No cost approach needed

[Fred]

Once an entity of authority

Authority? Even if I agreed with your principle, and I don't, Fannie has authority over nothing but itself.

IMO, it wold be a lot easier just to admit you made a mistake.

 

[elguido]

Per USPAP

Per USPAP you should put this in your comments "The cost approach was included solely at the request of the client; it has been given no weight in arriving at the final opinion of value because "

 

[Functional Obs]

Hello, I had an assignment for market value refi on a SFR. I did not produce the cost approach due to it not being relevant. lack of data to determine site value and the home was older with some updates to inaccurately determine a physical depreciation. There was no supplemental standard rules requesting the cost approach. The A.M.C. and lender are pressuring me for a cost approach. Any advise or arguments I can provide to the AMC and lender to further their understanding.
Thank you, Greg

... "not being relevant" ...

On an SFR, a cost approach is almost always relevant. Fannie Mae doesn't use them, but as an appraiser, it helps you gage the sales comparison method in the reconciliation process.

... "lack of data" ...

What is there a lack of data on? Building costs? There's Martial & Swift and Building-Cost.net ... and surely there is one builder in your area, however, remote, building homes that could provide some insight ...

..."advise" ... probably advice ... but hey, I can't spell the word be or bee ...

Make the cost approach. I have an email forwarded to my friend ... two pages ... of why a cost approach isn't useful to him ... In the time it takes to write two pages you can write up a good cost approach and site valuation.

 

[Functional Obs]

Per USPAP you should put this in your comments "The cost approach was included solely at the request of the client; it has been given no weight in arriving at the final opinion of value because "

Saying it should have "no weight," lends to the first poster's argument of why even do it ...

A cost method, done correctly, definitely has weight! It's an option for a typical buyer ... to instead of buying that house, pick up a plot of land somewhere and build his own.

Just b/c Fannie doesn't need it doesn't mean it's not useful.

In a townhome situation ... where you can't exactly buy a piece of land to build an attached house on it ... sure, I can see it not being as useful. It's still painless to make though, and it helps you check all your other work.

 

[Fred]

Per USPAP you should put this in your comments "The cost approach was included solely at the request of the client; it has been given no weight in arriving at the final opinion of value because "

I wonder if you find the part of USPAP that says that.

 

[Fred]

On an SFR, a cost approach is almost always relevant.

Prove it.

A cost method, done correctly, definitely has weight! It's an option for a typical buyer ... to instead of buying that house, pick up a plot of land somewhere and build his own.

Not necessarily. Just becasue someone can afford to buy, doesn't mean they can afford to build (even if they were willing to try). Further, I have never seen a cost approach put a cost on the option of building it "somewhere," they always put a cost on building it on subject's site where it can't possibly be built without incurring the cost of knocking subject's improvements down.

 

[Functional Obs]

Prove it.

Not necessarily. Just becasue someone can afford to buy, doesn't mean they can afford to build (even if they were willing to try). Further, I have never seen a cost approach put a cost on the option of building it "somewhere," they always put a cost on building it on subject's site where it can't possibly be built without incurring the cost of knocking subject's improvements down.

The theory of substitution proves it for me, and the fine folks who write the standard say that a typical buyer will consider buying a new house when looking at old ones.

It has nothing to do with "knocking down" the old building ... it has to do with buying something other than what you're buying ... and in doing so ... considering something new ... possibly on the high end of the range as you point out.

The bottom line here is, and someone already mentioned this, is that a cost approach is useful, especially in the case of a SFR like the one described here.

 

[Fred]

The theory of substitution proves it for me, and the fine folks who write the standard say that a typical buyer will consider buying a new house when looking at old ones.

Yes, but your claim was not that buyers look at both old and new, but that buyers consider building a new one. Remember?
"It's an option for a typical buyer ... to instead of buying that house, pick up a plot of land somewhere and build his own. "

I am just wondering if you have any evidence that this is an option for a "typical" buyer. Do you have any idea what percentage of homes are self contracted? Do you have any idea how many home sites sell versus how many homes are sold? Do you have any idea what percentage of home buyers have the financial wherewithall to build something about the same size and quality as that which they can buy with 80-90% leverage? Or are you just assuming this option exists?

The bottom line here is, and someone already mentioned this, is that a cost approach is useful, especially in the case of a SFR like the one described here.

It's more than useful for insurance, which is why lenders (who are often required to make sure there is insurance) ask for it.

 

[Functional Obs]

Remember? Yes, I remember what I posted a couple of hours ago.

Do I know this and that? Well, I have the benefit, since I am in Northern VA, of an abundance of information. I was in rural Massachusetts over the 4th of July, and I got to see a real estate office there that had access to far less information. So I feel lucky to have updated tax records, a decent MLS, and all kinds of market data from which to draw.

Do I understand bank programs, loan-to-value ratios, buyer's saving habits and asset averages, in general that it's easier to qualify for an already-improved site than a I'm-gonna? Pretty much.

As for the insurance companies, well, if they want to use a document that says, "not for insurance purposes," then that's kind of on them.

Most of the time, when I look at someone's report and there's no cost method developed, it's really because the appraiser doesn't know how to properly make one. Sure, they can look at the tax records, get an inaccurate idea of site costs, make that 1/3 of their total value, tweak living area numbers till they get something that looks OK ... but they are just filling out a form ... poorly ... and they aren't doing anything to help their own opinion out any. They b%tch about how hard it is to calculate depreciation (even though we have about 5 different ways to figure that out), and get mad at the person asking them for it. Most don't know that historically cost was the original appraiser method...

Whereas, a well-constructed cost approach will cause you to have more confidence (or possibly revisit) your sales comparison approach.

Steven, I don't mind arguing with a lot of folks on here, but I've read some of your other posts and I agree with you on a lot of other issues ... so I'm not going to keep this thread going. Hopefully the original poster will one day have a light bulb click on...

-Rick

 

[Fred]

Whereas, a well-constructed cost approach will cause you to have more confidence (or possibly revisit) your sales comparison approach.

Steven, I don't mind arguing with a lot of folks on here, but I've read some of your other posts and I agree with you on a lot of other issues ... so I'm not going to keep this thread going.

Since all you are doing is repeating a conclucion, while I ask abouit support, it really doesn't matter if you keep going. However, should ever develop support for that conclusion, publish it. I haven't used a cost approach for market value in about 14 years. If anyone can actually get anything out of it - not just say and repeat that there is something relevant to market value there - I'd be delighted to add it to my scope.