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920. This is a new feature suggested by a Solomon user who needs to include the cost additional features. Indoor pools,indoor sport courts, wet bars, even local environmental impact studies could be entered in this section. The exampleshows the words Wet Bar entered by the appraiser together with the local cost. The cost is added top right withoutbeing impacted by the Factor field value or the Zip Code multiplier. The depreciated cost of the additional feature alsoappears at the bottom the Default Adjustment column.21. Click Calculate and the Cost Approach appears top right.22. The square foot values are meant to be entered into the 1004 Cost Approach section.23. Depreciation is calculated by subtracting Depreciated Cost (24) from Total Estimate of Cost New.24. Depreciated Cost of Improvements is calculated by subtracting Site and “As-is” Value of Site Improvements from theMarket Value Estimate.25. Economic Life is assumed from licensed cost data. Q1-Q3 70 years. Q4-Q5 60 years. Q6 55 years.

1026. Effective Age is calculated by applying the ratio of (Depreciation / Total Estimate of Cost New) to Economic Life.(87,169 / 278,169) x 60 19 years27. Remaining Economic Life is calculated by applying the ratio of (Depreciated Cost / Total Estimate of Cost New) toEconomic Life.(191,000 / 278,169) x 60 41 years.28. Depreciation Percentage is calculated by dividing Effective Age by Economic Life.19 x 60 32%

1129. Default Adjustments are calculated by applying the ratio of (Remaining Economic Life / Economic Life) to marginalcost extracted from licensed cost data.41 / 60 68%68% of 94 marginal cost of GLA 64.Marginal cost of GLA and other cost categories are derived within the calculator by dividing change in cost by change inquantity as shown on page 3.

1229. The Default Adjustment column shows the effect of equal depreciation throughout the building. In this example ofa Q4 quality rating, the building as a whole is assumed to have an economic life of 60 years. The economic life of 60years is assumed by the cost engineers who compile the cost data that is licensed for use in the calculators.30. The % of Econ Life column is used to account for some cost categories depreciating faster than others. If you enter33 in the Deck category, you are saying the deck has 33% of 60 year lifespan. 33% of 60 is 20 years. 20 years is theestimate published in a study sponsored by National Association of Home Builders and Bank of America Home Equity.You can download this study by clicking “Lifespan of Components” at www.solomonappraissal.com/greatlinksThe economic life of a deck is low because it is exposed to the elements. A covered porch has less exposure than a deck.A screen porch has less exposure than a covered porch. An enclosed porch has less exposure than a screen porch. I use33%, 50%, 67% and 75% respectively.In my market, a second fireplace has less value than a first fireplace. In this example, 2200 is inferred for the firstfireplace and 1100 for additional fireplaces.I use 50 for the bath categories to get adjustments for basement baths. In my market, basement baths have roughly50% of the GLA baths due to the functional issue of being below grade. In this example, I have an adjustment for anabove grade bath at 7000 and a below grade bath adjustment of 3500.The GLA category is the most complex. The lifespan study cited above states that several subcategories of GLA haveshort lifespans.DishwashersKitchen CabinetsCountertopsDecksExterior DoorsFinish Lighting9 years50 years20 yr to Life20 years20 – 40 yrs10 yearsFinish PlumbingCarpetLinoleumVinyl FloorsHVACFurnaces15-50 years8-10 years25 yearsUp to 50 years15-25 years15-20 yearsHeat PumpsAir Conditioning UnitsAsphalt RoofingAluminum GuttersAluminum WindowsWooden Windows16 years10-15 years20 years20 years15-20 years30 years

13I use a calibration percentage of 62. This is based on a survey of Solomon users who observed that the default GLAadjustment was too high. Rather than try to combine all of the short lifespan subcategories into an overall percentage, Iuse those survey results to provide a range. In this example, the range is 39 to 64. If 64 provides a tighter range ofadjusted sold values, the grid is inferring that 64 is the better choice by sensitivity analysis.31. After completing the % of Econ Life columns, click Calibrate Adjustments.32. The calculator multiplies the Default Adjustment values by the % of Econ Life percentage to result in adjustmentsthat are shaped by the appraiser’s observations and judgments of how depreciation is impacting a particular set ofsubject and comps.33. Click Print Report for a hard copy or pdf of the calculator results.Guidance for 1004 reporting in Summary of Sales Comparison Approach.“Adjustments for building characteristics are developed with the depreciated cost method. See page three AdjustmentCalculations and the Depreciated Cost Adjustments summary attached.”Page 3 Additional Comments.Adjustment Calculations: Adjustments for building cost categories such as GLA, bath count, basement size, basementfinish sf, garage count and fireplace count are based on the amount they contribute to value. By definition, depreciatedreplacement cost is the amount that the building contributes to site value. Depreciation is x%, so the market is payingy% of replacement cost for the buildings. See Depreciation Calculation attached which includes the y% factor applied torelevant cost categories.I include a screenshot of Solomon Cost calculations by inserting a page titled “Depreciated Replacement CostAdjustment Calculations”.

