Cost Approach Section

[rs1784]

Does the cost approach section of an appraisal for FHA need to be completed on an existing property. They did indicate remaining economic life; however, no other information filled out. Thanks!

 

[glenn walker]

Does the cost approach section of an appraisal for FHA need to be completed on an existing property. They did indicate remaining economic life; however, no other information filled out. Thanks!

Its not a FHA rule on existing construction all HUD says is if its required to produce credible results .
BUT ** how do you estimate the ( site value ) unless you do a cost approach unless you have a lot of similar sized lots or land sales ? Thats the real question if you ever get into a serious review.

 

[bnmappraisal]

I call BS on the comment they have "...however it was developed with results contained in the workfile"
If they developed it, why not include it in the report???

 

[bnmappraisal]

Does the cost approach section of an appraisal for FHA need to be completed on an existing property.

I see your profile states Banking/Mortgage Industry so I'm guessing you work with/for a lender of some kind
What did the Letter of Engagement state? If the Cost Approach is required as part of the LoE then the appraiser is required to fill it out, whether he "wants to" or not

 

[alebrewer]

FHA does not require the CA for site built existing construction. Further, certification #4 states that the appraiser put 100% weighting on the SCA, so why report an approach that could potentially expose you to liability when you're certifying you didn't put any weight on it? You can develop an opinion of REL (remaining economic life) without developing and/or reporting the CA. Same for site value (assuming you have vacant site sales). To Glenn's point, sans site sales, you almost HAVE to develop the CA in order to perform extraction for the site value estimate.

 

[glenn walker]

I call BS on the comment they have "...however it was developed with results contained in the workfile"
If they developed it, why not include it in the report???

Brian Good Point-Years ago a HUD reviewer at my HOC had called me asking how I arrived at my Opinion of the Site Value. I choked but was honest and I said I backed into it as I had no similar sized 8,000 finished lots as comparables. He was real nice and said look here is the deal sometimes thats legitimate but you also need to explain what and why you did not do the CA and State you had no lot or land sales. I thanked him but after that I always just do the CA on almost everything because it forces me to look for lot and land sales before I just end being lazy using a Extraction or Land Residual method.

 

[bnmappraisal]

but after that I always just do the CA on almost everything because it forces me to look for lot and land sales

I usually (not always) do the CA, even sometimes on Private/non lending for similar reasons. Many times it offers additional support to my Sales Comparison findings.
The joke here in Pinellas County is "if you want vacant land, buy a house and tear it down." We are one of (if not THE) the most densely populated counties in the state, so land is a premium (waterfront and non waterfront). Yes, "vacant land sales" are not always prevalent in every neighborhood, but if you do your due diligence, you can find them

 

[Fernando]

When I do the CA, I put a disclaimer that I'm not an expert in construction costs and can not be relied on.

 

[bnmappraisal]

end being lazy using a Extraction or Land Residual method.

I don't think those are "lazy" ways about it, but I don't think many RES appraisers actually do those methods "correctly" in their reports

I remember Greg Boyd (RIP) posting an in depth version of him doing the Extraction method of finding site value. It definitely didn't look like a "lazy" way of doing it to me
FTR I don't think I've ever used Extraction in any of my reports. Never say never but...

 

[Sadie]

Does the cost approach section of an appraisal for FHA need to be completed on an existing property. They did indicate remaining economic life; however, no other information filled out. Thanks!

Its exactly as you state. Only the remaining economic life is required if the Cost Approach is not a reliable approach to value. A client can request it in their engagement letter in addition to what is required for FHA.