Reproduction Cost Vs Replacement Cost

[Big ole Boy]

The following are the facts (not my opinion, as I understand them):

Reproduction Cost is always the cost estimate required for the cost approach to replicate the cost of the improvements. (this allows for estimates of functional obsolescense).

Reproduction Cost of a new mobile home does not equal Replacement Cost of a manufactured home which is (1 second old) in most real estate markets in the United States.

The 1004-C ask the appraiser to use a Replacement Cost source, NADA or M&S.

NADA cost data is superior to M&S data because it is a published 'model' index for cost.

M&S is highly subjective and is therefore an inferior cost data source.

NADA cost data indicates a Replacement Cost for a (1 second old) manufactured home which is significantly less than Reproduction Cost new in most areas of the United States.

Now, my conclusion,

"A manufactuted Home, like a car, as soon as you drive it of the lot, is worth much less."

The appraisal community does not agree with this statement collectively.

The appraisal community is incapable of understanding basic cost theory collectively. - when it comes to manufactured homes.

Such a basic concept, not rocket science equals collective denial.

To me, the apprasial community appears to very stupid at times.

 

[Tim Hicks (Texas)]

Originally posted by David R. Stevenson@ SRA,Jan 31 2004, 11:55 PM
"A manufactuted Home, like a car, as soon as you drive it of the lot, is worth much less."

The appraisal community does not agree with this statement collectively.

The appraisal community is incapable of understanding basic cost theory collectively. - when it comes to manufactured homes.

Such a basic concept, not rocket science equals collective denial.

To me, the apprasial community appears to very stupid at times.

I can only speak for my area of the country, but this totally false. I would like to suggest you look at the actual cost new of the homes instead of what you are told and/or shown.

Do you have actual dealer invoices from the factory that show this mythical depreciation? Have you ever talked to employees at the factory and heard the real cost to build on these homes? I spoke to manufactured home seller at a Christmas party last month. He was giggling at what they were selling the homes to uniformed buyers compared to what they actually cost.

If these homes really depreciate after you drive them off the lot, then why would anybody buy them? I know of many home owners who bought their manufactured homes with their own financing, already owned their lot, or bought their lot separately. None of them have this depreciation you discuss. I find it quite amazing that the price is quite different when a developer and dealer are not in the mix together.

Keep this is mind. None of these sales are properly exposed to the open market for sale. At least not in this area. Therefore, how can any value be established when there is not proper market exposure for all prospective buyers demonstrate market value?

A simple answer is for a manufactured home dealer to set up a subdivision with actual models on site for sale to the open market. Just like Pulte, Centex, Lennar, etc. They have never done this in this area. Why? Because, they know the truth! Ask yourself, why don't they do it that way? Because they want uninformed buyers paying their mark ups!

David, I have been reading your threads on this issue for the past few months. I can only hope your area is not like it is here in North Central Texas. If it is, look out for the 60-70% foreclosure rate as home owners realize they are paying much more than their properties area worth. Oh, I do the foreclosure and REO appraisals on these properties, too. They are rarely the top of the line models that are advertised. They are mostly base models with few or no upgrades.

I can tell you already have your opinion on this subject. I just hope you are not drinking too much of the dealers kool-aid. Maybe the appraisal community is "stupid" in your area, I don't know. In our area, it is filled with crooked appraisers that will put whatever the dealer wants on an appraisal. We have 1,000's of foreclosures that support this concept and hundreds of active REO properties and completed field reviews that show this.

 

[Jo Ann Meyer Stratton]

I agree completely with Tim's posting. That is exactly what I have found in my area also. Cash buyer's or buyer's with large down payments that arrange their own financing, can sell their manufactured home in later years for amounts similar to what they spent originally. Buyer's with shady financing the first time around are now in foreclosure. Working on an appraisal right now. The invoice provided by the dealer shows a sale price of $56,980. The factory list price they have reported to the assessor's office to get a moving permit and the planning/zoning department to get an installation permit shows $44,688. The invoice does not include any installation charges, patios, add ons, etc. Marshall & Swift, Average, page MFG-19 prices out to $45,273 for the unit only. And the unit is a three year old model that has been sitting on the sales lot since it originally arrived from the factory. It has been moved around from the sales lot out to the fairgrounds during the county fair, back to sales lot, back to fairgrounds for during a home show, back to sales lot, now finally purchased by a cousin of the dealer and being installed on land belonging to the buyer's mother. Buyer doing a lot of site preparation himself, his uncle is a licensed manufactured home mover and installer. Really a family affair. But the invoice doesn't indicate any favors for a relative.

