Ask Henry

Cost Approach for Mortgage Transactions
Dear Henry,
Have you run across many lenders requesting the Cost Approach for insurance values when the intended use is for mortgage transaction? They are wanting the CA for properties where the result is not a credible result (very old homes).

It even states in the certification that the intended use is for mortgage financing, not insurance.

How would you handle this?
Tammy VanScoy
Office Manager
Daugherty Appraisers, Inc.

Dear Tammy,
I find nothing in the USPAP that prevents you from doing what the client requests as part of their scope of work. Some appraisers disagree with this opinion. They seem to base their opinion on the statement on most Fannie Ma/Freddie Mac forms that says: “INTENDED USE: The intended use of this appraisal report if for the lender/client to evaluate the property that is the subject of this appraisal for a mortgage finance transaction.” From the sound of your question it seems to me that this is what the lender is trying to do. The lender wants to be sure the property owner carries adequate insurance to protect the lender.

The only thing I could find in the current USPAP are Frequently Asked questions #174 and #292. They to me, support my position.