No consideration for Cost Approach on a one month old property.

[George Hatch]

One way the costs would come in way higher than the sales is because they weren't economically feasible in those market conditions. IRL most new construction (for resale) occurs during the boom times and almost nothing gets built during the bust times. No profit to be made, only losses.

"Not feasible" should be addressed in the HBU analysis because "not feasible" is also not "most profitable". If the project is not feasible then you have some economic obs to account for in your CA. AKA a "failure to recover the full costs of construction in the market".

Some projects shouldn't get built.

 

[BaamBaam]

Where does it say in the original post it was a new or newer home?

Did you read the original comments? I stated; "To add additional contacts, the appraisal was completed for refinancing on a property that had just been finished being built one month prior to the effective date of this appraisal report." If that wasn't clear enough. The subject was built in Dec of 2021 and the appraisal I referring to was completed in Jan. of 2022. The original appraiser reported it was C1 and that the subject has just been built.
Also, I never stated that I disagreed with the original appraiser's opinion. It's the snarky comments on here, as to why I post so little on this forum.
I was simply trying to understand the original appraiser's justification behind their comments, that the Cost Approach is not used, since buyer in this market typically don't rely on depreciated costs to make buying decisions. What depreciation is there for a one-month-old property? In this market segment (new, multi-million dollar, custom-built homes) one could argue, that the typical Buyers in this market segment would consider the cost of building their own home when considering making an offer on a pre-existing home.

 

[Charles West]

In my opinion omission of the CA on a new home is lazy at best but then again, I don't recall not ever developing a cost approach for a 1004 along with a land study but that was back in the day.

 

[Joyce Potts]

Did you read the original comments? I stated; "To add additional contacts, the appraisal was completed for refinancing on a property that had just been finished being built one month prior to the effective date of this appraisal report." If that wasn't clear enough. The subject was built in Dec of 2021 and the appraisal I referring to was completed in Jan. of 2022. The original appraiser reported it was C1 and that the subject has just been built.
Also, I never stated that I disagreed with the original appraiser's opinion. It's the snarky comments on here, as to why I post so little on this forum.
I was simply trying to understand the original appraiser's justification behind their comments, that the Cost Approach is not used, since buyer in this market typically don't rely on depreciated costs to make buying decisions. What depreciation is there for a one-month-old property? In this market segment (new, multi-million dollar, custom-built homes) one could argue, that the typical Buyers in this market segment would consider the cost of building their own home when considering making an offer on a pre-existing home.

 

[Joyce Potts]

Dear BaamBaam,

My bad, I missed the build date in the bottom of the post. That said, the person that commented as to the supply chain issues and volatility in the building supply has rendered most all typical cost data sources way out-of-date affords an excellent answer. The better cost data source would have been to take other similar vintage / new builds and use the depreciated cost method. Secondly, if your SOW review is mostly about value and you're using a FNMA form, then value is a concern. Many of the reviews I do have absolutely nothing to do about value, but about Stds 1 and 2 compliance. Buyers may pay a premium for a home already built vs. having to wait six to nine months or longer. For others, they want their own fashion statement. I cant' tell you how many cost approaches on high-end / luxury homes I do that come in WAY higher than market value due to highly personalized items --super adaquacies and over improvements.

 

[alebrewer]

IMO, an appraisal of a one-month old custom home that excludes the cost approach lacks credibility and his "explanation" for its absence sounds like boilerplate and an excuse for being lazy.

Why would it lack credibility just because they didn't complete the CA? I thought the entire purpose of reconciliation was to consider the quantity and quality of data available for each approach. If the quantity and quality of data available for the SCA was sufficient to develop credible results, I cannot, for the life of me, see how excluding the CA would make the report less credible? It may be an excuse for being lazy, but less credible? I'm not connecting those dots.

 

[Mark K]

Why would it lack credibility just because they didn't complete the CA? .......I'm not connecting those dots.

Wouldn't it make sense to want to know if the same house can be built for less than the subject?

As an appraiser I certainly would want to know.

 

[J Grant]

https://singlefamily.fanniemae.com/media/12356/display

The fannie 2000 field review form. What form is the OP using? I assume this one but idk they did not specify.

If it is the 2000 review form (similar for desktop ), on the form only line # 8 asks about the cost approach and answer it as asked - it was not developed, so you can stop right there or add comments if you want that by not developing the cost approach the appraisal was less credible -BUT - the review also can get reviewed ! And then you as a reviewer can be on the hot seat what exactly makes the appraisal less credible by the OA not developing the cost approach? And what will you say? It opens a can of worms - unless the Cost approach was an assignment condition or appraiser failed to comment why it was omitted- a reviewer can get into quicksand for their review never forget that. Esp if the OA gets hold of it and wants to file a board complaint about the review . Just something to keep in mind

We are reviewing the appraisal, not the appraiser. We are reviewing the report as it stands, not judging it lacking according to an ideal version or judging it by the appraisal we would have personally done.

 

[Joyce Potts]

Wouldn't it make sense to want to know if the same house can be built for less than the subject?

As an appraiser I certainly would want to know.

Conversely, wouldn't it make sense to know if the same house can only be built for far more than the market approach indicates? Things a lender might want to know.

 

[Terrel L. Shields]

The better cost data source would have been to take other similar vintage / new builds and use the depreciated cost method.

good point...

Why would it lack credibility just because they didn't complete the CA?

I would think that what purpose does the CA provide, if it is not even applied to the situations that the textbooks call for? And if it isn't useful, then the profession should abolish it. Same with the IA. If we are going to say "only" sale data is "real data"... then neither cost DATA nor income DATA have any value or meaning. So let's just declare sales to be the one and only "approach to value"... which means all the language about cost, rents, income, land value, approaches, etc. Eliminate 'em. The Appraisal of Real Estate can then be 60 or 70 pages long and not 400. No more 12C, no more cap rates, GRMs, math questions on tests, mortgage calculations, we can just call it the the non-functions of the dollar, beautiful...just ******* beautiful as Little Johnny's dad said when his sister announced she was pregnant but did not know who the father was.