 

[Big ole Boy]

Perhaps constraining my opinion to my particular area is prudent.

As I cover 8 counties or so, the majority of what I see are border-line, entry level buyers who do not have any cash ...

these low income people are fed a chain of predetermined numbers ....

I actually have mobile home dealers call me and tell me if I come up with X, then

they will have the local bank Y, send me an order.

Tim,

I still have not seen a "new" mobile home purchase contract that is supported by

NADA ...., have you? - I mean these guys trump up the option add-ons to "pad" the

price ...

I am extremely opinionated, to my own detriment at times ... and I appreciate your feed back...

I am taking a class with Mr. Heyn on the 2-26-04 to keep learning more ....

..... Final thought, much of the value increases in some areas around here have to

do with the land value increasing ... not the improvement ....

..... cash buyers, just do not hardly exist in this area and the system has had

systemic abuse for many years ...

Jo Ann and Tim,

I know I will be learning a whole lot from you guys ... and from the sound of it,

you both have much more experience in this area than I do ... this forum is

proving to be quite helpful too me ...

.... beginning to relieve some of my uninformed frustrations ...

 

[Tim Hicks (Texas)]

David, I only use the Marshall & Swift. When done correctly it has been dead on correct. Keep in mind, I will not do the land/home packages because I will not deliver their number. I have done four (only four) new manufactured home appraisals for local banks and individuals who were not buying land/home packages. I have done many re-fi's, REO, Freddie Mac Field Reviews and re-sale manufactured homes.

All four of the new manufactured home appraisals were absolutely no problem to appraise. However, they did not need a $120,000-150,000 number. Each one needed at least $40,000 less than that. Why? Because the dealer was not using the poor credit buyer as leverage for their profits. Each time the sales price on the home was quite a bit less than those quoted in land/home packages. Plus, the lots were bought on the open market and did not have a $10-20,000 markup.

Keep in mind that the developers in this area include the septic, water & electric meter and poor excuse for a driveway in the sales price of the lot. Yet, every appraisal I have reviewed for Freddie Mac has that lot price and then the septic, water & electric meter and drive added into the cost approach. The cost approach on these properties are a joke and the cost figures never match M & S as they plainly state. It has become so bad on reviews that they switched to 2055 reports on these appraisals a couple of years ago because the lenders were not buying the cost approach either.

I do at least two reviews a month for Freddie Mac. When I do the land sales, I am never able to justify their lot prices. I have actually seen lot sales that were available from the same addition, that are listed on the MLS, being sold by a bank for $15-20,000 less than the price they paid. Why would anybody buy a one acre lot for $37-40,000 when they same size lot with septic, water & electric meter and what is left of the $500 gravel drive is available for $15-20,000 just four lots away. Why do none of the other lots sold or available at the same time reflect the same price range as the foreclosure sale? Are these exclusive lots? Not by a long shot!

I did numerous re-fi appraisals on manufactured homes for years until this new land/home franchise started. I never had a problem with cost or sales approach until the land/home companies came calling. Now let me state a pure fact. The homes are no better quality today than they were ten years ago. They can be, but that is not what they are selling. They make more profit by lying to the consumers about the value of the homes and they get appraisers to support it.

Did you know that dealers actually tell buyers they can pay off their other bills because they are giving them such a good deal on their homes? They are not giving them deals, they are just jacking the price up and rolling it in.

Do you have manufactured home dealers lining your small highways in your area? We have far fewer now, but we still have them. Do you ever notice the signs advertising the 2,000 SF home for $36,000 or "We have re-po's" signs. I saw one the other day, "2,400 SF with a butler pantry" (Insert joke here!). If they have them for $36,000, how do they manage $40,000 in upgrades? Impossible? No. Probable? Not!

David, If you saw the actual cost to the dealer on these homes, you would probably change your opinion. Keep in mind, they are used to manipulating appraisers, banks and buyers. This is where the tin men of the 1960's have landed.

Every Freddie Mac review I have done has landed $40,000+ less than the original appraisal. Is it because I have no lender/dealer pressure or is it because I don't use re-fi values for sales, owner financed for sales, contract for deed for sales and I don't use sales that are 18 miles away and say +/-5 miles in my report. Perhaps it is because I use MLS sales from the immediate area.

