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Income and Cost Approach

Discussion in 'Illinois' started by Tony Bamert, Aug 1, 2011.

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  1. Tony Bamert

    Tony Bamert Junior Member

    2
    Jan 26, 2010
    Professional Status:
    Certified Residential Appraiser
    State:
    Illinois
    I was reading 1 of the 12 pages of special instructions on a streetlinks order and noticed a statement from Fannie Mae that "appraisals that rely on the income or cost approaches to value in order to estimate market value are unacceptable". This struck me as a possible assignment condition that prohibit acceptance of some orders (particulary in a college town). However, its a Fannie Mae rule and I am guessing most appraisers are working on assignments destined for Fannie Mae. Anyone have thoughts?
     
  2. Michigan CG

    Michigan CG Moderator Staff Member Moderator

    565
    Nov 1, 2006
    Professional Status:
    Certified General Appraiser
    State:
    Michigan
    For Fannie or Freddie the appraisal must also include a SCA. Income and cost can be developed but are optional. The SCA is not optional.
     
  3. Tony Bamert

    Tony Bamert Junior Member

    2
    Jan 26, 2010
    Professional Status:
    Certified Residential Appraiser
    State:
    Illinois
    sure, but what if the income approach is the primary approach to value. It looks like Fannie is saying you cant do that
     
  4. Jim Onderisin

    Jim Onderisin Senior Member

    8
    Sep 15, 2003
    Professional Status:
    Certified Residential Appraiser
    State:
    Illinois
    If you determined the cost and/or income approach(es) was/were the only applicable and necessary approach(es) to value, and you had no relevant market evidence to suggest the sales comparison analysis was applicable and necessary, I guess you'd have to inform your client and let that party make the decision whether or not to continue the assignment. If they canceled the assignment, I'd guess they'd want to pay you for your time spent.
     
  5. Tony Bamert

    Tony Bamert Junior Member

    2
    Jan 26, 2010
    Professional Status:
    Certified Residential Appraiser
    State:
    Illinois
    I have one right now that is bugging me. The property is an older house converted to 3 apartments. It is located close to the University of Illinois Campus in an area of high rentals, mostly grad students. No doubt that the primary approach to value is the income approach. These converted houses sell routinely based on income. So if Fannie Mae says that you must emphasize the sales comparison approach then its really an unacceptable assignment condition. In fact, this property would never qualify for a secondary market loan. I guess it seems crazy to me that you would be in the business of loaning money on 2-4 family properties then create a stipulation that the appraiser can not use the income approach as the primary tool.
     
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