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Is The Cost Approach Mandatory For The Secondary Market?

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JR1972

Freshman Member
Joined
Oct 31, 2014
Professional Status
Certified Residential Appraiser
State
Wisconsin
Working on a Manufactured home and was curious if the cost approach is mandatory for the secondary market. My lender doesn't require it, just checking to see if fannie/Freddie do. A yes or no answer will suffice. Thanks!
 

Terrel L. Shields

Elite Member
Gold Supporting Member
Joined
May 2, 2002
Professional Status
Certified General Appraiser
State
Arkansas
It is for manufactured housing and I think that applies to both FHA and Fannie Mae.
 

Mr Rex

Elite Member
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Jan 12, 2004
Professional Status
Certified Residential Appraiser
State
North Carolina
Not required for FHA. Most lenders do not require it. Waste of time anyway but that's another story
 

CANative

Elite Member
Joined
Jun 18, 2003
Professional Status
Retired Appraiser
State
California
Yes. Required by the GSE's

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
 
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