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Extraction Has No Traction

Extraction Has No Traction

Land values were based

upon the extraction

method

http://www.idfpr.com/dpr/re/ILLAppr/IllinoisAppraiserJanuary2012.pdf

 

.”

Look familiar?

If I had a nickel for

every

 

phoned‐in Cost

Approach that had this

sentence or one like it, I’d be Warren

Buffet.

The Dictionary of Real Estate Appraisal

defines it as:

A method of estimating land value in

which the depreciated cost of the improvements

on the improved property is estimated

and deducted from the total sale

price to arrive at an estimated sale price for

the land; most effective when the improvements

contribute little to the total sale

price of the property

 

 

.

The underscored portion says it all.

Usually this technique is used in rural

settings. Perhaps when appraising

some hunting shack on a couple of

hundred acres of scrub.

But no, we see it in the

middle of suburban

Hinsdale, Belleville,

Taylorville, and other

places where the residence

is easily a significant

portion of the

total value.

By definition,

 

extraction doesn’t really

work in cities and suburbs where improvements

tend to drive value.

Also, some Cost Approaches are so

poorly cobbled together that we seriously

doubt the appraiser’s ability to

 

extract

 

 

anything.

Don’t just toss

 

extraction into a report.

If you cannot demonstrate an ability to

depreciate reasonably, then you certainly

won’t be able to support an extraction

application.

The board strongly suggests that you

find a course that teaches a more reliable

technique.

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