14Solomon Cost NewSolomon Cost New is designed for newconstruction assignments where there is nodepreciation.1. Enter site value, site improvements andbuilding characteristics.2. Enter Builder Sale Price.3. Click Calculate to get results.4. In this case, the Builder Sale Price is 92%of published cost data.We license cost data from National BuildingCost 2020. Following are their commentsabout the accuracy and intended use of thedata:“Costs in the tables include all constructioncosts: labor, material, equipment, plans,building permit, supervision, overhead andprofit.”“This manual will be a useful reference foranyone who has to develop budget estimatesor replacement costs for buildings. Anyonefamiliar with construction estimatingunderstands that even very competentestimators with complete working drawings,full specifications and precise labor andmaterial costs can disagree on the cost of abuilding. Frequently exhaustive estimates foreven relatively simple structures can vary10% or more. The range of competitive bidson some building projects is as much as 20%.Estimating costs is not an exact science andthere’s room for legitimate disagreement onwhat the “right” cost is. This manual can nothelp you do in a few minutes what skilledestimators may not be able to do in manyhours. This manual will help you determine areasonable replacement or construction costfor most buildings. It is not intended as a substitute for judgment or as a replacement for sound professional practice,but should prove a valuable aid to developing an informed opinion of value.”Builders do not use cost data to establish selling prices. The market sets the selling price.

15Neither the Builder or the market use published cost data. Actually it is the other way around. Cost data is compiledfrom survey data of builders, permit data of completed projects and other sources.The calculator will show 1004 Cost Approach data two ways. Top center you will see cost approach data straight fromthe National Building Cost Manual. On the right, you will see the National Building Cost Manual Data reconciled to thelocal builder cost.The Local Builder Cost data is used to calculate replacement cost adjustments bottom center.1. In this example, the builder completed the project at 92% of the amount estimated by the National Building CostManual. Builders do not use cost manuals to price their houses. Cost services use builder prices to compile costmanuals. An individual project will never match a published source.2. These are the numbers I report in the 1004 Cost section.3. These numbers show the effect of reconciling National Building Cost numbers with actual project cost. This isaccomplished by changing the Dwelling category to result in zero depreciation. Dwelling is used because it is the largestcategory and best place to reflect factors such as site difficulty and other factors that impact cost and market conditions.4. Replacement Cost Adjustments are calculated from the actual project cost (3) in order to reflect the market, not thepublished cost data.

16Solomon SiteSolomon Site is a market extraction tool. The idea is to choose a comparable sale with similar site characteristics andsubtract the depreciated cost of the improvements. You will be left with the total of Site Value and “As-is” Value of SiteImprovements. Subtract site improvements and you have site value.Depreciated cost of the improvements is replacement cost after depreciation has been deducted. Depreciation iscalculated from the appraiser’s estimate of effective age.1. Enter the property characteristics of the comparable sale on the left.2. Enter you estimate of effective age.3. Enter your estimate of the “As-is” Value of Site Improvements.4. Click Calculate5. The assumption will resolve to the site value.6. Click Print Report for a hard copy or pdf.

17See the following example of the very sensitive trade-off between depreciation (effective age) and site value.The only change from the prior example is using 20 years effective age in the place of 15 years.A change from 15 to 20 (1) results in a change in site value from 50,000 to 72,000.Why? In this case, depreciation of 25% (15/60) is 22,000 lower than depreciation of 33% (20/60).

18Solomon ManufacturedSolomon Manufactured uses the appraiser’s estimate of remaining economic life to calculate seven adjustments.1. Enter subject zip code.2. Select Quality rating. See Appendix C for illustrations of five quality categories.3. Enter remaining economic life. Note that economic life values are lower than traditional construction.4. Enter deck size.5. Enter Porch size.6. Enter Carport size.7. Enter garage size in square feet, not the number of car stalls.

198. Click calculate.9. The GLA adjustment is a square foot adjustment. In this case, marginal cost of GLA is 68 and the zip code multiplieris 12%.Marginal Cost x (Remaining Economic life/Economic Life) x 1.1268 x (20/40) x 1.12 3810. All other adjustments are unit adjustments. A 160sf deck is 2000. A 240sf garage is 7200 etc.

20Solomon Market TimeSolomon Market Time quickly applies an annual rate of change to the interval in days between the contract date of thecomparable and the effective date of the report. Up to four comparables can be calculated on the same page.1. Enter the street address of the comparable properties for which you will calculate a market time adjustment. This isan optional field to enhance your reporting.2. Enter the sale price of the comparable properties for which you need a market time adjustment.3. Enter the amount of seller concessions if the concessions result in a sale price that is higher than market value.

