No consideration for Cost Approach on a one month old property.

[Terrel L. Shields]

(1) you're assuming your cost figures are accurate - what if they're not?

If extracted from new construction sales and compared to cost books...why would they not be just as accurate as someone "guessing" about the quality and condition of a comp? Neither the cost nor sales approach is going to account for a failing central heat and air system. Without a home inspection, our guess is even less accurate and the home inspector is going to miss things near the end of their life if it is functioning well.
Again assuming anything that is depreciated more than 50% is a no-go, the C ratings are 10% apart yet somehow we are expected to come up within 5% of some mythical "true" value?

having used neither the 1004 nor the 1025 forms in well over 10 years.

me too..

 

[alebrewer]

If extracted from new construction sales and compared to cost books...why would they not be just as accurate as someone "guessing" about the quality and condition of a comp? Neither the cost nor sales approach is going to account for a failing central heat and air system. Without a home inspection, our guess is even less accurate and the home inspector is going to miss things near the end of their life if it is functioning well.
Again assuming anything that is depreciated more than 50% is a no-go, the C ratings are 10% apart yet somehow we are expected to come up within 5% of some mythical "true" value?

So back to the question that begs to be asked: when you develop the SCA and the CA, and they're NOT close - do you suspect your SCA is incorrect, or do you suspect your CA is incorrect? And why?

 

[George Hatch]

Really, this is the same issue as with doing desktop apconsidered praisals with no personal inspection. USPAP consists of minimums which apply to all appraisal practice, not just SFR appraising. There ARE same/similar assignments where a CA is part of the expectations of the users and the actions of the peers when performing that type of assignment. But outside of those situations it will otherwise be user driven, or appraiser driven as a result of the appraiser deciding to do more.

Aside from that, "not required by the user" is what it is even if some appraisers think they shouldn't be allowed to proceed in that manner.

 

[alebrewer]

According to AO 28, there is nothing wrong with developing an unnecessary approach. I personally disagree, but that's not the only thing I disagree with, and it's not a hill worth dying on for me. What peers might, or might not do, in a similar assignment would be (IMO) weak basis for alleging a USPAP violation for not developing the CA, as USPAP is fairly explicit that - if it's not required for credible results, it's not required for credible results.

OTOH - it's a completely different scenario when the appraiser DOES believe the CA is required for credible results. Those scenarios are far and few between, though.

 

[Terrel L. Shields]

or do you suspect your CA is incorrect? And why?

I start the cost approach first. That gets the issue of land value out of the way for the SA as well as Cost. I use Epley to reverse engineer every comp and get an effective age (EA) extracted. If my comps are "good" then my subject should fall within that range as to its own EA. Therefore, I have the ingredients to build the CA, and then I have the evidence to put in my dual sensitivity spreadsheet were I extract an adjustment first for eff age, then for size. Those two adjustments are often the only adjustments I need except land and any outbuildings. Therefore, if the two are not 'close' I revisit my math in both and usually find a error explains the problem away.

Aside from that, "not required by the user" is what it is even if some appraisers think they shouldn't be allowed to proceed in that manner.

Regardless what the lender allows, I generally believe that the CA makes for a more reliable report therefore, I include in my own SOW decision.

I've not reviewed many reports of others in the past 8 or so years, but ones I do see and disciplinary examples are clearly indicating the average appraiser abuses the SA pretty badly, even if they get a reasonable value. If you are making 5 or more adjustments to your comps, you are pretty certain to be applying a PFA method. If you are adjusting for gas log fireplaces, granite countertops, hardwood floors, etc. etc. I question the reliability of your adjustments. How can you claim "paired sales" when we all know that using 10 pairs sales will result in a range of values that vary 50% or more. And if you add such a nothing burger to a regression, the R square usually drops and or you get a ridiculous number like $54000 for a fireplace and a negative 18k for granite countertops. Pulled from "air" adjustments are the norm, even though our own heuristic abilities may be exemplar, it is still an educated guess not a dead to nuts calculation.

 

[Sadie]

Fair enough. So what part of USPAP has been violated when the CA isn't developed/reported on an assignment where the CA was not part of the agreed SOW? Remember - in order for a state board to find fault, there has to be a violation of USPAP or state regs...

It doesn't have to be in the SOW to be included in a report to be USPAP compliant. It is up to the appraiser to make that decision. if this were a standard subdiv home and no cost approach completed and considered, it may not be USPAP compliant, even if the SOW did not include the CA.

 

[alebrewer]

It doesn't have to be in the SOW to be included in a report to be USPAP compliant. It is up to the appraiser to make that decision. if this were a standard subdiv home and no cost approach completed and considered, it may not be USPAP compliant, even if the SOW did not include the CA.

What part of USPAP would the appraiser have violated by excluding the CA?

 

[Sadie]

What part of USPAP would the appraiser have violated by excluding the CA?

I did not say excluding the CA would be a violation. Standard 1 covers this.

 

[alebrewer]

I did not say excluding the CA would be a violation. Standard 1 covers this.

My bad. I thought "it may not be USPAP compliant" meant there may be a USPAP violation... words have meaning.

 

[Mark K]

Personally, I'd lean towards a violation of the Competency Provision due to the fact that the appraiser failed to complete an approach to value that was valid for the assignment, giving the appraiser the benefit of the doubt that he was ignorant of the importance of the approach.

The other reason would be a violation of the Ethics Provision due to the fact that the appraiser knowingly failed to complete an approach to value that he knew was valid for the assignment.

What peers might, or might not do, in a similar assignment would be (IMO) weak basis for alleging a USPAP violation for not developing the CA, as USPAP is fairly explicit that - if it's not required for credible results, it's not required for credible results.

In fact, what your peers might or might not do is important.

Apparently, you don't think its necessary. I believe that many of your peers disagree.