Home Buying in 94536>Question Details

abhijitz, Home Buyer in Dublin, CA

Why is " Cost Approach to Value" [Page 3] missing/not filled by Appraiser?

Asked by abhijitz, Dublin, CA Tue Nov 19, 2013

Every Insurance Agent is asking me what my property's appraisal report came in as and asks me to refer Page 3. Well, Page 3 is blank for me. i.e. it has no values written for "Cost Approach to Value" & Dwelling costs are blank.

My lender says this is normal appraisal process and they check based on comps. Well, in the comps the appraiser is just looking at them from outside? [also mentioned in the report].

Is this a normal practice? Seems, like the lenders are tied up with the appraisers and inflating the property cost/valuation.

Help the community by answering this question:


There are typically three methods using to appraise any real property. Cost approach and comparable approach are the most common ones. Across the board preference is always given to the Comparable approach method as it is the most accurate measure to assess your property's value by using other similar properties. In the event, comparable homes are not available and/or appraising a unique commercial property, cost approach method is usually the best.
1 vote Thank Flag Link Tue Nov 26, 2013
The "cost approach" is not appropriate for insurance purposes.
This is an estimate of the cost to build new, but insurance estimate needs to be cost to rebuild.
Rebuilding is more expensive.

Fannie Mae allows the lender to use the cost approach as a metric for setting the minimum insurance requirement for selling the loan into the secondary market. That doesn't mean it would be an insurance limit adequate to rebuild after a total loss or to protect the policyholder from a coinsurance penalty.

If an insurance agent asked for the "cost approach" number off the appraisal rather than use the software they've been provided by the carriers, I'd look for a new agent.
They're either not well trained, or deliberately trying to win your business by getting the lowest (initial) quote with an artificially low replacement cost value.

Check the value yourself at accucoverage[dot]com, e2value, or 360-value. These are all insurance based estimated tools. If an agent does it for you, review the inputs in detail; the system generated assumptions may not match your home.

Google "reconstruction" "new construction" insurance and "replacement cost" and you should find more details on the issue.
0 votes Thank Flag Link Mon Feb 24, 2014
Appraisers get to choose the method by which they value a home. If your insurance company requires you to get an appraisal based on cost approach you may need to hire an appraiser specifically to do that. Ask your insurance agent if any other method would work?

J.R. Thrasher
0 votes Thank Flag Link Wed Nov 20, 2013
No the insurance companies are not enforcing any requirement. They are fine with the appraisal as sent, but they were asking me the question, hence i was curious
Flag Wed Nov 20, 2013
The cost approach is what is the cost of rebuilding plus the value of the land minus depreciation. I am not sure it is required but they all seem to fill it in on all all the appraisals I have seen. But yes almost no one looks at it anyway.
0 votes Thank Flag Link Wed Nov 20, 2013
Appraisers look inside, outside, and then look for comparable properties. It's a very detailed process. And whichever approach they use is dictated by the type, age, condition, location, etc of the property

If you'll google cost approach you'll find several very good explanations. Typically, they use cost approach for homes that are unique in the community. For example, when appraising a Victorian home, they will determine how much it will cost to rebuild, replace.

Basic steps in the cost approach are:

Estimate the value of the land as if vacant
Estimate the replacement cost new of the improvements
Estimate the loss in value from all forms of depreciation
Deduct the total amount of depreciation from the replacement cost new
Estimate the same amount for any other improvements
Add the land value estimate to the depreciated cost value to arrive at the total property value
Step One, land valuation, may involve any of the methods already mentioned(allocation, abstraction, etc.)

Step Two, estimating the replacement cost new of the improvements, requires that a distinction be made between replacement cost and reproduction cost.

Essentially, appraisers use three approaches
The Sales Comparison Approach
The Cost Approach
The Income Approach

For tract homes that are similar in the same community, they may use the sales approach instead .
0 votes Thank Flag Link Tue Nov 19, 2013
That is appraisal provocative not to fill out cost approach.
Flag Tue Oct 14, 2014
When the appraiser uses sold properties for comps, they don't just do a drive by...they will research the listing details, and even personally call the listing agents for more details to find out more about the condition of the property, any upgrades, and if there were any seller concessions. I know...because I am called several times by appraisers using my listings as comps for other properties.
Flag Tue Nov 26, 2013
Well, when the appraiser is choosing "The Sales Comparison Approach" he/she is not entering the other properties. [His note says "Drive-By Inspection]. Thereby, he/she categorizes the condition as same & Updating/Upgrades as same.

Unfortunately, i had to go thru 2 appraisals of 2 different properties, and it is pretty surprising that both came in spot-on to my offer. [The 2nd one was a significant over bid]
Flag Wed Nov 20, 2013
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