Housing dilemma - s (sales, mortgage, loans)

[787]

?

[787]

If I can choose between two houses:

One house appraised by sales comps, with a value of 300K, but the cost approach value is 260K

vs.

The other house with an sales comp value of only 250K, but the cost approach value is 290K.

Which would you choose? I'm deciding between two neighborhoods. This is not a neighborhood-vs-neighborhood thread and I'm not going to mention the neighborhoods.

[centralaustinite]

What the heck is cost approach value? Never heard of it.

[BriansZ]

Are they still building in these two neighborhoods? If not, then cost approach shouldn't even be considered. If they are and you can get the same building for less new, go with a new build.

[787]

Originally Posted by centralaustinite

What the heck is cost approach value? Never heard of it.

The cost approach tells how much it would cost to replace the house
(land+construction materials+labor - depreciation)

[787]

Originally Posted by BriansZ

Are they still building in these two neighborhoods? If not, then cost approach shouldn't even be considered. If they are and you can get the same building for less new, go with a new build.

Both neighborhoods are built out. But there are other neighborhoods in the area being built. If the land was scarce, then this would show up in the cost-approach as a higher land value. Wouldn't it?

To me, it seems that I have the choice of paying 300K for a house that I could build myself for 260K, or I have the choice of paying 250K for a house that would cost me 290K to build. Am I missing something here?

[Komeht]

That's a ridiculous way to decide a house - which are not commodities - every house belongs to a unique parcel and no two are alike. . .that being said, the only thing that really matters is sales comp.

[centralaustinite]

Yup. Once it is built and sold once (with a price reflecting the cost of land and construction) then it is only worth what someone will pay for it. Period.

[EzPeterson]

Am I missing something here?

Yes.

1. Land
2. Accurate value for said land
3. Some common sense
4. A legitimate method for valuing property
5. An understanding of the mortgage market for land and building loans

That's a start.

[787]

Originally Posted by EzPeterson

Yes.

1. Land
2. Accurate value for said land
3. Some common sense
4. A legitimate method for valuing property
5. An understanding of the mortgage market for land and building loans

That's a start.

#1 and 2.
The value of the land is reflected in the cost approach though. It's a line item in the appraisal.

4. So the cost-approach is not a legitimate method for valuating property? Why do appraisers do it, then?