214. Click on the calendar icon and select the date that thecomparable property came under contract.5. Click on the calendar icon and select the effective dateof the report.

226. Enter the annual percentage of change in the market. Ifthe market has declined, use a negative number. If themarket is down 5%, enter -5. If the market is up 2.3%, enter2.3. A sample size of at least 30 sales is required forstatistical significance and credibility of the market timeadjustment.7. Click calculate. Three calculations aremade that result in a credible market timeadjustment.8. Concessions are subtracted from SalePrice to show Comparable Market Value9. Comparable Contract date is subtractedfrom Appraisal Effective Date to show theInterval in Days between the two dates.10. Market Time Adjustment is calculatedby applying the annual rate of change tothe interval in days. If the annual rate is2.3%, and the interval is 199 days, theresult is 2758 for a market value of 220,000.

23ReportingI report the findings of the calculators on three pages of a 1004 report.1. I insert a page in the report titled Depreciated Cost Adjustment Calculations with a screen capture of Solomon Cost.2. I add commentary at the bottom of page 3 of the 1004 with this statement:Adjustment Calculations: Adjustments for building cost categories such as GLA, bath count, basement size, basementfinish sf, garage count and fireplace count are based on the amount they contribute to value. By definition, depreciatedreplacement cost is the amount that the building contributes to site value. Depreciation is x%, so the market is payingy% of replacement cost for the buildings. See Depreciated Cost Adjustments summary attached which includes the y%factor applied to relevant cost categories.3. On page 3 in the Summary of Sales Comparison Approach, I use comments like these:“The Date of Sale / Time adjustments are developed by applying the x.x% appreciation rate to the interval betweencomp contract date and report effective date. Adjustments for building characteristics are developed with thedepreciated cost method. See page three Adjustment Calculations and the Depreciated Cost Adjustments summaryattached.”4. In the Support for the opinion of site value section I begin with this and edit as necessary. If there are comparable sitesales, I summarize those and add attachments as necessary.“There are no recent lot sales in this fully developed neighborhood. The allocation method applied at the 2019 assessorLTV ratio of xx% to the median price of xxx,000 infers xx. Assessor estimate is xx. The extraction method applied toComp x indicates xx. Most weight is given the extraction method because it begins with a similar lot with similarimprovements.5. Comments on Cost Approach shouldinclude National Building Cost Manual 2020 asthe source of cost data. Don't report SolomonCost as your source of cost data. SolomonCost is a calculator that uses data fromNational Building Cost Manual 2020.6. Enter the Quality rating from cost service. Ifthe subject is Q3.5, report Q3 or Q4. Q3.5 is ahigh Q4 or a low Q3.

247. Enter the Effective Date of the cost data.8. In Comments on Cost Approach, I use this:Quality Class 4 Good Standard is used (p 7,12, 27 - 30). "As-is" value of SiteImprovements includes depreciation tothose features. The Age-Life method ofdepreciation assumed in this report includesall elements of depreciation to theImprovements in one calculation shown inthe Physical category. Economic Life Effective Age Remaining Economic Life.The page numbers 7, 12, 27-30 apply to all quality ratings.

25Appendix AGlossaryAge-Life Method: a method of estimating depreciation in which the ratio between the effective age of a building and itstotal economic life is applied to the current cost of the improvements to obtain a lump sum deduction; also known atthe economic age-life method – The Dictionary of Real Estate Appraisal 4th Ed p 8Depreciation: a loss in property value from any cause; the difference between the cost of an improvement on theeffective date of the appraisal and the market value of an improvement on the same date – The Dictionary of Real EstateAppraisal 4th Ed p 79-80Economic Age-Life Method: see Age-Life Method – The Dictionary of Real Estate Appraisal 4th Ed p 91. Economic Life:the period over which improvements to real property contribute to property value. – The Dictionary of Real EstateAppraisal – 4th Ed p 92Effective Age: The age of a property that is based on the amount of observed deterioration and obsolescence it hassustained, which may be different from chronological age. - The Dictionary of Real Estate Appraisal 4th Ed p 93Iteration: a problem-solving or computational method in which a succession of approximations, each building on theone preceding, is used to achieve a desired degree of accuracy – Dictionary.comRemaining Economic Life: the estimated period over which existing improvements are expected to continue tocontribute economically to property value – The Appraisal of Real Estate 13th Ed p 415Marginal Cost: the cost of one additional unit of any item produced or bought in quantity - "marginal cost".Dictionary.com Unabridged. Random House, Inc. 17 Apr 2017.

26Appendix BSingle Family Quality ClassificationAssumptions

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28Appendix CManufactured Housing Quality ClassificationsSee next page for descriptions.

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Solomon Site extracts site value from a comp sale price, building characteristics and the appraisers estimate of effective age. Solomon Manufactured calculates GLA and six other cost categories for manufactured housing. Solomon Market Time is designed to calculate time adjustments from the appraisers known rate of appreciation.