Use Of Modifiers In Arriving At Rcn

[Allen Griffin]

How does one correctly use modifiers to arrive at RCN in the first part
of the Cost Approach and does anyone know of a good resource
to really understand the Cost Approach to Residential appraisal.
It Seems that even appraisers who have been in the business for
years have a hard time explaining it and admit they don't really
understand it well.

 

[Austin]

What are modifiers?

 

[Bill_FL]

I'll second Austin. I think you need to be a little more specific or clear on your question. Are you talking about the adjustments to the base rate for items like siding, roofing, etc?

 

[Ghost Rider]

I think the modifiers that are being referred to are the local modifiers from the Marshall and Swift cost estimates.....Other than that, I don't really know where else to go with this thread.....

 

[Jungle Boy]

Welcome Allen

A few weeks ago there was an active thread on this topic.

You'll get much good info from it, and great discussion.

 

[Fred]

does anyone know of a good resource to really understand the Cost Approach to Residential appraisal.

No, but if you find one, let me know. I already have dozens of texts and reference books and dozens of published artilces going back to "day one."

It Seems that even appraisers who have been in the business for years have a hard time explaining it and admit they don't really understand it well.

There is an obvious, but often overlooked, logical explanation for that. Maybe it just doesn't make any sense. If it made sense, than anyone could explain it. The approach seems to contradict a other princples, but that doesn't seem to concern a whole lot of folks.

Here is a link to the thread that Raimo mentioned
Depreciation

 

[xm39hnu]

Allen,
Read the first part of the RCH for an explanation of how to use it. Each section has an explanation of what is included in the base cost.

The "modifiers" of which you speak are the local and regional multipliers, which serve to normalize the broad national cost which you arrive at to the local cost. Apply those multipliers to anything you get out of the book--Base cost, square-foot adjustments, and lump-sum adjustments. Do not apply them to anything derived locally.

There are courses available which teach you how to use M&S for the cost approach. Sometimes they are found as courses for assessment personnel, other times as CE for insurance people.

Now, as for depreciation, I stand silent. I ain't sayin' nothin' with Austin and Steve Santora lookin' on. By all means, read that thread.

 

[Restrain]

If you are going to use Marshall and Swift, check your local multipliers (back of the book) to the actual costs in your market. Just because M&S says this is what it is, that's like accepting the word of the Wizard of Oz to ignore the man behind the curtain. Mindless plugging in of numbers without verification against your market can lead to significant errors.

Roger

 

[George Hatch]

If you're using M&S to develop your cost estimates, you need to understand a couple things about the base costs they use. Those costs represent the national average based on the data they've collected. Those base costs include some things and exclude other things at the various quality levels. Your first step is to select the appropriate base cost using the description for the category that best fits your subject. Make adjustments to that base cost to account for extras or any items your subject may be lacking but that would normally be included in that base cost. That includes adding for A/C or deducting for a lower quality roof, depending on what your subject has. Gotta add for flooring, fireplaces, extra insulation, etc.. After you have made whatever modifications are appropriate to the base cost to reflect the features your subject has, then the multipliers come into play.


There are multiplers for size and shape to reflect the economy of scale that affects costs, and there are multipliers for wall height (taller ceiling heights cost more to build and vice versa). These multipliers are applied to the base cost.

The last multipliers are for location and time. The base costs are published once a year,and then quarterly multipliers are issued every quarter to update those costs as of that quarter. The location multiplier is used because costs vary by locale. For instance, I did a Cost Approach today on an office building and ended up using a 1.10 for my location, meaning it costs 10% above the national average, and a 1.04 for my quarterly multiplier, so my composite rate was 1.144. This location/quarterly multiplier is applied to my cost new after accounting for the base costs, adjustments to the base costs, and because I'm working out of the commercial cost guide, separate line items for indirect expenses and developer profit. The residential book uses base costs that include most of those items, which is why base costs for constyruction are commonly going to exceed $95 or $100 a foot for "Average" quality construction after it's all said and done.

So to recap, you adjust your bases costs for features, then again for variances in wall height, shape and size. Then you apply the quarterly multiplier and the location multiplier to modify your subtotals of all improvements for the area the subject is located in and the time period during the year since that base cost was last published.

As others have noted, sometimes the bases costs and time/location multipliers M&S uses lags a bit, sometimes by as much as 6 months. This is why it's a good idea to constantly calibrate your costs estimates by comparing them to current construction contracts whenever you can. Trust, but verify, if you know what I mean.