Cost Approach "violation of USPAP"

[CANative]

Just curious....what ever happened to 'Extraction' when using Marshall & Swift as your guidelines? The cost approach is probably the 'easiest' portion of the entire 1004 process......when performed properly.

I see (on the reviews I do) that the appraiser 'rounds' the numbers & quotes M&S as the source. For a FACT, M&S has NO ROUNDED NUMBERS. You simply use the quarterly multipliers for your area and what the cost figures constitute for construction for the area then to get the land value....perform 'EXTRACTION'.

An appraiser who plunks down an RCN based solely on M&S (or any other source) is merely using someone else's opinion but certifying that this data is their own opinion.

perform 'EXTRACTION'.

What about when all sales are mixed in terms of age, condition and sale conditions?

 

[The Dog]

Ok, lets talks about a real example how about an A frame 1, 200 sqft on 1.5 stories in the Urban Growth area, 35 years old and no new A Frame built within the last 22 years. A frame is surrounded by new subdivisions with CCR requiring 2,500 sqft minimum building. Also no land sales within 2 2 miles within the last 2 years 6 months.

Could the cost approach be done? Yes, but why. Land will have to be determined by extraction, cost and depreciation no matter what you use are at best a "guess"

Is the Cost approach applicable? I would argue that it is probably not an applicable method.


Could it be considered misleading? In my opinion yes, because NO ONE would replace that building. I contend that in this case, the value would be so unreliable as to be considered misleading.

Could it be accurate? Yes, and if you believe that, I have some ocean front property in Arizona for sale.

While the cost approach may be applicable, or not, it can be so unreliable as to become misleading. I think sometimes appraisers need to reevaluate what they are producing and sometimes, they have to put the foot down and say NO.

 

[PropertyEconomics]

I think the real issue of the cost approach is much more basic ...

In order to complete a credible cost approach an appraiser would have to spend a considerable amount of time doing the research, analyzing the sales, calculating depreciation, finding land sales and or measuring land value allocation.

A credible cost approach can be done ... I do believe however that given the fast turn times and the low fees, appraisers are not willing to do credible cost approaches. That would be a more accurate comment ... "Given the fee of this assignment and the short time given to complete the assignment, I have elected not to do a cost approach as I dont wish to provide a credible cost approach in accordance with USPAP requirements." ..... wonder how that would fly with an underwriter?? I do beleive its the truth.

 

[CANative]

What's wrong with omitting a credible, but unneccesary, component of the valuation in the interest of effective pricing and reduced completion time? That's what lender clients obviously want and that's why it makes me mad when they demand unneccesary work but are not willing to pay for it and wait longer while it's being done properly.

PE... I've used similar verbiage in my reports.

 

[PropertyEconomics]

What's wrong with omitting a credible, but unneccesary, component of the valuation in the interest of effective pricing and reduced completion time? That's what lender clients obviously want and that's why it makes me mad when they demand unneccesary work but are not willing to pay for it and wait longer while it's being done properly.

PE... I've used similar verbiage in my reports.

Well atleast they know your client is too cheap to pay for a credible analysis ... and I dont think a well developed cost approach is necessarily unnecessary .... but I do understand most residential appraisers believe so.

 

[CANative]

You're being unneccesarily cynical. There's plenty of support in the USPAP for omitting the uneccesary in the interest of speed and economy.

Just because I like to argue the merits of the cost approach doesn't mean I don't respect or know how to do it properly. Probably better than most as a matter of fact. Maybe even better than some non-residential appraisers I know.

So there.

 

[PropertyEconomics]

You're being unneccesarily cynical. There's plenty of support in the USPAP for omitting the uneccesary in the interest of speed and economy.

Just because I like to argue the merits of the cost approach doesn't mean I don't respect or know how to do it properly. Probably better than most as a matter of fact. Maybe even better than some non-residential appraisers I know.

So there.

You often take things overly personal instead of reading what someone writes regarding appraisal theory and practice. My post was not about YOU .. it was about the process.

 

[CANative]

My post was not about YOU

Well atleast they know your client is too cheap to pay for a credible analysis ... and I dont think a well developed cost approach is necessarily unnecessary .... but I do understand most residential appraisers believe so.

You're so full of it PE. :Emoticon_hug:

 

[PropertyEconomics]

You're so full of it PE. :Emoticon_hug:

It remains about the theory and not you or me. But I will give you that you are not the first to say Im full of it ... and to that end I wont take it personal. Hugs or not ....

 

[Hamlet]

One thing the cost manuals do not account for and only those who have actually built a home can vouch for is the PIA factor. Once they include the PIA factor, then the cost approach becomes more credible. :new_all_coholic: