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reproduction vs replacement for older homes

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Ramona

Sophomore Member
Joined
Feb 3, 2002
Professional Status
Licensed Appraiser
State
Maryland
On a 103 year old English Tudor (stone/stucco with slate roof) in an historically designated neighborhood, would you complete the Cost Approach for reproduction cost or replacement cost? Although the Cost Approach on the URAR states "Reproduction Cost", I am flummoxed at the idea of figuring costs on carved mahogany stair banisters, inlaid hardwood floors, 1.5' thick plaster and stucco walls, stone foundation, arched wood interior doors, decorative chestnut wainscotting and mouldings, leaded window glass, brass and glass doorknobs, marble faced fireplaces, etc. I understand that "Replacement Cost" is utilized by lenders for aid in determining the insurance, why does the URAR ask for Reproduction Cost? Can I use a Replacement cost, and notate why in an addendum?

Thanks for any advice on how to handle this, or for where this type of cost data might be found.
 

Tim Hicks (Texas)

Elite Member
Joined
Jan 15, 2002
Professional Status
Certified Residential Appraiser
State
Texas
I really don't believe the cost approach is applicable for a 103 year old home. The sales comparison is the best reasonable means to obtain market value on this type property. Sometimes, the income approach can be used, but it depends on the neighborhood.


The reproduction cost estimates would really be a shot in the dark on a 103 year old home. The remaining economic and physical life is purely a subjective number and the effective age would be very subjective too. It kind of destroys the credibility of the 40 years remaining life utilized by FHA appraisals.

Just explain that the cost approach is not reliable in this instance and hopefully you have other 100 year old home sales.
 

Jeff Horton

Senior Member
Joined
Jan 15, 2002
Professional Status
Certified Residential Appraiser
State
Alabama
If you leave the cost approach out your lender is probably going to squawk really loud. I ran into the same situation on a 100 year old colonial home. I left it out and explained but I had to create a cost approach for them or they were not going to give the borrower the loan.

So I did it on an addendum and clearly stated that it was not included in the original report, was not required by Fannie Mae and that it was not reliable and that the cost data was not felt to be accurate. Much to my surprised this made the underwriter happy. Go figure, a useless approach and clearly stated as useless made them happy!

If your forced into doing a cost approach and I bet you will be Marshall and Swifts is what I would use. They have a historic cost section and I would just use that and state that is what you used and let it go at that.
 

Ben Vukicevich SRA

Senior Member
Joined
Feb 9, 2002
Professional Status
Certified General Appraiser
State
New Jersey
Ramona,

Call the lender and ask them if you can use a 2055 form.

2055 = no Cost Approach = happy appraiser.

The URAR is Reproduction Cost. Why? So you can show the underwriter your appraiser stuff by documenting/supporting all of the functional obsolescence adjustments in the depreciation section for a 103 year old home. :lol: :lol: Just look at all the superadequacies that you mentioned in your post....

I hope you're not in NC............those guys are big on Cost Approaches down there.

Go for the 2055.

Ben
 

jtrotta

Senior Member
Joined
Jan 16, 2002
Ramona;

"Replacement cost" :?: how many Plasterererer's do you know in your area :?: -if you can find one, just fer kicks & giggles give a call and ask what it would cost ta do the house you've just described ( :lol: :lol: :lol: )
never mind all the other stuff you described. I thinks this'll jolt your interest a weeeee bit.

As fer the "Insurance" folks, they may take a combination of various information to provide a basis, but in the lng run - the stuff we do is minimal to what they have ta prove, when they pay a Loss, especially if someone hires an "Independent Fee Adjuster" - IFA sound familiar 8O :wink:

"Reproduction Cost" - :lol: :lol: :lol: :lol: :lol: - yep those UW will surely have an idea of what it will cost ta build their dream delema, all except for those extra's, and line item changes that always seem ta happen throught the construction period :wink:

8)
 

Willie

Senior Member
Joined
May 30, 2002
Professional Status
Certified General Appraiser
State
Tennessee
Tell them it's not applicable. If they squak tell them a cost approach on the home is somewhat misleading, and not appropriate. That usually ends the convo. If they squak some more, tell them to provide you w' three bids from gen. contractors to reproduce an exact home and you will have three (probably very different bids) that you can rely on in the appraisal. Only w' bids by people that know how to build them would be accurate. You can s can the M& S on this one.
 

Restrain

Elite Member
Joined
Jan 22, 2002
Professional Status
Certified General Appraiser
State
Florida
On these old homes I throw a Cost Approach at it and then state that it is shown for informational purposes only as to the cost to Replace the home and give the site value. Lenders often use this for insurance purposes.

Roger
 

Terrel L. Shields

Elite Member
Gold Supporting Member
Joined
May 2, 2002
Professional Status
Certified General Appraiser
State
Arkansas
While the Cost Approach would rarely be applicable in such a case, fannie mae/FHA engages in a duplicity. They ask for REPRODUCTION COST, and they want REPLACEMENT COST, otherwise, why do they prefer Marshall and Swift which is clearly REPLACEMENT COST.

Don't get too carried away with 'REPRODUCTION" even when that is called for. Typically, they only want similar. Obviously, you are not going to get accurate costs for hand carved bannisters, one-of-a-kind items, or hand fitted and cut windows. Many of those old houses contain workmanship that can range from craftsmanship to crap. Fireplaces that won't draft; bad plumbing, antique steam boilers, etc. And none of them have adequate closets unless they have been remodeled.

It is often that these folks want you to estimate a RCN that is similar in appearance, not necessarily identical. Also, there is a big market for near-reproduction items for Victorian houses. Metal ceilings, custom mouldings, "hand" painted tiles, etc. can all be had new out of the box, if you know where to look.

Using that tact and estimating a market depreciation from similar older homes is no harder per se than estimating "condition", "age", or "functional utility" in the URAR sales grid. It is hardly perfect for either approach.

If the underwriter does not question it, I would try to avoid the Cost Approach. The 2055 would be an ideal way to avoid the issue. IF the report is for a court case, I would do it regardless the difficulty. Just weight it appropriately (not much.)
 

Bill_FL

Senior Member
Joined
Aug 23, 2002
Professional Status
Certified General Appraiser
State
Florida
Ramona,

Typically, lenders want the cost approach for one line item. Land value. Typical lending ratios say that the site can not be more than 30% of the overall value of the property. My guess is if you include a site value and an addendum as to why the cost approach was not done, they would probably be fine with that.

When the 2055's first came out, I had a lender real excited. Called me, how much was I going to discount it, etc. Did several for them, then the underwriter called, where was the land value. Got double fees, the underwrtier re-ordered all of them on URAR's. Had to have site value. Since, they have changed and take 2055's if desktop underwriter calls for it.

Call the LO, explain it to them. Ask them to talk to there UW and find out if you just give the site value, will that suffice.
 

Ramona

Sophomore Member
Joined
Feb 3, 2002
Professional Status
Licensed Appraiser
State
Maryland
Thanks for the advice, everyone. I agree that I don't feel the cost approach is very accurate for this type of house. It doesn't take into consideration for the "charm factor" of the older home. People fall in love with one, for whatever reason ("I can just see myself sweeping down that staircase like Scarlett O'Hara!), or because they have watched too many "This Old House" shows, and think, "Well, we can do that", and overlook the tiny closets, drafty but beautiful windows, low water pressure, weird floor plan, and the ability to get a newer home of similar size cheaper in a nearby community.

I think the lender is aware of the age of the home, as this was the first order I've ever gotten with a request to include Replacement cost for insurance purposes. I didn't know if I would have to do both, as the URAR wants Reproduction cost, and the lender wants Replacement. Another question, guys, if this is an Historically designated area, where the exteriors, at least, have to fit the community standards, then even replacement cost would have to take that into consideration, correct? No costs for a siding and vinyl window tudor copy?

Thanks again
 
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