source:
  type: guide
  id: fnma-sel-b4-1.3-10
  authority: Fannie Mae Selling Guide B4-1.3-10 — Cost and Income Approach to Value
  description: Fannie Mae Selling Guide B4-1.3-10 — Cost and Income Approach to Value.
  coverage_tier: operative
obligations:
- id: fnma-sel-b4-1.3-10-full
  canonical_id: fnma-sel-b4-1.3-10-full
  section: Fannie Mae Selling Guide B4-1.3-10 — Cost and Income Approach to Value
  type: do
  tags:
  - regulator-direct
  - fnma
  - selling-guide
  - corpus-expansion
  - tier-operative
  primary_source:
    tier: 1
    authority: Fannie Mae Selling Guide B4-1.3-10 — Cost and Income Approach to Value
    source_class: fnma-guide
    source_url: https://singlefamily.fanniemae.com/media/document/pdf/selling-guide
    snapshot_id: 5f7b8b79da595d76
    fetched_at: '2026-05-25T14:09:57Z'
    content_hash: sha256:98cf85a02861bbe84914a0e339b327c8fc131869a8a573882007bbeea60c5701
    paragraph_quote: 'B4-1.3-10, Cost and Income Approach to Value (06/04/2025) Introduction
      This topic contains information on reviewing the cost approach and the income
      approach, including: Cost Approach to Value Income Approach to Value Uniform
      Appraisal Dataset (UAD) 3.6 Policy Cost Approach to Value Published May 6, 2026
      587 Fannie Mae does not require the cost approach to value except for the valuation
      of manufactured homes. However, USPAP requires the appraiser to develop and
      report the result of any approach to value that is necessary for credible assignment
      results. For example, when appraising proposed or newly constructed properties,
      if the appraiser believes the cost approach is necessary for credible assignment
      results, then the cost approach must be provided. Appraisals that rely solely
      on the cost approach as an indicator of market value are not acceptable. The
      cost approach to value assumes that a potential purchaser will consider building
      a substitute residence that has the same use as the property being appraised.
      This approach, then, measures value as a cost of production. It may be appropriate
      to use the cost approach when appraising new or proposed construction, property
      that is undergoing renovation, unique property, or property that features functional
      depreciation, to support the sales comparison approach analysis. The reliability
      of the cost approach depends on valid reproduction cost estimates, proper depreciation
      estimates, and accurate site values. If the appraiser has completed the cost
      approach, the lender must thoroughly review the information provided to conﬁrm
      that the appraiser’s analysis and comments for the cost approach to value are
      consistent with comments and adjustments mentioned elsewhere in the appraisal
      report. For example, if the neighborhood or site description reveals that the
      property backs up to a shopping center, lenders should expect to see an amount
      indicated for external depreciation in the cost approach. Or, if the improvement
      analysis indicates that it is necessary to go through one bedroom to get to
      another bedroom, lenders should expect to see an amount indicated for functional
      depreciation. Income Approach to Value The income approach to value is based
      on the assumption that market value is related to the market rent or income
      that a property can be expected to earn. The income approach to value is required
      in the valuation of two-unit to four-unit properties and may be appropriate
      in neighborhoods that consist of one-unit properties when there is a substantial
      rental market. The income approach to value may not be appropriate in areas
      that consist mostly of owner-occupied properties because adequate rental data
      does not exist for those areas. However, USPAP requires the appraiser to develop
      and report the result of any approach to value that is necessary for credible
      assignment results. If the appraiser believes the income approach is necessary
      for credible assignment results, then the income approach must be included.
      Appraisals that rely solely on the income approach as an indicator of market
      value are not acceptable. When the income approach to value is used, the appraisal
      report must include the supporting comparable rental and sales data, and the
      calculations used to determine the gross rent multiplier. If the appraiser has
      completed the income approach, the lender must thoroughly review the information
      provided to conﬁrm that the appraiser’s analysis and comments for the income
      approach are consistent with comments mentioned elsewhere in the report. The
      lender must validate these approaches to value in the appraisal report and comply
      with B4-1.1-04, Unacceptable Appraisal Practices. Uniform Appraisal Dataset
      (UAD) 3.6 Policy Lenders using UAD 3.6 must follow the requirements in the UAD
      3.6 Policy Supplement. Recent Related Announcements Published May 6, 2026 588
      The table below provides references to recently issued Announcements that are
      related to this topic. Announcements Issue Date Announcement SEL-2025-04 June
      04, 2025 Announcement SEL-2024-06 September 04, 2024'
  judgment: false
