Is 2055 appropriate for new construction appraisal?

[Doug in NC]

I have received a request for a 2055 appraisal on new construction, my first for new construction. Does USPAP say this is acceptable? My guess is that I can do the 2055, but put a copy of the cost approach in my workfile. Is this correct?

Personally, unless I am having a difficult time with an oddball appraisal, I find that the cost approach is not useful 99.9% of the time.

 

[Tim Hicks (Texas)]

A 2055 is not the best for new construction, but if the home is completed and there is sufficient sales data (cookie cutter), I see no harm in it. Hopefully, you mean an interior 2055. The sales comparison approach is still the best indicator of value regardless of cost. However, you are invoking departure by not using the cost approach on new construction per the lender's request. Do it if the data and inspection process is simple in nature (cookie cutter).

 

[Judy Whitehead (Florida)]

Doug, I hate to be the one to break the news to you, but this has been discussed many times in the past on the forum. I think the bottom line was that you could write a report on a napkin, as long as you did it properly and did not deliver a misleading report. In that context, if it were "me," I would do a URAR anyway and include a cost approach. You have to decide for yourself which is the best report method to use. Most people charge the same thing for a 2055 as they do for a 1004 - I charge about $25 less, which hardly seems worth it when I explain that to them - they can get the whole enchilada for $25 more!

 

[Don Clark]

Doug,

USPAP does not deal in forms, never has, never will. Give the client the form they ask for. It is not up to us to decide what form is needed. It is up to us to properly develop a scope of work based on what is required by USPAP, and to properly identify the clients intended use, and the intended users. You could write a report on an 8.5x11 sheet of paper as long as you follow USPAP. One size does not fit all. You may or may not need to invoke departure. Depends on what you say in the scope of work and whether or not a particular approach is applicable and or necessary to the assignment given the scope of work. It will not be too long, probably 1-2 years and the Departure Rule, and the 2 types of appraisals and 3 types of reports will be a thing of the past.

Don Clark, IFA

 

[Terrel L. Shields]

>>Personally, unless I am having a difficult time with an oddball appraisal, I find that the cost approach is not useful 99.9% of the time.<<

mmmh.

If I told you that there were court cases where the judges ruled that no single approach to value was "better" than another and that the aggregate (all three) was given weight in their decision favoring the client of an appraiser who performed all three approaches over a the appraiser who used a single approach to value, would you ignore that fact?

For new construction in a newer subdivision of uniform houses where you do the sales approach only, and I do the cost approach only using local builders information, I promise you, I will be just as close as you are day in day out.

And if I can do that, then I can do the same for a 5 year old house. How about a rural property? I just turned in today an appraisal of a 4,418 SF home, 15 years old, (4) barns, 1200' long concrete driveway, on 138 acres. It sold in 1997 for $630,000. Comps? 3100 SF house, same age, equal barns but with additional poultry barns, 45 acres ($695,000); 230 acres with two older houses ($710,000); and 4,800 SF 6 year old house, additional house, shop, on 260 acres ($758,000) These are the ONLY rural residential sales in that school district in the past 2 years of over $400,000.

Do you really think the sales approach can be used without using COST related methods???? And do you not think the Cost Approach is just as valid?

Judy is right, just do it on a URAR and go on. But don't gloss over the Cost Approach, nor back into the numbers. A serious and valid effort to do it right will give you insights you cannot get with a single approach to value.

Ter

 

[Douglas Mackay]

Doug in NC,

Hi Doug in NC...this is Doug in MT :lol: As mentiond above we beat this to death a short time ago. I brought up the same subject (2055 and proposed construction), and got 55 responses over four pages! :roll:

Scroll down page two of this forum and you will find the thread. Therein lies a myriad of opinions. Hope this helps...

Doug

 

[Doug in NC]

Terrell,

I do very few new construction appraisals. I agree with HUD, the cost approach is GENERALLY only useful when you have a new or less than one year old house. That's my opinion and most appraisers I have talked to agree.

Land value determinations become very difficult to make once an area has become built out. There are often no lot sales to go by, and depreciation extraction is not an easy thing to do (especially when your home has had updates and an age that is generally different from the compable sales).

What happens when your cost approach doesn't match up with your sales comparison approach? Which approach would you give credence to?

Doug