Review question about cost approach

[Mr Rex]

Provide adequate information for the lender/client to replicate the below cost figures and calculations.

 

[stefan olafson]

Larry,

Check my post, it has the chapter and verse from USPAP...

 

[Lawrence R.]

I was getting hung up on the word "replicate". I understand the standards as you show them in your post.

Rex is correct though, Fannie says in the CA the client can "replicate" the method. Since the CA is largely mathematical, ie. dollars per foot--you must include both the dollars and the foot when doing the CA.

That is how I interpret it.

 

[stefan olafson]

Larry, you are correct as far as you go. The reason for Fannie to strengthen the rules on the cost approach is because so many were just taking a wild guess as to what replacement costs were and sliding in a value.

Fannie requires us to document where we got the figures and how we applied them. They need to be able to go to Page X of MS and get the same or close to the same numbers as you have.

If you see the MS numbers skewed way off for some reason and you can show where local adjustments from builders is warranted, show those costs in your work.

It's all about trying to put a little more teeth into an approach which has been badly misused in the past.

 

[Fred]

It doesn't really matter what the number is or whether or not it is right or wrong. There is a deficiency in the scope of work which requires sufficient data to allow the client to replicate.

If you're going to do a CA on a FannieReport, do it right.

And the right way for site improvements is? (See below).

$8,000 does not sound like a high number for "as is" value of site improvements.

I don't know. You have any comps for site improvements?

 

[The Bob]

There is a requirement for GSE reports to have an "as is" value when the appraisal is made subject to completion. I think this may be what the OP is talking about.

 

[Mr Rex]

And the right way for site improvements is? (See below).

I don't know. You have any comps for site improvements?

Why would you use comps in the Cost Approach?

 

[CANative]

And the right way for site improvements is? (See below).

I don't know. You have any comps for site improvements?

Steve... You're too smart to be quibbling over form trivia. The form asks for the opinion of the "As is" value of the site improvements. This is the last line of the little box that starts out with site value, RCN of the dwelling, depreciation, etc. until it calculates the inputs and ends in a number that is supposedly a market value indicator. There are no specific instruction on what this figure is supposed to be but most are of the opinion that it is what might be left over after a tidal wave, i.e. perhaps things like the encroachment from the street, well and septic, utility meters, and who really knows. It is an add on after site value and depreciation on the other improvements. I never know what exactly they want and I just put in "included above" so I don't have anyone pestering me over it.

My point is that if the appraiser puts something down it needs to be explained because that is the SOW for a Fannie/Freddie/FHA cost approach.

 

[Mztk1]

The M&S has this whacky section called "C Yard/Unit Costs". I like to measure the driveway, count the number of small bushes, medium bushes, large bushes, and then do the same for the trees, I'll also figure out grass cover to estimate the cost for sod (if that is typical) or seed. I'll do this for 10 houses a year and figure out what the price of the landscaping and trees are on average per square foot for a particular quality, and apply that.

I will include the cost of site improvements in the section as well, based on their contributory value in the market as found in the sales comparison approach. Fences have no value in just about every market I am in, so that is an easy skip 99% of the time; the pools are in there, wells, septics (which can be extracted through vacant land sales in my area with well and septic compared to those without them - a plethora of data in most places). I know, a lot of people think you can't extract from sales data for the COST approach, but the reality is, we aren't figuring out "Cost" in the sense that these are the raw costs to build a dwelling, we are determining "Cost" in the sense of "Price", what someone is willing to pay a builder for building this house on a square foot basis. To me, the cost approach is, therefore, just a different version of the Sales Approach.

When it is all said and done, I plug my numbers in. I don't show my work in my reports for where the site value came from. This is a summary appraisal for goodness sake. I am not going to include the last ten of these I did and show the data. My reports are long enough. Maybe I'll put "M&S Sec C plus pool, well & septic", on the site line, but that's it.

I assume my peers know this section well enough to determine if my numbers are reasonable.

 

[RSW]

I used to use the 1007 form in all of my reports. M&S Residential Express software would fill it in for me. I would scan it into the report but then lenders/underwriters did not know how to read it. So, I had to start converting it into the cost approach section in the URAR. Dumb A$$es!