Cost Approach "violation of USPAP"

[Lee Lansford]

...

Someone... PLEASE tell my why no residential mortgage assignment for a single family property has ever required completion of the income approach?

When you say "required", "required" by who?

There certainly may be a "requirement" (aka, "necessary"), in certain instances, to develop and communicate the IA for a SFR.

 

[Mike Kennedy]

Someone... PLEASE tell my why no residential mortgage assignment for a single family property has ever required completion of the income approach?

yo GB dats cuzzes yoo in La La Land Word.

 

[CANative]

Sorry Lee. What I meant to write was: "Why don't clients ever require an IA for SFR assignments."

Seems to me an IA would be much more reliable than a CA. The IA might have saved the day back during the refi boom. GRMS's of 400+ ?

 

[CANative]

yo GB dats cuzzes yoo in La La Land Word.

Lala land is the purgatory between Formsland and Appraisaltown. At least I escaped and on my way.

 

[Michigan CG]

......Seems to me an IA would be much more reliable than a CA. The IA might have saved the day back during the refi boom. GRMS's of 400+ ?

Absolutely true. However there are many out there that think you derive the GRM from the subject sale price and not from the comparable properties.

 

[RSW]

Absolutely true. However there are many out there that think you derive the GRM from the subject sale price and not from the comparable properties.

You mean, you can't back it out?

 

[Terrel L. Shields]

You are probably not too far off on that statement but one could argue that a cost approach on a 50 + year old house would be more of a guess than an opinion. The detail and research for a SOW such as that would be very labor intensive and the fee necessary, probably not acceptable to the vendor.

if it is you are making it too hard. The Cost Approach in a residential property is likely almost always APPLICABLE. The accuracy of the estimate of obsolescence may mean it is LESS RELIABLE than the SA. The same could be said for the Income Approach. I just appraised a house built in 2004 and most of the other houses are also built about that time frame. From what I can gather, roughly 40-50% of the houses are rented or vacant and available to rent. Most are asking rents equal to the house payment, and most are settling for something slightly less and sucking up the difference. How reliable is it? Not bad, not good. I came in at $138K SA; $145K CA; and $140k IA....The Cost App had little deprec due to wear and tear. But lots of the change in value related to land cost and Ext (economic) obsolescences.
I found land sales suggesting that a lot was worth $22k (down from $35k the builder gave in 2004) and the cost book values of the comps suggested there was roughly 10% external obsolescence. In a cookie cutter subdivision any approach will be reasonably "close" ±5% or so.
In a rural property on acreage with physical defects, remodeling, etc.... the Cost and Inc app would be less reliable, but probably no less "doable" than the Sales App. All approaches in a dried up market suffer from a lack of sales data.

As for the labor part of it, if the CA is part of your regular arsenal then it's no step for a stepper...maybe an extra 2 hours to do the income and cost app both...

 

[Mike Kennedy]

Sorry Lee. What I meant to write was: "Why don't clients ever require an IA for SFR assignments."

Seems to me an IA would be much more reliable than a CA. The IA might have saved the day back during the refi boom. GRMS's of 400+ ?

SOW negotiaton and decision by the Appraiser is in play. If the market data indicates HBU "as improved" is as a SFR Rental - so be it. If not, IA may be applicable, but not NECESSARY. If an Appraiser's opinion is - that is both applicable AND necessary - go for it and prove it. :icon_idea:

 

[Mr Rex]

I was screaming like Karl that the bubbolic plague in Cali could have been prevented by analysis of the IA way back when the emphasis was on CA "conversations" with Mr Pina Colada, and Austin had just started the bubble thread. But nobody listens to me.:new_all_coholic::icon_mrgreen:

 

[LI-Appr]

You are missing the point. Looks like yet another case of an appraiser doing reviews, that maybe shouldn,t be doing them. CA may not be conclusive in that market except for insurance reasons. Remaining economic life. Yet another area that we have to be responable for. Its all about liability and passing the buck. I can't believe that all you big time reviewers have never considered that. Come on guys their are people out there doing reviews that should not even have a LIC.