Reply to post by Russ Carlson, on February 28, 1999 at 08:32:03:

In my opinion, one of the continuing problems with CTLA methods (let's use TF as the most coomonly employed and [mis]understood example) is the 'magical, mystical formula' issue. The mechnics and theorteical underpinnings have never been explained. Both the understanding and the credibility are best established in framing the method in traditional and widely accepted terms. Those are, in my opinion, that TF is a Depreciated Replacement Cost approach to value. Depreciation is by definition a deduction only. Creating an additive or positive "depreciation" could work arithmetically but departs from the established model, is oxymoronic, and shifts back to magical and mystical because adjustments which should be explicit get wrapped up in a hybrid factor.

In my opinion, there are three better alternatives. 1) estimate depreciated replacement cost in the traditional way and subsequently, explicitly and separately add on specific quantified benefits (then you're employing both cost and benefits approaches in a single method). Such additives could include any item not reflected or reflectable in the replacment cost (you can't buy historic significance or specimen rarity from the nursery, for example). 2) Estimate additional costs to replace the additional benefits which are not reflected in the replacement plant cost a) as a separate equation and sum the two (or 3 or 4 or....) results or b) in the single equation. I'd lean towards 'a' so that it's not necessary to combine, weight and explain the application of single depreciation %ages to different costs which may not be depreciated at the same rate if at all. 3) Apply two approaches (a Depreciated Replacement Cost Approach which may not reflect certain classes of benefits and a Benefits Approach which does reflect other classes of benefits) and reconcile the results as in the traditional appraisal model.

The key issues, in my opinion, are: 1) staying within widely accepted descriptive models rather than creating arcane variations, and 2) making all material or significant data collection, analysis, adjustment and reporting explicit and consistent and avoiding hybridized, implicit, non-specific indications of or adjustments to value.

The temptation is to develop a "one size fits all" and quick, easy to use methodology; both to benefit the appraiser and provide economical service to the client. I'd suggest that if classes or elements of benefits / value are material enough to consider they are material enough to address explititly and explict methodology is justified.