I believe the cost approach is the addition of the improvements to the land. The significance of the land value is to determine highest and best use. Simply put, if the land value is greater than the value of the property, than the highest and best use is not the current use. However, if you are completing a URAR UAD report, you get a great big red mark on the form and a call back for the review. So most say the present use is the highest and best use. The proper job, is do the 4 parts of the highest and best use, and land value is part of the financially feasible section.

That’s a longstanding argument. Many are still convinced this is the best method to first determine land value. The trick to getting reports past underwriting and still being defensible is to scale up the land value estimate, if your local assessor has reliable land to home value proportions. Fill the cost approach only with land value, because lenders rely on that when issuing home insurance. Otherwise, most knowledgeable lenders don’t actually insist appraisers complete a cost approach, even if that’s stated in sow. The only benefit the cost approach ever brought to me was to identify that most manufactured homes are grossly over valued and over priced, as there is clear current market evidence one could buy the exact same thing if not better, brand new, for a lower price, right off the shelf. The notion that land in a trailer park community is worth exponentially more than lands with stick built properties nearby, logical fault. But that’s the market, driven primarily by affordability not actual cost to build relationships.

Thank you, you are correct about the cost approach. We should never back into the value in that is as bad as having a predetermined value. to work for. How many times have you found the cost approach to be right on? It is the market that determines the value not the cost approach.

A few pages from the author, FYI. Thank you.
https://appraisersblogs.com/?s=unclezev
https://fflop.wordpress.com/

I heard mention of the water cooler. Tried to stop by the AF the other day but did not even bother to log in. This site should be attracting so many of the AF regulars for several key reasons. Primarily how this site allows bot crawlers and at times has substantial visibility and traffic. Nothing is behind the wall.

CJK, yes on those points. You know why one hand fails to communicate with the other, an excessive rule set. For most matters pertaining to legislation and law, the consistent rule of thumb is a simple rule cleanly written is easier to understand and follow. Where as a bureaucratic system will present itself through complex hard to understand rules. It’s the difference between a 1 page law and a 20 page one. Appraisers are subject to the same pressures and over bearing regulatory structure. Then tech people whom are not licensed come in and really make a mess of everything. They’re just general surfing basic material from the internet to code in system peramiters, on top of that they’re not experts in appraisal nor do they care to be. So we end up with inaccurate applications, cliches and stereotypes about the service, as well as a slue of technical tools which assist the worst least attentive appraisers in gaining unfair competitive advantage over their peers. “Checkbox review” indeed. Underwriters no longer review a handful of reports a day, they’re often tasked with quotas of 40 or more a day, amc’s took and demand the volume approach too, UAD mismo tools allow some to ‘process’ hundreds at a time, that sort of thing. As the majority of appraisers were misled from the top down and from all sides of our material support networks, this changed the proverbial industry standard. Greed rules the day.

If your article is about FannieMae type of appraisals, I believe most appraisers do not proceed with a cost approach first and then work backward into a value estimate.

In fact, most of the GSE’s are not interested in a cost approach when receiving appraisals. But, no matter. The appraiser of course does a highest and best-use analysis but not for the purpose of backing into the value. The appraiser looks for sales that are similar to the property in terms of location, site value, gross living area, zoning, etc., and hopefully recent sales.

CLK-
FHA reviewers not knowing what they are talking about? No way…

They are just bureaucrats justifying their jobs by sending out unnecessary ‘deficiency letters’.

I was sent one years ago and called the HUD/FHA reviewer out for not reading the explanations clearly written in the addendum.

Their inconsistent hammering of appraisers for HUD handbook violations is laughable.

Some of the people from FHA are no better. I was in a class with two of the FHA review appraisers from the regional office a few years back. They were tacking the same class but were not instructors. When I would ask them questions, they would look at each other and gave different answers. Funny thing is they were both wrong on every question. At lunch I told the instructor that if these guys did not know the basic guidelines, they should not be reviewing other people’s work. He agreed but did not want to put them on the spot. So, he requested that we refrain from asking them anymore questions because they were giving out incorrect information.