A market-value appraisal supports a change from current use. What should cost analysis consider?
Correct Answer
D) The supported use, including any conversion or removal costs.
For the stated market-value assignment, analyze highest and best use as vacant and as improved, including conversion/removal costs and any interim contribution. A different use does not automatically make improvements worthless or require a specific method count. Other value definitions may have different premises.
Why This Is the Correct Answer
Option D is correct because a market-value analysis follows the supported highest and best use, as vacant and as improved, so cost analysis should consider that use along with any conversion or removal costs. A different use does not automatically make the improvements worthless, and it does not dictate a fixed number of approaches.
Why the Other Options Are Wrong
Option A: Preserve the current use, even against verified evidence.
Option A says to preserve the current use even against verified evidence. A market-value analysis follows the supported highest and best use, so ignoring evidence of a better use is not appropriate.
Option B: Decline assignments that involve a possible change of use.
Option B says to decline assignments involving a possible change of use. A potential change of use is a matter to analyze, not a reason in itself to refuse the work.
Option C: Use the sales comparison approach alone, by rule.
Option C says to use the sales comparison approach alone by rule. No rule requires a single approach because of a change in use; approach selection depends on the assignment and available data.
Follow the use, count the costs
Value the supported use and subtract what it costs to get there, such as conversion or demolition.
How to use: Use this when a question involves a supported change from the current use.
Exam Tip
Prefer answers that analyze the supported use and its transition costs over answers that freeze the current use or impose a fixed method rule.
Common Mistakes to Avoid
- -Valuing only the current use when evidence supports a different use
- -Assuming a change of use makes all improvements worthless
- -Ignoring conversion or demolition costs
Concept Deep Dive
Analysis
This question tests how highest and best use affects cost analysis. When market evidence supports a change from the current use, the analysis should reflect that supported use, including costs to convert or remove existing improvements and any interim contribution.
Background Knowledge
Highest and best use analysis considers the site as if vacant and as improved. Demolition is generally economically appropriate when the value of the land as if vacant, less the cost of demolition and removal, exceeds the current value of the improved property, and conversion or removal costs affect what the improvements contribute.
Real-World Application
An appraiser values an older single-family home on a lot where the market supports a small office use. The analysis considers renovation costs to convert the building and compares that with the land value as if vacant less demolition cost.
More Cost Approach Questions
Which stated cause of supported value loss is external?
Improvement cost new is $450,000. Separately supported improvement depreciation deductions of $45,000, $25,000, $15,000 are expressly nonoverlapping and not already excluded from cost new. Add supported site value of $125,000, already reflecting any site losses. What total indicated value results?
Which two depreciation categories may each be classified as curable or incurable by comparing the cost to remedy a deficiency with the value gained?
Improvement cost new is $800,000. Separately supported improvement depreciation deductions of $120,000, $80,000, $40,000 are expressly nonoverlapping and not already excluded from cost new. No site is included. What depreciated improvement amount results?
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Which highest-and-best-use criterion addresses whether a proposed use is allowed by zoning and applicable legal restrictions?
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In reconciliation, an appraiser should:
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