Cost Approach Multipliers

Question: In the cost approach section on the FNMA 1004, is it more common for people
to put the local and regional cost multiplier in the external
depreciation section or to multiply the $/SF by that multiplier
prior to putting in the base cost/sf?

I guess my question is this.  Is the local and regional cost multipliers considered an external depreciation?

Answer: Neither the local multiplier nor the current cost multiplier references external obsolescence.

  • Marshall and Swift has a single book for the entire nation.  The cost estimates are a mean or median of national costs (I don’t know which).
  • If Marshall and Swift says the cost to build a house is $100 per square foot and the
    local multiplier for Atlanta is 0.96 then it cost $96 per square foot to build the house in Atlanta.
  • The local multiplier is applied before any depreciation is recognized

green sheets are updates.  I believe Marshall and Swift is published annually.
The green sheets provide a “time” multiplier each quarter called the
“current cost multiplier”.  If prices go up 1% since the manual was
published, the local “current cost multiplier” would be “1.01”.

Example: Marshall and Swift says a house cost $110 to build with a “local multiplier” of
0.96 and a “current cost multiplier” of 1.01.  The cost of construction
before depreciation, lot, and “as is” site improvements is $110 x
0.96 x 1.01 = $97.93.

Reference:  Georgia Appraiser Forum


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