A. Our cost data is generated by a proprietary model that includes (i) MSA-level (Mean Statistical Area) construction labor rates that are published by the U.S. Department of Labor, (ii) material cost data from a variety of public and private sources, and (iii) other proprietary datasets, including internal user feedback. Each cost multiplier that is generated is specific to one of over 40,000 local areas of the United States based on the subject property location.
A. To answer that question, we must briefly review the concept of “Replacement Cost New” to highlight the differences in our philosophy. In our view, the question really should be “why are other services wasting so much of your valuable time?First, it is very important to remember that estimating Replacement Cost New (RCN) in an appraisal Cost Approach does NOT require you to estimate the replacement cost of what currently exists but rather what a market suitable “replacement” (a building having usefulness equivalent to the building being appraised but constructed with modern materials and according to current standards, building codes, layout, and design (on the Effective Date of Appraisal)). For this reason, questions like “single or dual pane windows” (try building a house today with single pane windows) and “how many corners are there” are completely unnecessary as you are not estimating the cost of a “replica” but instead the cost to construct a new “current” version of the subject improvements (i.e., a current dwelling with equivalent utility). If there are items that increase costs significantly without contributing any value, then they should be eliminated (or Reproduction Cost should be developed, in which case the items must be functionally depreciated). For the Effective Age of “new” improvements to be -0- there can be NO functional depreciation, and no items that add cost without adding value.Since our inception, our mission has been to create a service that allows you to quickly and accurately calculate RCN while requiring you to input ONLY the information that is vital to developing an accurate RCN estimate based on your observations regarding overall quality. You are the local expert – you have seen the property – and YOU are in the best position to estimate what the quality of an “equivalent” dwelling would be.
A. Our Replacement Cost results include contractor’s profit but do not include Entrepreneurial profit. Entrepreneurial profit refers to the incentive necessary for one to develop raw land. If a market has building sites available there is often a disparity between Cost to Build + Cost of Site and what the value would be for a similar site with a new house on it. The difference between the two is Entrepreneurial Profit, or the incentive to go through the process of constructing the improvements. As part of developing the Cost Approach to value, we are estimating the Replacement Cost New (RCN) of the structure; therefore, Entrepreneurial Profit should not be included here as it would give the reader of the report flawed information. For instance, if the improvements were to be destroyed, Entrepreneurial Profit would not be necessary to rebuild it, as a party with an interest in the property (i.e., the property owner, lender, or insurance company) already has incentive to rebuild the structure.
A. The lack of “depreciation tables” is by design and not an oversight. Estimating depreciation is part of the appraisal process and a cost service cannot accurately do that for you (any claim otherwise is misleading). The appraiser has (hopefully) inspected the property and has observed the level of physical deterioration, as well as any factors causing functional or external depreciation. Additionally, the appraiser is familiar with the local market and is in a much better position to determine how these factors impact value. While simple to use, it has been proven in numerous academic studies that “straight line” tables for physical depreciation are extremely inaccurate. For these reasons, we believe that a cost service has no business trying to estimate depreciation for you. It is our strong opinion that the appraiser is the expert and should be completing this analysis.
A. While it is intuitive to assume that constructing dwellings which share one or more common walls would significantly reduce Replacement Cost New (RCN), our research indicates that there is little to no savings and, in some cases, even slightly higher costs, as upgraded or additional materials are likely required (e.g., higher quality insulation, sound dampening drywall, staggered studs, double walls, etc.). Completing these items and ensuring the dwellings meet current building codes may add additional labor costs as well.At first glance, it is easy to assume builders are constructing attached units because it saves on construction costs; however, developers are making these decisions because it allows for (i) greater density levels, (ii) many more units per net acre, and (iii) usually increased profit to the developer. In some cases, the overall quality of these units may be lowered to meet minimum market expectations at a particular price point; however, this is a quality issue that should be addressed with the quality rating (e.g., 3.0 instead of 3.5). The impact of much higher density typically impacts SITE VALUE rather than the overall COST to build.Some users have suggested an “attached” or “semi-detached” button be added to our application; however, it is our view that this solution is simply a “placebo” and would compromise our ultimate goal of providing you with the most accurate RCN estimate that we can deliver. This solution also runs contrary to our mission of keeping the process as quick and simple as possible by eliminating unnecessary and time-consuming items while calculating RCN. Remembering that estimating RCN in an appraisal Cost Approach does NOT require you to estimate the cost of what currently exists (this is a common misconception), but rather what a market suitable “replacement” (a building having usefulness equivalent to the building being appraised but constructed with modern materials and according to current standards, building codes, layout, and design (on the Effective Date of Appraisal)).Once again, our goal is to only require you input information that is vital to the RCN estimate based on your observations about overall quality. You are the local expert – you have seen the property – and YOU are in the best position to estimate what the quality rating of an “equivalent” dwelling should be.
A. We do not currently have a method for specifically costing out 2-4 unit buildings; however, this feature is in development. In the meantime, it is possible to use the tool while conducting supplemental research of the cost of additional components, then adding the cost of those items to the replacement cost estimate. Of course, you should document the information in your workfile.
Let’s start with the term “site.” Site = Land that is ready to be developed for a specific purpose. The difference between raw land and a site is some level of preparation (to facilitate the improvements), utility hook-ups to the site, street access, etc. The latter being off-site improvements but equally necessary to the value of a “site.”On-site “Site Improvements” = Driveways, hardscape, swimming pool (more on this in a second), fences, retaining walls, drainage improvements, sewer lines or septic systems, and utility hook-ups on the site.These improvements are not included in the Replacement Cost New (RCN) of the dwelling. Additionally, these improvements are difficult to value separately but imagine a typical urban or suburban site without any of those improvements and you can see they clearly contribute value. The URAR form allows for an estimate of the contributory or “as is” value of these improvements (NOT their cost). Although the “as is” value of site improvements should be based on the value differences you see between “sites” and “land” (no site improvements), I think most appraisers generally begin with a kind of “rule of thumb” starting point (e.g., 5-10% of site value, or $30,000-75,000) depending on what they see in their market. And then that amount may be adjusted for properties with extensive improvements (when they are contributing value).Some appraisers do include the value of a swimming pool in the “as is” value of the site improvements. This method has the advantage of just adding the same number you used in the grid for a pool to the site improvements. It’s simple and there is no need to calculate the amount of functional depreciation that is generally present in a swimming pool. Of course, other appraisers put it on the line above the garage line and this usually requires a charge for functional depreciation be included in the Cost Approach, as well as the Effective Age be adjusted due to this additional depreciation. Either way is acceptable appraisal practice as long as there is consistency with other approaches!