Cost Approach Disclaimers

[mp2277]

After reading some of Poor Ray's problems in WI, I am wondering if any of you guys include any disclaimers in your reports stating that the cost approach is not very relevant to the opinion of value as stated, and should not be relied on for insurance valuation?

May I also suggest a thread of CYA statements that we might share with each other.:icon_idea:

 

[starmansf]

How about this:

"No consideration is given to the cost approach in the final reconciliation of value. The cost approach is only being provided at the request of the lender."

 

[Greenback]

I write this:

This Appraisal's standard of value is market value, not insurable value. The intended use of this Appraisal report is for mortgage lending only and shall not be used by the client/intended user(s) NOR un-intended third parties for insurance purposes of any kind/type.

AND

The cost approach was developed and considered. Sales comparison approach held more weight for the standard of value and intended use. Paired sales analysis held more data for analytical input-output; therefore, the most reliable indicator of Market Value as of the effective date of this Real Estate Appraisal.

 

[Joyce Potts]

How do you know the cost approach isn't relevant? Lets assume you have a 20 year old house with two lots sales in the development and a stable, balanced market. Are you telling me you can't reasonably extract any physical or functional external obsolescence from that?

Bring back the Demonstration Appraisal Report and make mandatory for every appraiser.

 

[Fred]

Can you give me the skinny on R's CA problem, otherwise my answer would be a guess?

 

[Greenback]

If there are absolutely no sales that can be used for a 20 year old house or maybe the home is rural with no such sales, extracting data from the market as part of the cost approach may be relevant, but other techniques should be considered, as well, if they are more reliable.

 

[Joyce Potts]

If there are absolutely no sales that can be used for a 20 year old house or maybe the home is rural with no such sales, extracting data from the market as part of the cost approach may be relevant, but other techniques should be considered, as well, if they are more reliable.

Ok, I'll bite:

Such as?

 

[Joyce Potts]

I write this:

This Appraisal's standard of value is market value, not insurable value. The intended use of this Appraisal report is for mortgage lending only and shall not be used by the client/intended user(s) NOR un-intended third parties for insurance purposes of any kind/type.

AND

The cost approach was developed and considered. Sales comparison approach held more weight for the standard of value and intended use. Paired sales analysis held more data for analytical input-output; therefore, the most reliable indicator of Market Value as of the effective date of this Real Estate Appraisal.

I give you Lehman Bros vs. Passarelli & Potts. Your verbiage trying to restrict the intended user/client, EVEN IF IT'S NOT ON THE FNMA FORM that is absent of the certification attaching reliability for every lender for an FRT is currently out the window based on this case law.

But thanks for playing the game.

 

[Greenback]

But thanks for playing the game.

No problem...

 

[Fred]

I give you Lehman Bros vs. Passarelli & Potts. Your verbiage trying to restrict the intended user/client, EVEN IF IT'S NOT ON THE FNMA FORM that is absent of the certification attaching reliability for every lender for an FRT is currently out the window based on this case law.

Whether restrictions will be upheld has to do with other factors, statutory law, how the restriction worded, what the client agreed to, and the cas elaw of the state you are in. On the latter, I give you Kuehn v Stanley.