VA Cost Approach

[KenAZ]

I just got a call from a lender to do the Cost Approach on a VA appraisal. I told them "No." (In a nice way)

They were surprised and thought that I had to do what they asked. They were accidentally truthful to me and stated that if the appraiser did the CA, then the insurance rate would be lower for the owners.

I bet they just assumed that the CA would come in the same as the MV, because the actual costs are much higher than MV in my area.

Just as we always suspected . . . the reason lenders wanted a CA was to determine the insurance rates, and place the liability on the appraiser.

 

[Jim Onderisin]

VA doesn't require the cost approach but the USPAP still requires the approach to be considered and developed if applicable and necessary to the assignment. Lender-users can ask for anything they want but they'd better be prepared to pay for the additional unneccessary work they request.

 

[Digger88]

the VA has told me in the past to REMOVE my cost approach in one of those VA stip letters. just yesterday in the VA handbook i read where it may be developed if deemed necessary.

 

[Don Clark]

the VA has told me in the past to REMOVE my cost approach in one of those VA stip letters. just yesterday in the VA handbook i read where it may be developed if deemed necessary.

That has always been the case in the Roanoke RLC for 23 years now. And, if the lender is willing to pay for the approach, you can negotiate a reasonable fee for that. VA, FHA and Fannie Mae do not require the cost approach. VA does not require it even for new construction.

USPAP does state that if it is applicable and necessary for credible results then you should do any approach that falls in that bracket. But, given most scopes of work, and the fact that no lender will ely on the approach, and that it almost never would be necessary for credible results, then it is likely not going to be necessary for credible results. But, I state that at least twice in my reports so that it is har to miss. I state in in the reconcilliation section and in the cost approach section where VA wants you to put in date received and date completed for the assignment.

 

[Mike Garrett RAA]

The Colorado Board of Appraisers advises us to be sure and include a comment that says something like this.

"I considered all approaches to value in the performance of this appraisal but did not develop a cost or income approach at the request of the client. The sales comparison approach is adequate for the Department of Veterans Affairs (VA) to make a determination for guarantying the loan".

Works for me! My personal opinion is that many appraiser "back into" the cost approach anyway rather than actually taking the steps necessary in order to produce credible results. I used to spend a lot of money maintaining Marshall/Swift cost data.

 

[CANative]

10 years ago I argued against the cost approach. Now I feel weird if I don't do one.

 

[JTip]

then the insurance rate would be lower for the owners.

Bull biscuits.

I sold p&c insurance for years. The rate has NOTHING to do with your work or appraisal or the results of your cost approach.

Additionally, the underwriting insurance company will do their own replacement cost and use that number.

Please remind the lender that every lie is another brick on the path to hello.

 

[Digger88]

That has always been the case in the Roanoke RLC for 23 years now. And, if the lender is willing to pay for the approach, you can negotiate a reasonable fee for that. VA, FHA and Fannie Mae do not require the cost approach. VA does not require it even for new construction.

USPAP does state that if it is applicable and necessary for credible results then you should do any approach that falls in that bracket. But, given most scopes of work, and the fact that no lender will ely on the approach, and that it almost never would be necessary for credible results, then it is likely not going to be necessary for credible results. But, I state that at least twice in my reports so that it is har to miss. I state in in the reconcilliation section and in the cost approach section where VA wants you to put in date received and date completed for the assignment.

ive only been on the VA panel for 6 years and always read if credible and warranted you COULD do a cost approach so i did. VA told me subsequently no i couldnt. just read 2 days ago in the 2013 field guide you could... not the first time ive read/been told two different things.

 

[Tru Red]

Just read the entire thread. I do VA appraisals and always include the cost approach because I believe it add's credibility to the market value opinion. I always research vacant land sales for the zip code I'm appraising and also consider Assessor's data for sold, active and pending comps. I have a big bold disclaimer in every appraisal report that states the cost approach should not EVER be used for any insurance purpose. The VA Fee Appraiser's Handbook states "YOU ARE NOT REQUIRED TO PROVIDE THE COST APPROACH TO VALUE ON ANY VA APPRAISAL (PROPOSED, NEW, OR EXISTING); HOWEVER, IF YOU HAVE COMPLETED THE COST APPROACH YOU CAN PUT IN ON THE URAR. et.al.

 

[Terrel L. Shields]

I sold p&c insurance for years. The rate has NOTHING to do with your work or appraisal or the results of your cost approach.

Additionally, the underwriting insurance company will do their own replacement cost and use that number.

Please remind the lender that every lie is another brick on the path to hello.

I have yet to see an underwriter using our software or sources. There are explicit insurance software that typically was called "reconstruction cost" and I suspect this is used for the banks own risk management purposes. I am not sure.
The path to hello I like that