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.
