Cost Approach Wording

[CANative]

It doesn’t make sense to argue that the cost estimate for insurance is outside the narrow stated purpose on the form, but to gleefully add the land value that is just as outside the narrow stated purpose.

This seems like an obtuse, if not meandering, counter argument. Reporting the opinion of land value (a component of the cost approach method) separately is a supplemental standard which makes it inside the scope of work.

Fannie Mae's approved "intended user/use" ditty doesn't say anything about providing data for use in insurance decisions...

The Intended User of this appraisal report is the Lender/Client. The Intended Use is to evaluate the property that is the subject of this appraisal for a mortgage finance transaction, subject to the stated Scope of Work, purpose of the appraisal, reporting requirements of this appraisal report form, and Definition of Market Value. No additional Intended Users are identified by the appraiser.

 

[CANative]

Whether it’s a judge, jury, mediator or arbitrator then can all smell any lack of complete transparency a mile away. How can anyone think these – not for insurance – use restrictions can possibly limit liability. Due process can so easily reveal that whoever wrote them either knew or should have know the statement is false. The see-no, hear-no approach might work, if the other side doesn't know or expend enough effort to find out the use-restriction statements are not credible.

It's a matter of guerilla warfare and gamesmanship. If the appraiser uses verbiage designed by E&O companies then the E&O company will more agressively defend a lawsuit and someone contemplating a lawsuit might be intimidated into not suiing after weighing the cost/benefit of pursuing the matter.

 

[Fred]

Greg

This seems like an obtuse, if not meandering, counter argument

I can only lead them to water, I can’t stop them from taking snippets out of context to avoid seeing what they don’t want to see. So tell me, your argument, on the other hand is….willful blindness?

Fannie Mae's approved "intended user/use" ditty doesn't say anything about providing data for use in insurance decisions...

This thread managed to carry on longer than most before it got sidetracked into Fannie, Fannie, Fannie, form, form, form. Even if Fannie were God, you are again snipping off only part of the commandments and ignoring the rest. The all-holy “form” also says you cannot reduce the intent and meaning of the use provisions. There is no restriction on the - all bow heads - "form" against expanding users and uses. And Fannie’s Popes of Infallibility have ventured forth to issue public epistles acknowledging that lenders need cost estimates from appraisers; and that this would be a niche enterpreise for appraisers.

If the appraiser uses verbiage designed by E&O companies then the E&O company will more agressively defend

You might consider re-reading that LIA thing you linked to is consistent with what my position, not yours. It recommends due diligence when insurance is the intended use of the cost estimate.

 

[Ms. Janet]

And Fannie’s Popes of Infallibility have ventured forth to issue public epistles acknowledging that lenders need cost estimates from appraisers; and that this would be a niche enterpreise for appraisers.

The MS/B property valuation system used by the insurance industry is pretty pricey...........You have to buy the licensing annually for roughly $1,600 to $3,200 and then pay as you go. They charge $3 for each estimate you run and its deducted from your initial licensing fee; essentially you have to prepay for a minimum. Its a use it or lose it system every 12 months.

That is for residential under $500,000 coverage; the high value residential is a different license for its own $1,600 to $3,200 initial price. Except you have to pay $15 each for these...........again use it or lose it every 12 months.

Manufactured homes...........another license.

There's your business model..................how do you like it so far? :glare:

 

[CANative]

and that this would be a niche enterpreise for appraisers.

Thank you for identifying the crux of the matter.

 

[Mister Ed]

Steve,

How do you handle it when (and this is common experience for me) you go to your client and ask, "What is the intended use of the CA?" (If they want it, I want to know why they want it.)

85-90% of the time I get the generic, "It is required."

My response is then: For what use? Market value? Insurable value? To have a couple of extra pages for wiping purposes? (Okay, I don't ask that last one even though I have been tempted).

Their response: "Our lenders need it."

My response: "Who is your lender? I would like to talk to them to get a clarification."

Their response: "I am not sure. We are waiting until we get the appraisal back to see where we are going to shop it."

