[incognito]

If a lender requires the cost approach to be completed in order to obtain a replacement cost estimate for the purpose of determining the level of hazard insurance coverage required for a one-unit property, the lender may rely on the appraiser’s estimate of the replacement cost of the improvements.

This is from the recent FNMA 08-30 letter.

So, FNMA says that even if I choose to do a cost approach (because it will in an assignment yield credible results), that the lender MAY RELY upon it for determining insurance coverage. (I guess even if I say they can not in my report).

[Mike Seward]

There was a discussion here when the announcement came out. People were suggesting using comments like this:

Replacement cost figures used in the cost approach are for valuation purposes only. The use of this data, in whole or in part, for other purposes is not intended by me. The replacement cost figures reflect that of a market value estimate of "replacement costs " and not that of an insurable value estimate of "reconstruction costs."

The definition of market value used on page four of this report is not a definition of insurable value, and must not be interchanged, partially due to the different assumptions inherent in these different definitions of value. Actual reconstruction costs can easily exceed the replacement cost figures used in this appraisal.

[incognito]

Thanks, Mike. I will search for that thread. I have a similar statement, but I wonder if, in conjunction with Cert 23 and Paragraph 2 on page 4 of the URAR, this FNMA statement may trump any comment we might add (should I get sued for my reproduction cost not being an adequate insurable value). Just wondering...

[Pamela Crowley (Florida)]

It seems that anybody can file suit against anybody else for any reason they can come up with. Fannie/Freddie and the Appraisal Foundation Advisory Council Members are making sure appraisers are in the line of fire.

[leelansford]

Originally Posted by incognito

This is from the recent FNMA 08-30 letter.

So, FNMA says that even if I choose to do a cost approach (because it will in an assignment yield credible results), that the lender MAY RELY upon it for determining insurance coverage. (I guess even if I say they can not in my report).

You can't stop anyone, or any entity, from doing what they wish once they have possession of your report of the appraisal. All you an do is "cya" as best you can.

[Terrel L. Shields]

Fannie/Freddie and the Appraisal Foundation Advisory Council Members are making sure appraisers are in the line of fire.

We are cannon fodder...after all, they aren't taking the blame for the Mortgage mess...it's the appraiser's fault.

[panappr]

I have a "T-Shirt" with a picture of a Chimpanzee on it saying "I just do as I'm told". However, I will not wear this in court to defend myself. I believe the powers that be have created another emerging market for attorneys through appraisers.

[glenn walker]

I have no idea why appraisers are such chicken littles when it comes to the cost approach. I have no problem with the cost approach , The costs to rebuild new always exceeds the cost that a homeowner would need to rebuild his burned down home. I have built a few homes in my life and none of them has ever come close to the cost estimates of M & S or National Construction Estimator, I do use the best quality rating and never average, so the homeowner based on my numbers could rebuild his cracker box home with the best materiels and amenities. Also the lender or borrower orders insurance from an agent and I have not witnessed one policy where the agent didnt way over insure the home on a cost per foot basis. Remember the land is not going to burn down and in many cases the home is only partially damaged. So just remember to base your cost per Square foot and your amenities for a custom home or very high quality home.

[Tom Woolford]

If you use Marshall and Swift products for appraisers, M&S advises:

Note: Marshall and Swift specifically precludes use of its Cost Approach Products for Appraisers being used for Insurance purposes: to wit: You may NOT: Use the software for the purpose of creating building replacement cost estimates to be used for underwriting, claims or other insurance purposes, unless you first obtain the prior written permission of M&S

[mike32716]

Doing the cost approach for insurance is not a supplemental standard. It is just a ruling in the FNMA selling guide that applied to lenders. It does not apply to appraisers. As long as your report states that the cost approach is essentially useless for anything you are fine. Any of the previous caveats will go a long way to CYA.