Cost Appraoch On FHA Appraisal

[Shawn Thompson]

I received a call from a client asking me to fill in the cost approach portion of the URAR on a FHA appraisal. Typically the Square Foot Form is used in its place, but my client is telling me that the insurance company wants the cost appraoch filled out. I have never had a request like this on a FHA appraisal. Would I be violating any rules or regulations if I filled out the cst approach section on a FHA appraisal?

thank you

 

[Chris Colston]

Intended user, intended use?? Is the insurance company an intended user?

All FHA requires is the estimated land value and that the remaining economic life not exceed the term of the loan. Ask your client to provide, in writing, the insurance requirement. You might also want to inform them that this "requirement" should have been made known at the time of the appraisal request so it could be included in the SOW. Cost approach after the appraisal has been submitted costs (new fee) more to complete.

This issue will be become more and more of a problem with the new forms starting next week.

 

[Christine Marie]

i too, have had similar request to fill in cost section, i had reported the land value, but when by FHA guidelines for relevancy, and being the appraiser after considering cost approach concluded it was DEFINETELY 'a value the market will not accept,' as my reason for not putting it on the form. however, since the lender asked, i included it. then changed my reconcilation section to read:


COST APPROACH, ALTHOUGH SUPPORTIVE, INDICATES A VALUE THE MARKET WILL NOT SUPPORT AT PRESENT; MOST EMPHASIS WAS APPLIED TO THE DIRECT SALES COMPARISON APPROACH, WHICH IS MOST INDICATIVE OF
VALUE FOR PROPERTY OF THIS TYPE; INCOME APPROACH CONSIDERED BUT ELIMINATED DUE TO LACK OF RELIABLE DATA.

the only error i think i made was not charging an additional $$$$ for revising the report. hind sight twenty-twenty

 

[Wally Jones]

Of course, the cost approach must be considered and the results reported if they're applicable.

I use something similar to the following in a couple of different places in the report:

"Most weight has been given to the Sales Comparison Approach with additional support from the Cost Approach. The Income Approach has been considered and is deemed not applicable. Replacement cost figures are for valuation purposes only and should not be used for insurance purposes. The definition of market value used for this appraisal report is not consistent with definitions of insurable value."

If the client requests a cost approach when I haven't included one, I let them know that wasn't part of the original scope of work but I'll be happy to begin a new assignment to appraise the property for its insurable value. Once they hear my fee they usually decide they can live without it.

 

[Thomas Fiehler]

House over 2 years old does not require a cost approach-let the insurance company do their own!

 

[Charles Witt]

FHA new construction or one year or less of age require a cost approach. Other wise, no.
Insurance companies have tried to have the loan proicessor bug me for a cost approach. I send processor appropriate FHA 4150.2 section. Never hear anything back!

 

[Greg davenport]

This is from the NEW 4150.2

If the subject property is new construction (less than one year old), or the Cost Approach is recognized in the market as a basis for pricing, the appraiser may complete the Cost Approach; however, it is not required for an FHA appraisal. If, however, the subject is a unique property, has specialized improvements, is manufactured housing, or the client requests the Cost Approach be completed, then the Cost Approach is required and must be completed. The square foot method is to be used.

Looks like the cost approach just got added to the scope of work.

This issue will be become more and more of a problem with the new forms starting next week.

I think FHA already screwed us by the above.

 

[Will43]

Originally posted by Thomas Fiehler@Oct 28 2005, 02:24 PM
House over 2 years old does not require a cost approach-let the insurance company do their own!

Thomas, were you in the AI class a few months ago in Columbus. I think you told the class that you have proven this in court.

Unfortunately, most of my clients require the cost approach regardless of age.

 

[CANative]

The protocol in the revised Appendix D to 4150.2 for estimating the reproduction or replacemnt costs has similar wording to the 1004c addendum by requiring the name of the cost service and referencing page numbers. Reviewer or reader must be able to replicate.

In my area sources like Marshall and Swift are laugable. The tables are at about 50 percent of actual costs in most areas and only about 25 percent in some remote or rrecreational areas.

I see more or less the same costs psf in all of the appraisals I review and they all indicate 125 to 175 psf and then go on to state that M&S was used.

What now? I've been stating that estimated cost is based on survey of builders, develoeprs and contractors. These figures are very consistent.

Now what?

 

[Nancy Wyatt]

It does not matter if FHA doesn't require a cost approach. You must consider the cost approach per USPAP standard 1-4. Then, go through the rules for departure. If you depart, you have done a limited appraisal.

I add in the box by the cost approach that it is NOT for insurance purposes.