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One of the purposes of this podcast is to make you mad. Another is to open your eyes to the power the analytics of the cost approach have to analyze sales. Another is to anger you. About what? About the depth of its questions and what is likely to be the shallowness of your answers to them. With any luck at all, this podcast will do both. If it does, then you’re paying attention. Thank you! If it does not, then I’m not doing a proper job as a USPAP instructor. I’ll need to work smarter to open your eyes.
Again, I want to make you mad. It is clear most appraisers do not like to engage in the analytics of the cost approach. Generally, we are not too familiar with it since most of its protocols are not market oriented. And there is a lot of math involved. Remember that four out of three appraisers do not understand math. The GSEs make it clear that they do not think the cost approach results in a reliable indication of market value. So, it is clear that most appraisers, because of these limitations, do not appreciate the deep analytical power the cost approach really has. Most of us simply do not understand how the protocols of the cost approach help us to come to a credible opinion of market value. Therefore, I’m going to ask you 10 questions on the cost approach and stuff related to it. After we’ve finished with them, you probably will still not like to tackle the cost approach (and for the same reasons). Nevertheless, you just may have a better understanding and appreciation of its powerful analytical capabilities. And remember to keep your E&O Insurance up to date, and understand the need for legal counsel.
Tim-I loved your Freudian slip where you said that four out of three appraisers are not good at math.
I have been outspoken that I believe the requirements of USPAP are a super adequacy as defined by the market we work in, I. E. The price they are willing to pay for our services. The cost approach is a perfect example of this. My question to you and other appraisers is, if you did, the cost approach properly understood the manuals and did your lot value. How long would you expect that to take? Often I have from 5 to 8 really good sales that will give me a direct line to the value. At this point, I question why I should spend 45 minutes to an hour and a half doing an approach that is required but I know will add very little to the reliability of my value opinion.. I understand there are situations where I would need to do the cost approach, but not every time.
When is necessary for me to do it? Your podcast will be a great help.
Hi, Dave!
Thanks for your kind note! I advocate the use of the Cost Approach “every time”, not because it is necessary every time, but because I want to remind appraisers not to overlook the analytics and analytic power of this approach. This approach can be a waste of time, I agree. But I can’t tell you how many hours appraisers have wasted in front of state appraisal boards, when 30-minutes doing a “…quick and dirty…” Cost Approach, would have avoided those (unpaid) hours.
And, no, the comment about four out of three appraisers, etc., was not a slip. That’s exactly what I meant to say. I wish it were original with me, but it is not. And I know it is not “true” in the literal sense. But way too many appraisers are not yet as math-savvy as they need to be. Economics, after all, is the Mother Science of real estate appraisal, and Economics is nothing but math.
Thanks, Dave! It is good to hear from you! My Best!