Mandatory Cost Approach

[CANative]

greg... It says "insurable value" but does not provide a definition of "Insurable Value."

 

[gregb]

greg... It says "insurable value" but does not provide a definition of "Insurable Value."

Definition of insurable value may be elsewhere in the report.

 

[CANative]

I suppose it could.

 

[Peter LeQuire]

An offering -

Nothing set forth in the appraisal should be relied upon for the purpose of determining the amount or type of insurance coverage to be placed on the subject property. The appraiser assumes no liability for and does not guarantee that any insurable value estimate inferred from any portion of this report by any party will provide the basis for an adequate amount of insurance. Further, using this information for estimating the replacement or reproduction costs of the dwelling may result in the property being underinsured: an insurance professional or contractor should be consulted to determine the amount of replacement or reproduction cost appropriate for the dwelling.

 

[Lisle]

the cost approach can bite me.

 

[Terrel L. Shields]

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

I suppose that can be true but I know of no banker that uses the CA to determine the amount of insurance. Insurance underwriters have their own software.

 

[Deleted member 80407]

The cost approach is ALWAYS applicable for an improved property. It's the only approach that is always applicable.

I agree. However, only when the approach is correctly applied. Problem is that most appraisers completing the cost approach back into the approach rather than to utilize a recognized source of data. Furthermore if there is external obsolescence present, the appraiser utilizing the approach seldom can explain how the percentage for the external depreciation was derived. My experiences has seen this in the numerous retrospective reviews completed. The reason why the approach is not utilized or requested by most clients (including HUD), is that it is known the approach is being backed into.

 

[CANative]

I agree. However, only when the approach is correctly applied. Problem is that most appraisers completing the cost approach back into the approach rather than to utilize a recognized source of data. Furthermore if there is external obsolescence present, the appraiser utilizing the approach seldom can explain how the percentage for the external depreciation was derived. My experiences has seen this in the numerous retrospective reviews completed. The reason why the approach is not utilized or requested by most clients (including HUD), is that it is known the approach is being backed into.

So the problem is with the appraiser and not the approach. I suspected as much. We should round up the usual suspects.

 

[Terrel L. Shields]

Apparently the reliability of the cost approach far exceeds the ability of the average appraiser to prepare a defensible CA. I not to far back in time, saw a cost approach where the appraiser gave the RCN of $50 per SF when $85 was a minimum....but it worked perfectly for the age considering she undervalued the lot by 50% or more.

 

[CANative]

Apparently the reliability of the cost approach far exceeds the ability of the average appraiser to prepare a defensible CA. I not to far back in time, saw a cost approach where the appraiser gave the RCN of $50 per SF when $85 was a minimum....but it worked perfectly for the age considering she undervalued the lot by 50% or more.

The biggest error that appraisers make in developing the CA to MV is trying to force a value that matches the SA.