A certified general appraiser is developing a cost approach for a 25-year-old office building located in a neighborhood where new zoning prohibits future office development and mandates residential conversion. The appraiser estimates the site’s highest and best use is now residential, and determines the land value — based on vacant residential land sales — is $850,000. The building’s replacement cost new is $2,100,000, with accumulated physical depreciation of $315,000 and functional obsolescence of $140,000. External obsolescence is present due to the zoning change. How should the appraiser treat external obsolescence in this scenario?
Correct Answer
B) Exclude external obsolescence entirely because the land value already reflects the zoning restriction.
Per USPAP Standards Rule 6, Comment 11: 'If the land value estimate reflects the external influence (e.g., zoning change), then external obsolescence is not deducted again from the improvement value, as doing so would result in double counting.' Here, the land value of $850,000 is derived from *vacant residential land sales*, meaning it explicitly incorporates the impact of the new zoning. The office building has no contributory value in this context — its highest and best use is no longer supported. Therefore, the land value already captures the full market effect of the external condition, and no separate external obsolescence adjustment is warranted. Option B is correct. Option A incorrectly double-counts; Option C misclassifies external obsolescence as part of accrued depreciation (which includes only physical and functional); Option D incorrectly treats land value shortfall as improvement obsolescence — but the building lacks contributory value, so the entire value resides in the land, properly estimated at $850,000.
Why This Is the Correct Answer
Per USPAP Standards Rule 6, Comment 11: 'If the land value estimate reflects the external influence (e.g., zoning change), then external obsolescence is not deducted again from the improvement value, as doing so would result in double counting.' Here, the land value of $850,000 is derived from *vacant residential land sales*, meaning it explicitly incorporates the impact of the new zoning. The office building has no contributory value in this context — its highest and best use is no longer supported. Therefore, the land value already captures the full market effect of the external condition, and no separate external obsolescence adjustment is warranted. Option B is correct. Option A incorrectly double-counts; Option C misclassifies external obsolescence as part of accrued depreciation (which includes only physical and functional); Option D incorrectly treats land value shortfall as improvement obsolescence — but the building lacks contributory value, so the entire value resides in the land, properly estimated at $850,000.
More cost-approach Questions
In a cost approach for a proposed building, the appropriate cost basis is generally:
A 45-year-old office building has undergone multiple high-quality renovations, including HVAC replacement, seismic retrofitting, and full interior modernization. Its functional layout remains competitive with new construction, and it occupies a stable, well-located corridor. The appraiser estimates its total economic life at 70 years. Which estimate of effective age is most supportable under USPAP and recognized cost approach methodology?
A warehouse cost $210,000 to build when the cost index stood at 105. The index is now 210. Its indicated current cost is:
An appraiser is estimating accrued depreciation for a commercial office building using the age-life method. The building was constructed in 1992 and has a total economic life of 60 years. As of the appraisal date in 2024, the appraiser determines the property’s effective age is 36 years due to consistent maintenance, modernized systems, and favorable market perception. What is the percent of accrued depreciation indicated by the age-life method?
Which event would RAISE a building's effective age relative to last year's estimate?
Two identical houses were built the same year; one has been meticulously maintained, the other neglected. Their age-life analyses differ because:
Which statement is MOST consistent with USPAP Standards Rule 6 regarding the identification and treatment of external obsolescence in the cost approach?
A 40-year-old industrial warehouse has undergone no major renovations and suffers from outdated electrical systems, inefficient insulation, and obsolescent loading dock design. Market evidence indicates similar properties typically exhibit functional obsolescence reducing utility by 15% and external obsolescence reducing value by 10%. If the appraiser uses the age-life method with a total economic life of 50 years, how should effective age be adjusted to reflect these conditions?
In developing an age-life depreciation estimate, an appraiser assigns an effective age of 16 years and a total economic life of 40 years. Later, the appraiser discovers that comparable properties in the same submarket have recently sold with effective ages averaging 12 years and total economic lives averaging 45 years — and those sales exhibited superior energy efficiency and adaptive reuse features. What is the appraiser’s USPAP-compliant obligation regarding the original effective age estimate?
The age-life method expresses depreciation as:
People Also Study
Valuation Principles & Procedures
25% of exam
Property Description & Analysis
20% of exam
Market Analysis & Highest/Best Use
15% of exam
Appraisal Math & Statistics
15% of exam
USPAP (Ethics & Standards)
15% of exam