A reproduction-cost base includes a supported superadequate pool-room feature with no recognized contribution, and its excess is not otherwise deducted. What treatment fits?
Correct Answer
B) Analyze a supported functional-loss allowance for that included excess, avoiding overlap.
Under the expressly reproduction-cost base, the unsupported excess cost of a market-unrecognized pool-room feature may require a functional allowance. If the same excess is already excluded from replacement cost, do not deduct it again. Zero premium alone does not establish every operating or physical-loss component.
Why This Is the Correct Answer
Option B is correct because reproduction cost includes the full cost of the superadequate feature even though the market does not pay for it. That unrecognized excess is a form of functional obsolescence, so a supported allowance should be analyzed, taking care not to deduct anything already removed elsewhere.
Why the Other Options Are Wrong
Option A: Assume its full reproduction cost is recovered in market value despite zero supported contribution.
Option A, assuming the full reproduction cost is recovered in market value despite zero supported contribution, is wrong because cost does not equal value. If the market gives the feature no recognized contribution, its cost is not recovered and a loss must be considered.
Option C: Add the unsupported excess to the value of the site as land.
Option C, adding the unsupported excess to the site value as land, is wrong because an improvement's excess cost is not land value. Site value is estimated separately, and an over-improvement creates a loss, not added land value.
Option D: Do not deduct it, since reproduction cost includes it.
Option D, not deducting it because reproduction cost includes it, is wrong because that inclusion is exactly why a deduction may be needed. Leaving the unrecognized cost in the base would overstate value.
Replica keeps excess, so deduct
Reproduction cost copies everything, including the excess, so the excess must come back out as functional loss.
How to use: Use this when deciding whether a superadequacy needs a deduction under a given cost basis.
Exam Tip
Note the cost basis first. On a reproduction basis an unrecognized feature's cost needs to be addressed; on a replacement basis it may already be excluded.
Common Mistakes to Avoid
- -Assuming the cost of a feature equals its contribution to value
- -Leaving an included superadequacy undeducted under a reproduction basis
- -Deducting the excess twice when a replacement base already omits it
Concept Deep Dive
Analysis
This question tests how a superadequacy is handled when cost is estimated on a reproduction basis. A reproduction cost base includes the full cost of the oversized feature, but the market gives it no recognized contribution. Since that excess is not deducted elsewhere, the appraiser should analyze a supported functional-loss allowance for it while avoiding double counting.
Background Knowledge
Reproduction cost builds a replica, including superadequate or obsolete features, while replacement cost builds equivalent utility and may leave out such excess. When a reproduction base includes excess cost, the related functional obsolescence must be accounted for; when a replacement base already omits it, it should not be deducted again.
Real-World Application
An appraiser estimates reproduction cost for a home with an elaborate pool room that local buyers do not pay extra for. Because the room's full cost is in the reproduction estimate, the appraiser analyzes a functional-loss allowance for the excess rather than letting cost overstate value.
More Cost Approach Questions
Why can equivalent-utility replacement cost be useful for an obsolete improvement?
An appraiser estimates the current replacement cost new of the improvements at $890,000, accrued depreciation from all causes at $170,000, and land value at $325,000. All necessary cost components and depreciation are included in those amounts. What is the indicated property value?
Improvement cost new is $595,000. Separately supported improvement depreciation deductions of $48,000, $27,000 are expressly nonoverlapping and not already excluded from cost new. Add supported site value of $155,000, already reflecting any site losses. What total indicated value results?
What best supports a claimed loss from a bathroom-layout deficiency?
Improvement cost new is $1,850,000. Separately supported improvement depreciation deductions of $310,000, $620,000 are expressly nonoverlapping and not already excluded from cost new. No site is included. What depreciated improvement amount results?
Which scenario most strongly supports giving the cost approach substantial weight?
A cost total $650,000 explicitly includes $40,000 of non-realty FF&E outside the appraised real-property interest. Exclude it. Supported realty-only total depreciation is $55,000. Add site $200,000, with no overlap. What real-property cost indication results?
A 2,200-sf dwelling costs $200 per square foot, and a separate 400-sf garage costs $75 per square foot. These costs are complete and do not overlap. Both have an effective age of 15 years and a total life of 50 years, with straight-line depreciation and no salvage value. No site value or other loss is involved. What is the combined depreciated cost of the dwelling and garage?
A new feature in the improvements has a current cost of $45,000 and a market contribution of $18,000. The entire difference is due to superadequacy, with no physical or external loss and no overlap. What is the loss from the superadequacy?
An external influence causes an annual net income loss of $9,600. The capitalization rate for the loss is 8%, and no other economic factors change. What is the indicated loss in value of the whole property, before allocation between site and improvements?
People Also Study
Real Estate Market
13.6% of exam
Property Description
11.8% of exam
Land or Site Valuation
4.5% of exam
Sales Comparison Approach
16.4% of exam
Income Approach
8.2% of exam