Mandatory Cost Approach

[Amy Perkins]

They want the cost approach so that they can determine how much to insure the property per square foot. They want to cover themselves in case it burns down. I would not rely solely on cost estimator services, you should know the local building costs in the area.

 

[Michigan CG]

...............The SCA stands on its own as a mirror reflection of the market. .................

I like to extract some adjustments via a discounted cost analysis. Can't do that without the cost approach.

 

[Michigan CG]

They want the cost approach so that they can determine how much to insure the property per square foot. ..............

Anyone (client) who does this is an idiot. Too many appraisers make up their cost approach with 1990 numbers. Yes, they say they use Marshall and Swift, but it is easy enough to tell when they are lying.

 

[Amy Perkins]

Many people were under-insured here when three fires broke out in an 18 month period and could not rebuild. The course of construction jobs are a good source and knowing land values. Many reviews of appraisals are too low on the price per square foot and too high on the land around here. There seems to be a trend of agents calling improved property land and sales of land are far and few between.

 

[CANative]

It's ridiculous to think "they" only want the cost approach for purposes of insurance.

 

[Randy G]

Many years ago due to a huge fire in San Bernardino an appraiser got sued for the numbers in the cost approach because the insurance company used those numbers to determine the insured amount. The house burned down and the numbers didn't cover it. Since then I use the following verbiage in my cost approach, and have been asked to remove it but I refuse:

"The cost approach is not to be considered or used for any hazard or fire
insurance determinations by any party for any reason."

RG

 

[Restrain]

Randy, dead on. Yes, the lenders do sometimes use this data for insurance coverage. If the HO fails to cover the property with insurance the lender steps in and buys insurance. This has been a known issue for years, and we include similar language to Randy, and have for over a decade.

 

[Amy Perkins]

Having the cost approach minimizes their risk with insurance, so that's the bottom line.

 

[gregb]

From a local appraiser-

 

[Amy Perkins]

I don't know why they are so low, but I believe it.