Frequently Asked Questions
Does Solomon work with new construction?
Yes, but only if replacement cost is equal to the contributory value of the improvements. It is possible that a new house will sell at a profit for less than land plus calculated replacement cost. In cases like this, the replacement cost calculation may be too high. This could be due to the reasons noted in National Building Cost 2017 on page 16. "Tract work and highly repetitive jobs may reduce the cost 8 to 12%." "Work outside metropolitan areas may cost 2 to 6% less." Whatever the reason, "high" cost data needs to be dialed in. Calibrate the calculator results by the ratio of contributory value to replacement cost. If your data shows that the market is paying 70% of the calculated replacement cost for the house apart from the land, multiply the adjustments by .70.
Does Solomon work across a Zip Code with wide variation in house values?
Yes. Zip Codes are used to calibrate unit cost data such as hourly labor and the price of lumber. Solomon does not use local house price sales data, only labor / material / climate / equipment costs that should be stable across local Zip Code areas.
Do the Solomon Quality Ratings match the FNMA Quality Ratings?
Yes, the Solomon ratings are taken directly from National Building Cost 2016. NBC has 11 ratings. With the Quality Level Half Step feature, Solomon 7ses the same 11 ratings.
How would you answer an Underwriter with questions about how adjustments are determined?
Solomon uses the Depreciated Replacement Cost method of developing adjustments. The Depreciated Replacement Cost is the amount the market pays for the building apart from the land. The Depreciated Cost is converted to a ratio of Depreciated Cost as a percentage of Replacement Cost-New. This “market ratio” is then applied to the cost of one more square foot of GLA, one more foot of basement size, one more bathroom, one more garage stall etc.
Can I use trial results in an actual report?
Yes. The trial is free access to all the features and data that are available to paid subscribers. You can save and print the report for your files.
Why do I get zero adjustments?
If you enter a low population zip code that is not part of the data we license from National Building Cost, the calculator returns zeros. Enter a zip code from the nearest population center large enough to be in the database. Sorry for the inconvenience.
How does cost data lead to market based adjustments?
Cost data can be used to measure depreciation. Knowing depreciation, we can calculate remaining economic life.
What is remaining economic life?
Remaining economic life is the number of years that the house will continue to add value to the land. When the house is new, the remaining economic life is equal to the economic life.
What is economic life?
Economic life is the number of years a new house is expected to add value to the land. For example, The National Building Cost Manual specifies an expected life of 60 years for a Q4 house.
What is depreciation?
Depreciation is loss in value for any reason. This includes, but is not limited to, physical depreciation. Another form of depreciation is functional depreciation. Often overlooked is style obsolescence.
What is style obsolescence?
Style obsolescence is loss in value apart from function or wear. A good example is decorating. Carpet and paint can be new, but the colors may not meet current style expectations.
How is depreciation measured in the case of a previously owned house that sells for $300,000?
If the market pays $300,000 for a previously owned house built on land that is estimated to be worth $60,000, the market reaction to the house is $240,000. If that house has a replacement cost of $400,000, we know that the depreciation is $160,000, or 40%.
How is depreciation used to calculate remaining economic life?
Ratio analysis can be used to calculate remaining economic life. The ratio of remaining economic life to economic life is equal to the ratio between depreciated cost of improvements and replacement cost new.
What is the remaining economic life in the $300,000 house example?
The house is a Q4, which has an economic life of 60 years. The market is paying 60% of cost new, so the remaining economic life recognized by the market is 36 years.
How is the GLA adjustment calculated from remaining economic life?
The marginal cost of GLA is multipled by the ratio of remaining economic life to economic life. In our example, the ratio is 60%.
What is the marginal cost of GLA?
Marginal cost is the amount by which total cost changes with a change in quantity. This is fundamental to the adjustment process. The National Building Cost Manual publishes average total cost data. Solomon uses marginal costs that are derived from NBC data by regression. In our example, the marginal cost of GLA for a Q4 house, in zip code 55123, regardless of size, is $95.09. The adjustment inferred by 36 years (60%) remaining economic life is $57.00.
How are the adjustment values meant to be used?
GLA, Basement Size and Basement Finish are square foot adjustments; the adjustments apply for differences in size. Full Bath, Half Bath and Fireplace adjustments are "count" adjustments; they apply to difference in the number of Baths, Half Baths and Fireplaces. The Garage adjustment is unique. The adjustment applies to differences in car parking capacity, not size in square feet. The adjustment assumes that there is at least one garage in the Subject and all Comparables. The adjustment from no garage to one garage would be about twice the adjustment value shown.
How do I try Solomon?
We offer a free 14 day trial. In order for either the trial or licensed versions to work, we need some registration information from you. Go to the Get Started page.
Why do you recommend 2017 National Building Cost Manual?
Solomon uses 2017 National Building Cost Manual Data as the basis for cost data. Using the same data in the Cost Approach helps the user to calibrate their remaining economic life estimates.