No cost approach needed

[Functional Obs]

It's more than useful for insurance, which is why lenders (who are often required to make sure there is insurance) ask for it.

OK ... I think I found an excellent use for the cost method!

But first, let me ask: Where in the world is Steven Santora?

Dude, what happened? Are you in hiding?

OK, I've got a subject that is a detached SFR with 400 sqf. It's in the sticks. There are no sales this year. There are no sales of anything less than 800 sqf., umm, ever! I know people with guest houses bigger than that...

Cost makes perfect sense here. Why? Welp, there is land for sale, and there's land that sold, and it's pretty easy to calculate how much the site is worth.

And wouldn't you know that you could buy that land for $10,000? That's a number that a lot more people can either afford or qualify for.

And construction costs on 400 sqf of even the really nice stuff is under 100K.

So the whole bit about most average borrowers not being able to afford or being able to qualify, kinda goes out the window. Anyone with a job can likely meet the DTI reqs for $110,000.

So there's my answer--months later, not to Steven, but to Fred, and that's when there's no sales AND things is rilly rilly el cheapo, well, cost it!

-Rick

 

[joe huffman]

One has to do a Highest and Best Use analysis, which is a USPAP requirement for all Market Value Appraisal Assignments and that calls for finding an opinion of value for the site, regaurdless if the cost appraoch is required by you the apprasier. There is a place in the Fannie Mae guidelines that will give the client what they need without doing the Cost Approach if you feel the improvements are too old and will not produce credible results...