No cost approach needed

[Joshua Fookes]

Look this has been hashed over too many times on this forum and there has never been a big unifying answer.

I think Webbed is right in a lot of ways.

Appraiser's have no spines and do not demand to be paid for services rendered. In the meantime, they produce Cost Approaches that are flung together giving heavy use to the SWAG Method. Leaving them exposed to disciplinary actions, all because a client wants to MISUSE the approach for insurance purposes.

Insurance Cost Approach is an entirely different INTENDED USE, for a different INTENDED USER, requiring an entirely different SCOPE OF WORK, and usually requires a different DEFINITION OF VALUE. In other words..... "It's a new assignment".

These should be treated as new assignments and billed accordingly. THEN the appraiser will be able to spend time doing their job correctly and stop flinging out these misleading Cost Approaches

It'll be a cold day in H-E double hockey sticks before we ever see that as the NORM in this profession.


POINT: If you do a Cost Approach (probably will just to save face with client), then DO A COST APPROACH. Don't get lazy, spend the time to do it properly. You will make certain things are more clearly communicated the next time that client orders.

 

[timd354]

Mr. Ford,

As usual, I tend to disagree with everyone else on this. If you are forced into completeing an approach then under USPAP your work doing that approach has to be credible even if the results stink. This means your land / site value (which I sort of suspect you were required to have provided even if you did not do a Cost Approach.. as it is a Fannie requirement) has to be supported. Your depreciation has to be supported. The entire approach has to be supported.

The above is exactly why appraisers should not be getting forced into providing approaches not relevant to the subject property for the intended use via blackmail. You know, I know, nuts.... everyone that responded knows they are wanting it for insurance purposes and nothing else. To comply with USPAP, this forces the appraiser into an extreme amount of work they did not bid for in the fee agreed to. Or, the appraiser completes a pulled out of their rump approach, with no to little support for anything in it, and uses some trumped up statement about giving the approach little to no weight as if that excuses their development of the approach failing to comply with USPAP. Mainly they have absolutely nothing to support that depreciation estimate in their work file. Most of them also have absolutely nothing, or something completely inappropriate, to support the land / site value estimate.

Bottom line? All of this is wrong. It is all symptomatic of an entire industry that has been beaten down like a bunch of dogs. Not allowed to actually charge for the work involved and needed to comply with the standards of the industry, and everyone involved coughing and looking the other way because they are stuck in the same boat with all involved giving up. All except an appraisal board that nails industry members hides to the wall when they get a complaint and their entire approach fails to comply with USPAP due to no work file evidence that they properly extracted out that depreciation and those land / site values when it was complex to do so for a property that it shouldn't have been required at all anyway.

Webbed.

Mr. Duck,

I agree with most everything you say in your post, but could you point out the guideline which states that Fannie requires the appraiser to provide a site/land value in a typical fannie appraisal (unless the Cost Approach is done)

 

[The Sheriff]

Webbed is right about having a land value in every report... don't have the guideline though in my back pocket... had good training back in the day.

 

[timd354]

Webbed is right about having a land value in every report... don't have the guideline though in my back pocket... had good training back in the day.

Please show me the guideline, not how it was "back in the day"

 

[hastalavista]

I thought this issue was solved in a FAQ and somewhat in an AO?

Here's my interpretation:
If the cost approach is part of the engagement requirement, then it has it must be completed.
The conflict arises if the appraiser believes that that cost approach results in non-credible results.
TAF resovled this by saying an appraiser can complete the cost approach and include a statement that the appraiser gives it no weight in his/her final value reconcilation due the appraiser's opinion that it is not reliable.
As long as the appriaser determines the cost approach isn't reliable and reports that finding, the appraiser has completed a credible report and (I would argue) provided the client with meaningful information regarding the cost approach to value.

I assume we are talking about an assignment where there are multiple approaches completed (or, at least two) and that the final value opinion is credible. I think if the cost approach was the only analysis to be completed then the assignment couldn't be accepted.

Did TAF change their opinion since I last posted?

I agree with any (to a point) that this may seem like double-talk; why should an appraiser complete an analysis that doesn't produce credible results?
On the other hand, isn't the appraiser telling the client-
"Ok, you requested this, and I did it. In my opinion, these results are unreliable and I'm giving them no weight in my value conclusion."
Sounds to me like the appraiser is performing a valuable service- analyzing the problem consistent with the client's request and then providing meaningful results- "don't rely on this!"

I agree with others who say if the cost approach isn't considered necessary as far as concluding a credible value, then an appraiser should consider charging extra for it.
In my practice, most jobs do not require the cost approach to conclude meaningful results, and therefore I do have a price difference for those requests that require it. On complex jobs where I think it would be expected, then there is no extra charge- its inclusion is already factored into fee.

 

[Lee Lansford]

Webbed is right about having a land value in every report... don't have the guideline though in my back pocket... had good training back in the day.

Such may have been a Fannie requirement at one time, but it is not a requirement today.

 

[Lee Lansford]

I thought this issue was solved in a FAQ and somewhat in an AO?

Here's my interpretation:
If the cost approach is part of the engagement requirement, then it has it must be completed.
The conflict arises if the appraiser believes that that cost approach results in non-credible results.
TAF resovled this by saying an appraiser can complete the cost approach and include a statement that the appraiser gives it no weight in his/her final value reconcilation due the appraiser's opinion that it is not reliable.
As long as the appriaser determines the cost approach isn't reliable and reports that finding, the appraiser has completed a credible report and (I would argue) provided the client with meaningful information regarding the cost approach to value.

I assume we are talking about an assignment where there are multiple approaches completed (or, at least two) and that the final value opinion is credible. I think if the cost approach was the only analysis to be completed then the assignment couldn't be accepted.

Did TAF change their opinion since I last posted?...

To answer your question: No.

You have good understanding as to TAF's thinking on this matter.

 

[Michigan CG]

Interview 100 appraisers and ask what the value of SITE improvements are for a property. Ask them what SITE improvements are.....you will have 30 of them who cannot answer either question.

The most abused and misunderstood approach to value, which is normally backed in to.

When I submitted my sample work for my license that was a big discussion in my meeting with my state board members in Iowa (to get my license), and they were right.

 

[Jim Onderisin]

Get used to it...the lenders are dictating what you will do and when. Just get in line and bend over.

 

[Fred]

Webbed is right about having a land value in every report... don't have the guideline though in my back pocket...

It’s not in anyone's pocket. There is no Fannie request for land value on SFR appraisals.

Look this has been hashed over too many times on this forum and there has never been a big unifying answer.

I think your post is close to a unifying answer. There is a minor problem when you say the cost approach is “misused” for insurable value. That IS the cost approach’s greatest relevance. That might change the meaning of what you call doing it “properly.” The insuring of buildings is almost always based on rebuilding damage, rather than going out and buying a “comp.”

I thought this issue was solved in a FAQ and somewhat in an AO?

Not really. The FAQ only seems to address the cost approach’s reliability in the context of market value, but not for insurable value. The FAQ doesn’t say what one should do if the client is explicit about using cost for insurance, and doesn't say what one should do if the appraiser has reason to believe insurance decisions are what the client will use cost for. So, I sent the ASB some specific follow-up questions. Since they responded to me directly, I took it to mean they don’t intend to publish their responses (that is, if they are still doing monthly QA’s).