No cost approach needed

[gregford]

Hello, I had an assignment for market value refi on a SFR. I did not produce the cost approach due to it not being relevant. lack of data to determine site value and the home was older with some updates to inaccurately determine a physical depreciation. There was no supplemental standard rules requesting the cost approach. The A.M.C. and lender are pressuring me for a cost approach. Any advise or arguments I can provide to the AMC and lender to further their understanding.
Thank you, Greg

 

[Mztk1]

Usually the AMC will have guidelines available in a library format or provided to you when you first signed up. You have to read those. If they say in those guides that the cost approach is required, then you have to provide it or should have told them up front and got permission to drop it or not do the assignment.

Frankly, in your position, I just do the cost approach to the best of my ability and caveat it. I'd also state clearly that it is not meant for insurance purposes.

 

[George Hatch]

Apparently your intended users disagree with your opinion about it not being relevant (aka meaningful) to the assignment. If nothing else, it can be considered relevant under the category of "assignment conditions", which you were supposed to have identified at the outset of your assignment.

I'd ask for clarification. If they really want a Cost Approach to Market value, that means doing one thing. If what they really want is an Insurable Value opinion that means doing something a little different. Neither should pose a problem for you, but if you're going to add to your report you might as well make it meaningful for their usage.

 

[c w d]

Hello, I had an assignment for market value refi on a SFR. I did not produce the cost approach due to it not being relevant. lack of data to determine site value and the home was older with some updates to inaccurately determine a physical depreciation. There was no supplemental standard rules requesting the cost approach. The A.M.C. and lender are pressuring me for a cost approach. Any advise or arguments I can provide to the AMC and lender to further their understanding.
Thank you, Greg

No. There are no arguments that you can make to get out of doing the cost approach for an AMC client. They need it. They don't know why but, they need it. They must have it. And they're not going to pay for it. Any attempt to explain your way out of it with rational arguments or requiring an additional fee for it will only have you labeled as "non-cooperative". That's AMC speak for "You're fired". So, suck it up and give them the cost approach because there is only one way you're going to get out of it. And that is to lose them as a client. :new_2gunsfiring_v1:

 

[CCAAMO]

Hello, I had an assignment for market value refi on a SFR. I did not produce the cost approach due to it not being relevant. lack of data to determine site value and the home was older with some updates to inaccurately determine a physical depreciation. There was no supplemental standard rules requesting the cost approach. The A.M.C. and lender are pressuring me for a cost approach. Any advise or arguments I can provide to the AMC and lender to further their understanding.
Thank you, Greg

Do it and then either indiate it supports the market approach value or that you are giving it little weight due to the reasons you noted. Your making a big deal out of a very minor problem.

 

[Joshua Fookes]

Just fire them you newbie!!!


Josh
(to other forum readers, greg knows I'm just teasing him)

 

[Webbed Feet]

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.

 

[Fred]

I'd ask for clarification. If they really want a Cost Approach to Market value, that means doing one thing. If what they really want is an Insurable Value opinion that means doing something a little different.

99-to-1 it's the latter.

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.

I would say I disagree back, but I think he's just plain wrong. If the client's intended use of the cost approach is inusrance decisions, then doing a cost approach for market value is the error. There is no correct or incorrect way to support land value in such an instance because land value is irrelevant to the client's decisions. There is no correct or incorrect way to support depreciation because depreciation is irrelevant to the client's decisions. And Fannie hasn't made any instructions to the lenders about what cost approaches for insurance must look like.

 

[Lee Lansford]

Do it and then either indiate it supports the market approach value or that you are giving it little weight due to the reasons you noted. Your making a big deal out of a very minor problem.

IF the client requires--and the appraiser accepts--that the appraiser include an approach that the appraiser thoughtfuly considers neither applicable nor necessary (the 2nd being very important), and the appraiser then complies with the request, I would think it NOT appropriate for the appraiser to give any weighting to the approach in the reconciliation of the approaches.

Following, the appraiser must (in the report of the appraisal) provide comment as to the limitations of the approach and the reason why the appraiser has included the approach ("at the request of the client").

 

[Edward OConor]

Let's see:

1 hour phone time trying to not do the cost approach (with the possibility of loss of work for being uncooperative) vs. 30 min to complete cost approach with a "not for insurance purposes" comment.

Doesn't sound like a difficult decision.