has thought that was a good idea. No one who has posted so far has said it should be done. On that point, there is unanimity. I'll leave it there.

Even a 2-unit condo. How much does it cost to build one side of the condo seems like a simple question, but I would ask you; how can you build just one side and have a 2-unit condo? Yes, you can get market value for that condo by dividing the cost (plus incentives) by 2...but to start from vacant land, you need the money for 2 units.

 

[Meandering]

Res,
You miss the point.

The property rights you are appraising do not include the building, or buildings as the case maybe.

By opining a cost to build buildings as a value attributable to the property you are appraising, you are extending what the subject property is, a square of air, by including the value of assets of a different owner. (building and building owner are not the unit owner) and therefore may be committing appraisal fraud.

And as Denis noted, the unit owner may have a partial, un-delineated interest in the entire complex. So "replacement costs" for the property interests of the unit owner would include a percentage of the entire complex. However, that percentage number is not physically possible to replace solely the unit owner's interests, as you can not ask a builder to build you 1/132 of a swimming pool. Here's your four cinderblocks, call them a pool if you like.

There are however, condo complexes with detached units that the unit owner owns the entire building but not the land. in these instances, doing a replacement cost approach, might be applicable if, and only if, the unit owner has the right to build on the land. The ones I've seen like this do not allow the unit owner to build with any chosen builder but must use the declarant's builder/plans and specs, therefore the cost to replace is predicated solely on what that builder charges as no other option is available to the unit owner, and consequently does not represent market value as there is no choice to which builder or plans must be used. It's a straight, this is the only option and here is the price.

.

 

[residentialguy]

I know Marion; I got your point and agree. I was simply shooting a different angle on it. (place the old beer smiley here)