Calculates depreciated cost adjustments from the appraiser’s estimate of Remaining Economic Life.
Any estimate of Remaining Economic Life, together with a Quality rating, is an estimate of the percentage of cost new being paid by the market. This is true because Remaining Economic Life / Economic Life is the percentage of cost being paid by the market, and each quality rating has a specified economic life. This calculator is the one I use for desktop appraisals when I do not have first-hand sketch data and the Cost Approach is beyond the scope of the assignment.
Calculates depreciated cost adjustments by extracting depreciation from the market.
In most cases, it is more credible to estimate Market Value than it is to estimate Remaining Economic Life. Solomon Cost begins with the estimate of market value, and works back through the cost approach to solve for the amount of depreciation recognized by the market. Indicated Value by Cost Approach becomes Indicated Depreciation by Cost Approach.
Is an estimate of market value a predetermined result? No. The appraiser's estimate of effective age is not a predetermined result. That estimate is used in the calculation of Indicated Value by Cost Approach in the URAR. Likewise, an estimate of market value can be used to indicate depreciation in the cost approach. The resulting depreciated cost adjustments, when used in the sales grid, are likely to indicate a different market value than the original estimate. The resulting market value can then be entered into the calculator to fine-tune the depreciated cost adjustment values. Think of this as an iterative process of testing an hypothesis. The Oxford Dictionaries Online define the scientific method as "a method or procedure that has characterized natural science since the 17th century, consisting in systematic observation, measurement, and experiment, and the formulation, testing, and modification of hypotheses"
Solomon Cost New
Calculates replacement cost adjustments by equalizing local builder cost to unbiased, third party cost data.
Third party cost data is developed from large sample sizes of projects. It is inevitable that the local builder's cost for a particular project (sales price) will differ from published data, no matter the source. We solve this problem by equalizing third party cost data to the local builder cost. Solomon Cost New calculates two sets of numbers for you. First is the cost data straight from National Building Cost. The Indicated Value by Cost Approach will differ from the local builder sales price as expected. The second set of numbers equalizes Indicated Value by Cost Approach with the builder's sale price by adjusting the Dwelling number.
Extracts site value from a sold comp, cost data and the appraiser’s estimate of Effective Age.
Site value is a critical variable in the depreciated cost method. If site value is understated, depreciation will be too low and depreciated cost adjustments will be too high. Likewise, if site value is too high, depreciation will be overstated and depreciated cost adjustments will be too low. Solomon Site is designed to help you with your Opinion of Site Value. Think about it: if property values have appreciated 5% in the past year and land is 25% of value, the site value has increased at a much higher rate. The building replacement cost may be up 3%, but depreciation eats half of that. Consider this example:
Last year a property was worth $200,000, Site Value was $50,000 and depreciated cost was $150,000. This year the property is worth $210,000 (up 5%), depreciated cost is $152,250 (up a net of 1.5%) so land has to be $57,750. That is an increase of 15.5% ! If you are not keeping up with land values, your depreciated cost adjustments will be too high.