Summary

A property's market value is comprised of its site value plus the contributory value of any improvements. The depreciated cost method utilizes this framework to compare the subject property to each comparable sale. It employs cost data to evaluate disparities in contributory values between property features, leading to each adjustment used in the sales comparison approach.

Depreciated Cost Method

The following steps are taken to successfully develop this approach to value.

1. Calculate the Contributory Value of the Improvements: After validating each comparable's property characteristics, the replacement cost is computed on the subject and each sale using Craftsman cost data and quality ratings. Craftsman uses a different quality rating scale than the Government Sponsored Enterprises. Subsequently, the depreciation of the improvements is determined using the age-life method.
2. Extract Site Values: For each comparable sale used, the contributory value of the existing improvements is subtracted from the sale price to determine an underlying site value. In the event that a comparable's sale price doesn't represent its current market value as of the effective date of the appraisal, a date of sale adjustment is made and added to the extracted site value. Each extracted site value encompasses the "as-is" value of any site improvements, which may contain grading, landscaping, paving, utility installations, curbs, sidewalks, and drainage systems. The comparable site values establish a range for the subject’s site.
3. Apply Site Adjustments: Once the subject property's site value is ascertained, a comparison is drawn between its site value and the site values of each comparable property, leading to the total site adjustment for each sale. This consideration factors in location, view, size, and site utility differences, which collectively influence the variations in overall site values.
4. Compute Feature Level Adjustments: Adjustments for improvements are determined by directly comparing the depreciated cost of each feature (ex. Depreciated Cost of the Subject’s Garage - Depreciated Cost of the Comp Garage = Garage Adjustment). For the main dwelling, the difference in depreciated cost is broken out among gross living area, baths, and basement, quality and condition based on the individual cost impact of each of those variables.

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