Woefully Inadequate Report Form:

In working with the Cost–of–Cure Report Form (folder) I discovered a major inadequacy in instruction and modeling. The use here is probably so obscure that very few, if any, appraisers apply the suggested method.

In Section C. Plant Restoration and Establishment Cost, the instructions briefly explain applying the compounded cost method to derive the “appraised value”. The Guide does not cover this explicity in the chapter dealing with this section, but only in the appendix under Compounded Cost.

What is missing in the Report Form is any type of worksheet for setting up this compounded cost determination. It is really rather complex, yet it is treated as if it were a simple task. The same applies to all 7 of the categories.

If we look at only the first category, there are 7 individual tasks listed. Each may have more than one treatment application, at various times. Each item must be considered separately, and each treatment calculated (or looked up in the chart) for the compounded interest factor. Depending on the number of treatments and years to parity, this can get quite complex.

Has anyone actually used this method in an appraisal? Any comments? What needs to be done with this to make it understandable and useable?

Reply to post by Russ Carlson, on February 18, 2001 at 12:53:41:

"In working with the Cost–of–Cure Report Form (folder) I discovered a major inadequacy in instruction and modeling. The use here is probably so obscure that very few, if any, appraisers apply the suggested [compounding] method."

Just as well then. Compounding is not supported by the appraisal literature as a method to estimate present value, is not descriptive of what is actually happening, and while it trends in the right direction is subjuect to huge overestimation because we don't knowwhat the trem and rate should be.

"Years to parity" is descriptive of the age difference between the appraised and replacement trees but, depending on the rate chosen may have no use as the term in a compounding exercise. Since we don't know what value is we don't know what inputs in terms of rate and term to make. If we did know we wouldn't need to compound to estimate it. Circular logic. Fatal error. Does not compute.

Seriously, these exercises are not elementary math or elementary concepts. Tree appraisers have no business using them if they don't understand them. A few more paragraphs in the form or guide will NOT provide tht understanding. But the exercise doesn't reliably work anyway so it doesn't matter.

Now, what's really missing from CoC is explicit, descriptive and consistent Specise and Location depreciation to put RCM, TFM and CoC in comparable terms. There were several lengthy threads on that... I won't repeat it all here.