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FNMA & Cost Approach

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Frederick R. Ruffell

Senior Member
Joined
Jan 21, 2002
Professional Status
Certified General Appraiser
State
California
Does FNMA REQUIRE the Cost Approach to value to be developed?
 
Last edited:

CANative

Elite Member
Joined
Jun 18, 2003
Professional Status
Retired Appraiser
State
California
For assignments involving manufactured homes.

But your client can require it.
 

CANative

Elite Member
Joined
Jun 18, 2003
Professional Status
Retired Appraiser
State
California
Cost Approach to Value

Fannie Mae does not require the cost approach to value except for the valuation of manufactured homes. However, USPAP requires the appraiser to develop and report the result of any approach to value that is necessary for credible assignment results. For example, when appraising proposed or newly constructed properties, if the appraiser believes the cost approach is necessary for credible assignment results, then the cost approach must be provided. Appraisals that rely solely on the cost approach as an indicator of market value are not acceptable.

The cost approach to value assumes that a potential purchaser will consider building a substitute residence that has the same use as the property being appraised. This approach, then, measures value as a cost of production. It may be appropriate to use the cost approach when appraising new or proposed construction, property that is undergoing renovation, unique property, or property that features functional depreciation, to support the sales comparison approach analysis. The reliability of the cost approach depends on valid reproduction cost estimates, proper depreciation estimates, and accurate site values.

If the appraiser has completed the cost approach, the lender must thoroughly review the information provided to confirm that the appraiser’s analysis and comments for the cost approach to value are consistent with comments and adjustments mentioned elsewhere in the appraisal report. For example, if the neighborhood or site description reveals that the property backs up to a shopping center, lenders should expect to see an amount indicated for external depreciation in the cost approach. Or, if the improvement analysis indicates that it is necessary to go through one bedroom to get to another bedroom, lenders should expect to see an amount indicated for functional depreciation.


https://www.fanniemae.com/content/guide/selling/b4/1.3/10.html
 

djd09

Elite Member
Joined
May 20, 2009
Professional Status
Licensed Appraiser
State
Ohio
Another excellent copy and paste.

lenders should expect to see an amount indicated for functional depreciation.

Only if the market reacts. Tell them the first lesson is free. Feel the independence.
 

Elliott

Elite Member
Joined
Apr 23, 2002
Professional Status
Certified General Appraiser
State
Oregon
He didn't ask about the Cost Approach, he's a CG and he asked about the Coast Approach. Don't you people read? The Coast Approach should always be considered. People like living near the coast.
 

Frederick R. Ruffell

Senior Member
Joined
Jan 21, 2002
Professional Status
Certified General Appraiser
State
California
He didn't ask about the Cost Approach, he's a CG and he asked about the Coast Approach. Don't you people read? The Coast Approach should always be considered. People like living near the coast.
HA HA! good catch Elliott!
 

Bobby Bucks

Elite Member
Joined
Jan 27, 2002
Professional Status
Real Estate Agent or Broker
State
North Dakota
The new avatar did raise some suspicions, I guess the road runner is weary? :)
 

CANative

Elite Member
Joined
Jun 18, 2003
Professional Status
Retired Appraiser
State
California
Another excellent copy and paste.



Only if the market reacts. Tell them the first lesson is free. Feel the independence.

Ninny.

When are you going to post something useful?
 
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