Okay, my client has given me a SOW requirement for the CA. For what purpose do I develop the CA? Do I develop it to try to demonstrate market value? Or... do I develop it to try to demonstrate insurable value?

If you read the attachment that I posted, you seen generally what they get if they don't tell me one way or the other. If they tell me insurable value, I give them the RCN and strongly recommend (even stronger than in the generic CA comments in that attachment) that it still be reviewed by an insurance professional.

Believe it or not, I have been specifically told by two of my lending clients (one a local bank and one a national lender) that they want the CA for market value--NOT insurable value. That is why I think that using an assumption that it is for insurable value can be dangerous ground (I had that discussion in another thread...with you, I think). I do know that odds are in your favor if you make that assumption.

Again, Steve, I am in agreement with you. I really thing Greg is in agreement with you more than it may seem by the posts. I really think he is trying to make my argument that NOT ALL clients want a CA for insurance purposes and we need to know when they do/do not.

The bottom line, for me, is that I believe that the new SOW rules/clarifications have CLEARLY put the monkey on our back (I think it was already there) to go to our client and try to find out what they want. The problem is that when you are deal with many MB's (not all--maybe no more than 75%) who really do not know and do not want to take the time to find out up front and save all hassles on the back end.

Most of my regular clients only want it if I am able to determine that it is credible. I have CA data in each workfile, but it is reported in less than 75% of my reports as the data is not always appear credible for Market Value purposes. I am pretty sure they are not wanting insurable value because they do not require the site value so they can say, market value<minus>site value<equals>insurable value.

I am just writing out of my experience. I am not sure there is a "one size fits all" solution to the CA debate even though we (me included) have tried to find it.

 

[Fred]

How do you handle it when (and this is common experience for me) you go to your client and ask, "What is the intended use of the CA?" (If they want it, I want to know why they want it.)
85-90% of the time I get the generic, "It is required."

A. tell them to stuff their attitude into a dark recess, or
B. "assume" it is for market value, or
C. assume it is for insurable value,
and
D. get a certified general license and get yourself a better class of "clients"

Believe it or not, I have been specifically told by two of my lending clients (one a local bank and one a national lender) that they want the CA for market value--NOT insurable value. That is why I think that using an assumption that it is for insurable value can be dangerous ground (I had that discussion in another thread...with you, I think). I do know that odds are in your favor if you make that assumption.

The odds overwhelming that a lender wants the cost approach for insurance and not market value. Even if the say they want it for market value, they are probably using for insurance anyway.

(even stronger than in the generic CA comments in that attachment) that it still be reviewed by an insurance professional.

Why? Do you think people working for the insurance companies estimate RCN better than appraisers? I sure don’t. I’ll bet the banks don’t either and that is why they use appraisers. Isn’t it strange that so many post on here that they (or “we”) are not qualified for insurable value and yet the lending institutions and their federal regulators have allowed literally trillions of dollars of real estate assets to be indemnified on real estate appraiser estimates?

 

[Mister Ed]

Why? Do you think people working for the insurance companies estimate RCN better than appraisers?

Actually, I don't. But, that being said, they ought to at least make the insurance man earn the commission/fees that he/she is going to make off of my work. Or pay me a little more for that portion of work/liability.

 

[Fred]

Ed,
I am with you 1,000%. The other 900 is I think the broker should give us some of their commission, the bank should give us a cut of the points and other closing costs, the lawyers should give us some of their fee, the title company should give us some of their search fee and the reocrders office should give us some of the recording fee and tranfer tax.

 

[Joyce Potts]

Cost Approach

If you say the cost approach is meaningless or not applicable due to the difficulty in estimating the depreciation, etc., why complete cost approach at all? If you deem it not applicable, then as the appraiser, it's your call.

It seems contridictory to say the cost approach is meaningless, but then completing it.

In these circumstances, I simply say it's not applicable and leave the cost approach blank, especially on the newer drive-by form. I rarely get a phone call from an underwriter, but if I do, I'll fill it out also caveating how I arrived at the site value, etc., and of course all the other disclaimers regarding not to be used for insurance purposes WHICH THEY ALL DO ANYWAY.

Joyce J. Potts, SRA