An appraiser estimates replacement cost using a national cost-estimating service. What should the appraiser make sure of?
Correct Answer
D) That the closest improvement type and all its adjustment factors are used
When a national cost-estimating service is used, the appraiser should select the most similar improvement type and properly account for all adjustment factors developed for the service, such as locality adjustments. The service should also be identified in the report.
Why This Is the Correct Answer
Option D is correct because a national cost service is reliable only when the appraiser selects the improvement type closest to the subject and applies all adjustment factors developed for the service, such as locality adjustments. This tailors the national figures to the subject and its market.
Why the Other Options Are Wrong
Option A: That the highest-quality building class in the manual is used
Option A says to use the highest-quality building class in the manual. The class should match the subject's quality, and choosing the top class would overstate cost for most properties.
Option B: That locality adjustments are ignored, since the manual is national
Option B says to ignore locality adjustments because the manual is national. Locality adjustments exist precisely because costs vary by area, so they should be applied.
Option C: That the manual’s figures are used without any adjustment at all
Option C says to use the manual's figures without any adjustment. Base figures need adjustments for the subject's features and location to produce a reliable cost estimate.
Match the type, apply adjustments
Pick the closest building type, then apply the service's adjustments such as locality before using the cost.
How to use: Use this to evaluate answers about cost manual procedures.
Exam Tip
Choose the answer that matches the subject and applies the service's own adjustments rather than using raw or extreme figures.
Common Mistakes to Avoid
- -Choosing a quality class that does not match the subject
- -Skipping locality adjustments
- -Using base figures without any adjustment
Concept Deep Dive
Analysis
This question tests proper use of a national cost-estimating service. The appraiser should select the most similar improvement type and properly account for all of the service's adjustment factors, such as locality adjustments.
Background Knowledge
National cost services publish base costs by building type and quality, with multipliers for location, time and features. Appraisers choose the closest type and apply the relevant adjustments, and identify the service used in the report.
Real-World Application
An appraiser pricing a mid-quality home from a national cost manual chooses the matching quality class and applies the local cost multiplier for the county. The report names the cost service used.
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?
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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?
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The current cost of a building is estimated at $62 per square foot for 3,000 square feet. Site improvements not already included in that figure would cost an additional $45,000. What is the total cost of the improvements, excluding land and any other additions?