I have also noticed a trend in this area. The land/home packages were having trouble with financing so they would sell homes contract for deed or owner financing, then promise to re-fi them after a year. So, I have reviewed a boat load of appraisals with 2-3 year manufactured homes and all land/home package sales for comps. Wouldn't the re-sale market be the market on these homes? After all, they are no longer new homes. Yet, the appraisers always plainly state that there were no sales available from the immediate area, when my research shows plenty of sales within a couple of miles.

Here is another one of my favorites. They realized they need to add MLS sales to help their cause. So, two land home packages and a MLS sale that just happens to be on 10+ acres. Their one acre lot is worth $40,000, but a ten acre lot is only worth a $500 per acre adjustment. Boy, that is some market.

It appears I am rambling, but to answer your question, I don't use the NADA because the Marshall & Swift has always worked for me. And...never believe a dealer on price.


Some day, I will re-hash my experiences with the land/home guys that called with their offers to make me a lot of money. They heard I did manufactured home appraisals and wanted somebody with experience to get rich with them. It was comical when I caught them in their lies.

 

[Thomas Fiehler]

David-Let me say it before someone else does: "MOBILE HOME"???

 

[Restrain]

I agree with Tim. I have switched to M&S for Cost because it appears that NADA is more closely related to wholesale, or trade-in value on the lot, not value. I can extract cost from the few actual sales and the homes have a higher Cost than NADA and more in line with M&S.

That being said, I agree that there is a tremendous loss in value when the home rolls off the lot. Now, the reason is that the home cost to the borrower is inflated out the wazoo. When I start seeing invoice costs at over $50 per foot when the market is showing a lot less, coupled with $16-20K setup fee (not including utilities and site) then I realize where the money's going. It's "hidden costs", not actual costs. By the time they get through, the $35K mfg home is $120,000, with an actual market value on the site of about $75K.

The value is created by land/home packages from the lender coupled with stick-built homes with no market differential between manufactured homes and stick-built homes.

I just hope that the predatory lending lawsuits against these lenders gets off the ground.

Roger

 

[Big ole Boy]

Roger,

Trade-in value, - that is interesting ....

I am going to call NADA today to here their response ...

As I have mentioned before I have already called them on this point .... but, I will

approach it from a diffrent angle -

I find it amazing, that we are required to fill out a new 1004-C, and already,

appraisers are avoiding what it asks for upfront (NADA) - who put this form

together anyways?

Yes, I can say mobile home, but, the 'majic wand' of the industry will not allow it,

even though the same selling 'behavoir' remains ...

 

[Tim Hicks (Texas)]

David, the 1004C does not require the NADA. I already have the Marshall & Swift and it works, so I see no reason to use the NADA. The 1004C asks the source for cost estimates before the cost approach. It suggests the either the NADA or Marshall & Swift. It has a second section for the NADA, but it not required.

 

[Big ole Boy]

Tim,

I am going to try and figure out why, NADA does not work. I may be spinning my wheels here, but I just want to know who, what, where and why things are the way the are.

If NADA can never work, then why was it put into the form in the first place?

I am not going to argue with you on NADA vs M&S - I just want to find out what in

the hell is going on in this industry.

It is not my intention to take my opinion of NADA and place it on you and tell you

what is the best way. But, until I figure this thing out - I will not let it go.

On page 10A of the current NADA Guide (September thru December 2003) - the definition of its value is as follows:

"The value charts represent an abstraction of sales data deemed to be reliable from the open market place, not from repossession, foreclosure or auction sales. This data is obtained nationally in each of the 9 N.A.D.A. regions from a variety of indicators and sources. This and other proprietary data is used in the program that includes traditional assumptions that were developed as a result of our continous research of the manufactured housing industry since 1973. This analysis program produces an estimated value for the structure only, unfurnished, with 300 mile ftg., (delivered and installed on site) according to its initial cost per square foot and current regional market activity."

Here is an advertisement claim it makes in one of its inserts:

"Make Better Business Decisions With The Most Market-Reflective Data Available!"

Tim and Roger,

please educate me here,

I did not read anything about wholesale value, trade-in value etc. etc. - those terms are the banter you here from the retail lot sellers - but, it is not what NADA is claiming - NADA is clearly claiming an accurate replacement cost whose data source is second to none.

M&S is fine, but tell why NADA does not work? Who put it on the 1004-C form?