No cost approach needed

[hastalavista]

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).

Should we discriminate between mortgage finance appraisals to be reported (and consistent with) the GSE's guidelines and appraislas for similar purposes (market value) but with different SOW guidelines?

GSE guidelines are explicit as to their intended use (market value for mortgage finance transactions). Althogh in their selling guide they require the orignating lender to ensure that there is a sufficient hazard insurance backstop on the collateral, I'm not so clear that the link can be made that the implied requirement of insurable value is really the same as the explicit requirement for market value?

Keep in mind that I'm only talking about appraisals that are completed on the GSE forms with their pre-printed and non-modifable SOW! :icon_lol:

 

[Darrel Clark]

Of course if the appraisal is completed on the FNMA form, certification #4 states that the appraiser has developed his opinion of the market value based on the sales comparison approach. So, even if you developed a credible cost approach and used the FNMA form, your opinion of value is based on the sales comparison approach.

 

[Fred]

Denis,
Are you really giving me a “form-think” question?

If I had to, I could find the document containing an interview with one of the Fannie people answering a question about cost approaches for insurance, saying if a lender wants that, fine. FWIW, that answer is consistent with my reading of Fannie’s wish list. I am sure there are hundreds of common examples of appraisers complying with lender requests that are either over-and-above, or in addition to, Fannies minimums. Also, as Darrel's post indicates, you are certifying to using the sales comparison approach for market value, and that clearly does not inhibit you from using the cost approach for insurable value.

Remember the USPAP term “assignment” refers to a potentially large container of several types of work. One assignment (and one report) can include multiple appraisals for more than one property, for more than one type of value, plus analyses that don’t fit under any of the ten standards, plus Std-4 recommendations, plus a review, etc. Or if you prefer, put them on separate short reports, incorporating all other by reference. See what I am getting at? The extra work doesn't have to be on "the form" to be part of the assignment. That alone should tell you why it would not matter if the extra work seemed to be attached to the form. Interesting concept, though, "the form." Makes me reminiscient of the old days when paper and staples were cutting edge technology. Now, every time you email the darn thing you "modify" the form into electronic code.

Also, remember the client’s use of the appraisal is imminent, and Fannie’s use is only potential. I think it would be a big scope-of-work error to let anything (you think) Fannie wants deprive the client of credible results for their intended use(s). It would be off-the-scale big to use a non-existent Fannie-ism as the basis. Let’s turn it the other way around, are you really prepared to argue Fannie doesn’t want the lender to be able to use appraisers to make cost estimates for insurance?

The bottom line is when USPAP says you "must," nothing Fannie says can create departure mechansim.

 

[hastalavista]

Denis,
Are you really giving me a “form-think” question?

My bad!

Let’s turn it the other way around, are you really prepared to argue Fannie doesn’t want the lender to be able to use appraisers to make cost estimates for insurance?

No.
I'm just not quite yet ready to concede that it is an explicit expectation that the CA is for insurance purposes with every order since there is a sufficent number of GSE guideline-compliant assignment orders from mortgage lenders that leave the CA-inclusion decision up to the appraiser to develop only if it is necessary to conclude credible market value results! :icon_lol:

But, I don't want to go off tangent on a GSE arugment and, in hindsight, I regret raising it.
Your point was that the FAQ and AO that I brought up did not address issues where the CA was specifically requested for insurance value. My comment was limited to market value.

 

[Marcia Langley]

There is no Fannie request for land value on SFR appraisals.

Steve is correct.

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

Lee is correct.

 

[Fred]

I'm just not quite yet ready to concede that it is an explicit expectation that the CA is for insurance purposes with every order since there is a sufficent number of GSE guideline-compliant assignment orders from mortgage lenders that leave the CA-inclusion decision up to the appraiser to develop only if it is necessary to conclude credible market value results!

That could be, but I can show you a thread where the opening post stated that the client provided specific instruction that it uses cost approaches for insurance, and the subsequent posts still had all the usual stuff about doing the cost approach "correctly" (for market value) and included language that the CA was not for insurance.

In any case, the appraiser should be able to show that some steps were taken to find out the assignment conditions. That was the gist of one of the ASB responses - the appraiser needs to get intneded use issues straightened at the beginning of the assignment, but then everyone really knew that already. And willful blindness not withstanding, I think there is a probability issue. If a lending client or AMC is belligerent about wanting a cost approach after being told it is irrelevant to market value, the chances that they want the analysis for insurance decisions is what: 90%+, 99%+? You have to admit, you don't see condemnation agencies, ERC companies, and probate courts clamoring for cost approaches after the report is delivered saying, not applicable, not necessary, not relevant, etc.

 

[Fred]

Denis,

From: Fannie Mae
FAQ: appraisals after 11/1/05, forms dated 3/05
Q 12
----

12. How can appraisers assist lenders in determining an appropriate level of hazard insurance coverage for loans to be delivered to Fannie Mae?

Lenders that choose to rely on the appraiser to provide a replacement cost estimate to determine the level of hazard insurance coverage required for a one-unit property should request that the appraiser provide the information in the “Cost Approach To Value” part of either the revised Uniform Residential Appraisal Report (Fannie Mae Form 1004 dated March 2005) or the Exterior-Only Inspection Residential Appraisal Report (Fannie Mae Form 2055 dated March 2005) or to report the information as an attachment to the appraisal report form. In such cases, lenders should rely on the appraiser’s estimate of the replacement cost of the improvements, which is reported as the “Total Estimate of Cost New” on the revised forms. This estimate does not include any form of depreciation or obsolescence.

---
That ought to put any - you can't do it because it contradicts the form - arguments to bed.

 

[hastalavista]

That ought to put any - you can't do it because it contradicts the form - arguments to bed.

I would agree.

 

[c w d]

---
That ought to put any - you can't do it because it contradicts the form - arguments to bed.

Except in the instance that the client says they need a cost approach for insurance purpose, the appraiser informs them he/she is not qualified to provide such and the client says they don't care just do the cost approach however the appraiser is qualified.

 

[Webbed Feet]

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)

Timd,

Thanks for bringing this up. I was thinking about the 06/30/02 version of XI:407 and should not have been. You are correct, that section regarding the appraiser must provide an opinion of value for the site was removed from the 11/01/05 version of XI,407. Something we all should be darn glad of.

Webbed.