Given there have not been all that many flat residential real estate markets in the past 10-years, how market-accurate, then, are the published tables? SR2-3 requires appraisers to certify to the fact that the statements of facts in an appraisal report are both true and correct. If there have been essentially no flat markets in the last 10-years, how can we certify our depreciation is both true and correct if the published depreciation tables are based on a flat market? If markets are dynamic, but the published tables assume a flat market, how accurate are they?
Another issue with the published tables is their self-recognized inability to speak to the appraiser about functional obsolescence and external or locational obsolescence. Appraisers know there are three components to accrued depreciation. Yet they depend on the published tables to conclude as to all three of depreciation’s components. These tables do not and cannot estimate the latter two forms of depreciation. In addition, it is a logical fallacy to assume a property has only one form of depreciation (even, sometimes, in a new one).
The Comment to SR1-3(a) is very clear about unsupported assumptions. If the appraiser does not engage in the analytics of the Cost approach, how is the appraiser sure there is no functional obsolescence? If the appraiser does not engage in the analytics of the Cost approach, how is the appraiser sure there is no external or locational obsolescence? If the appraiser does not engage in the analytics of the Cost approach, how can the appraiser certify that everything in the Cost Approach is both true and correct? Falling rents and/or falling multipliers may indicate the presence of these other two components of accrued depreciation. However, how many appraisers, via the residential income approach, go to the effort to read the market’s tea-leaves?
To professional appraisers, then, the issue is to extract accrued deprecation from market data. Published tables may be a help with depreciation’s age-life component, true. But they cannot aid the appraiser with conclusions as to functional or locational/external obsolescence. These tables simply cannot calculate them; the appraiser must extract them from the market evidence. Yet, unfortunately, many do not. And, equally unfortunately, many appraisers do not understand when, where, and how to account for an entrepreneurial profit/incentive. Because of this lack of competency, therefore, many appraisers do not understand the market since they are unable to listen to it.