It's really nice that you have vacant land sales for your typical single family home. They are very rare and difficult to find in most developments in my area. With this in mind, here are my comments...
If I can get away without doing the COST APPROACH I have this comment on the page three addendum page...
Note that the COST APPROACH if completed, cannot be considered to be an accurate representation of REPLACEMENT COST NEW for insurance purposes. MARSHALL & SWIFT offers separate handbooks, instructions, and depreciation schedules for insurance purposes. This COST SUMMARY is for consideration as part of an overall appraisal for the purpose of market value. Per USPAP, the INTENDED USER of the report or client, must be identified prior to the undertaking of the assignment in order for it to have valid results. With no identification of users other than the mortgage companies, no consideration was given to, nor should any reliance be placed on this COST SUMMARY for any purpose other than providing additional support for market value. Use as an indicator of minimum amounts for insurance underwriting purposes, or using the overall market value less land value as an indication of the cost of the improvements will likely lead to a misleading result. REPLACEMENT COST NEW, a frequent source value used to determine minimum insured values, is not what is generated by using market value from the sales approach less estimated land value. That technique will not include any accured depreciation, and result in a lower value for the estimate. A separate insurance underwriting assignment completed by a professional insurance underwriter is recommended, and would likely indicate a better amount for insurance purposes.
Then the form ask for your Opinion to the Site Value and they get this...
There were no recent vacant land sales in the neighborhood similar to the subject's lot. It is the appraiser's opinion that the extraction method of obtaining the opinion of site value is not justifiable and if used may lead to a misleading report which would be in violation of USPAP.
Then inside the COST APPROACH comment section I add...
No vacant land sales could be located in the general market area to justify any opinion of site value at this time. Completion of the COST APPROACH by an appraiser may lead to a misleading report as the appraiser is not qualified in calculating the reproduction or replacement cost new of the improvements and in doing so, would be a violation of USPAP. Therefore the COST APPROACH was not completed at this time.
Last but not least, in the COST APPROACH grid for OPINION OF SITE VALUE I write No Sales Available.
However, you get those lenders who just insist on the COST APPROACH regardless of everything you tell then that the COST APPROACH is useless they get the following in the comment section of page three...
COMMENTS REGARDING THE COMPLETION AND USE OF THE COST APPROACH
It is the appraiser's opinion that completion of the COST APPROACH may lead to a misleading report as the opinion of site value (without the use of extraction) cannot be justified for calculating the reproduction or replacement cost new. To do so, would be a violation of USPAP. However the lender insist that the COST APPROACH be completed regards of creating a misleading report or not. Note that the COST APPROACH if completed, cannot be considered to be an accurate representation of REPLACEMENT COST NEW for insurance purposes. MARSHALL & SWIFT offers separate handbooks, instructions, and depreciation schedules for insurance purposes. This COST SUMMARY is for consideration as part of an overall appraisal for the purpose of market value. Per USPAP, the INTENDED USER of the report or client, must be identified prior to the undertaking of the assignment in order for it to have valid results. With no identification of users other than the mortgage companies, no consideration was given to, nor should any reliance be placed on this COST SUMMARY for any purpose other than providing additional support for market value. Use as an indicator of minimum amounts for insurance underwriting purposes, or using the overall market value less land value as an indication of the cost of the improvements will likely lead to a misleading result. REPLACEMENT COST NEW, a frequent source value used to determine minimum insured values, is not what is generated by using market value from the sales approach less estimated land value. That technique will not include any accrued depreciation, and result in a lower value for the estimate. A separate insurance underwriting assignment completed by a professional insurance underwriter is recommended, and would likely indicate a better amount for insurance purposes. The COST APPROACH is being completed ONLY for the use of the lender. Using the COST APPROACH for insurance purposes is not permitted with this appraisal assignment.
Then again where they want you logic and support for your land value they get...
There were no recent vacant land sales in the neighborhood similar to the subject's lot. It is the appraiser's opinion that the extraction method of obtaining the opinion of site value is not justifiable and if used may lead to a misleading report which would be in violation of USPAP. The lender is hereby warned.
In the comment box for the COST APPROACH we continue to warn the lender (not that they are listening or reading) with...
No vacant land sales could be located in the general market area to justify any opinion of site value at this time. Completion of the COST APPROACH may lead to a misleading report as the opinion of site value (without the use of extraction) cannot be justified for calculating the reproduction or replacement cost new. To do so, would be a violation of USPAP. Despite this, the COST APPROACH was completed at this time only for the use of the lender at their request, not to be used for insurance purposes.
There you have it. I am sure there are other appraisers out there who will disagree with what I put into my reports but then again, this is an individual sport and not a team effort...
