external obsolescence
349) Down Market
06/18/08
Dear H2,
In the cost approach, when you have a forclosure sale or a "short sale" and the sale price is lower than the cost to rebuild (reproduction cost), is it proper to use the External Obsolescence to balance out the final value? The forclosure market -- which is an external pressure -- appears to have caused this low sale value.
Using the Cost approach you start by: 1st, establishing site value, use a building cost with a cost service, put in physical depreciation, and then use the abstraction method for External Obsolescence which is the difference caused by the low sale price. Is this a correct method?
GM jcvsor@yahoo.com
Dear GM,
Anything that happens off the site that causes a property to lose value in the cost approach is classified as External Obsolescence. Market conditions would fall into that category. If your site sales are not current, they should also be adjusted to reflect the down market.
H2
In the cost approach, when you have a forclosure sale or a "short sale" and the sale price is lower than the cost to rebuild (reproduction cost), is it proper to use the External Obsolescence to balance out the final value? The forclosure market -- which is an external pressure -- appears to have caused this low sale value.
Using the Cost approach you start by: 1st, establishing site value, use a building cost with a cost service, put in physical depreciation, and then use the abstraction method for External Obsolescence which is the difference caused by the low sale price. Is this a correct method?
GM jcvsor@yahoo.com
Dear GM,
Anything that happens off the site that causes a property to lose value in the cost approach is classified as External Obsolescence. Market conditions would fall into that category. If your site sales are not current, they should also be adjusted to reflect the down market.
H2