An appraiser uses a national cost service for a house in a small mountain town. What adjustment does the service's base figure require?
Correct Answer
C) The current-cost and local multipliers for time and place
Why this is correct: The governing concept is that published national cost service figures are benchmarks for a specific city and date. To apply them to a specific property, you must adjust for location (using a local multiplier) and for time (using a current-cost multiplier). The original explanation states this directly. Why the other choices are wrong: "No adjustment at all, since national data is authoritative" is wrong because national data is a starting point that requires localization. "A deduction for rural simplicity" is wrong because costs in remote areas can be higher, not lower, than the base. "Conversion from metric measurements" is wrong because U.S. cost services typically use imperial units; this is not the required adjustment. Exam tip: Remember the two key multipliers: one for place (local) and one for time (current-cost).
Why This Is the Correct Answer
The current-cost and local multipliers for time and place are the two corrections the service itself supplies and expects the user to apply, and naming both is what the question is testing. Applying them correctly also requires selecting the right base in the first place, meaning the appropriate quality class, construction type, and building shape, since no multiplier repairs a base figure drawn from the wrong category. The appraiser should document in the workfile which service, edition, base, and multipliers were used, because a cost estimate that cannot be reconstructed is not supportable. Finally, the multiplied figure is a starting point for replacement or reproduction cost, from which depreciation is deducted and to which land value is added under the cost approach.
Why the Other Options Are Wrong
Option A: No adjustment at all, since national data is authoritative
Treating national data as directly applicable ignores the service's own instructions and would produce a cost figure for a different date and a different city than the assignment concerns. Authority in a cost service lies in the method and the data behind it, not in the base number being universally correct. This is the error the multipliers exist to prevent.
Option B: A deduction for rural simplicity
Rural or remote locations are not automatically cheaper, and in a small mountain town the local multiplier commonly exceeds one because materials must be hauled, qualified contractors are scarce, and the building season is short. Assuming a downward adjustment for remoteness reverses the usual direction. The correct move is to look up the multiplier rather than to reason from an assumption about rural simplicity.
Option D: Conversion from metric measurements
United States cost services publish in imperial units, and unit conversion is not among the adjustments the method requires. Even if conversion were needed, it would be an arithmetic step rather than a market adjustment for time and place. The option substitutes a clerical operation for the substantive corrections.
Time Multiplier and Place Multiplier
Two dials on every cost service number: when and where. Turn the time dial from the base date to your effective date, and the place dial from the reference city to your town. Remote towns usually turn the place dial up, not down.
How to use: When a stem involves published cost data, name both multipliers and check that the base class was selected correctly before applying them. Resist the intuition that rural means cheaper. Document the service, edition, base, and multipliers in the workfile so the estimate can be reconstructed.
Exam Tip
Two multipliers, always: current cost for time and local for place. A remote location often raises the local multiplier rather than lowering it.
Common Mistakes to Avoid
- -Applying the time multiplier and forgetting the location multiplier, or the reverse
- -Assuming a rural or remote area warrants a downward cost adjustment
- -Selecting the wrong quality class or building type, which no multiplier can correct
Concept Deep Dive
Analysis
This item tests how published cost data becomes a cost estimate for a particular property on a particular date. A national cost service publishes base figures built on a defined set of assumptions: a specified quality and construction type, a base date, and a reference location, with the base often expressed for a national average or a benchmark city. Two corrections are therefore always needed before the figure means anything for the subject. The current cost multiplier moves the base figure forward or backward from the publication date to the effective date of the appraisal, capturing changes in material and labor cost since the data were compiled. The local multiplier adjusts from the reference location to the subject's market, capturing local wage rates, material delivery, and market conditions. Remote and mountain locations frequently carry local multipliers above one, because transportation, limited contractor availability, and short building seasons raise costs rather than lowering them. Beyond the multipliers, the appraiser still adjusts for the subject's actual quality, shape, and features, and adds site improvements, indirect costs, and entrepreneurial incentive as the assignment requires.
Background Knowledge
You need to know that published cost services state base figures for a defined quality, construction type, base date, and reference location, and that current cost and local multipliers convert those to the subject's date and market. You should know that local multipliers in remote areas frequently exceed one because of transportation, labor availability, and season length. You also need to know the rest of the cost approach framework: correct selection of quality class and building type, additions for site improvements, indirect costs, and entrepreneurial incentive where applicable, deduction of accrued depreciation in its three forms, and addition of land value.
Real-World Application
Appraising a custom home in a mountain resort town, the appraiser selects the appropriate quality class and construction type from the cost service, applies the current cost multiplier to move the base figure to the effective date, and applies a local multiplier well above one reflecting the town's freight distances and contractor scarcity. She documents the edition, page, base figure, and both multipliers in the workfile, then adds site improvements and deducts measured depreciation.
More Cost Approach Questions
In a cost approach for a proposed building, the appropriate cost basis is generally:
A warehouse cost $210,000 to build when the cost index stood at 105. The index is now 210. Its indicated current cost is:
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Market extraction of depreciation is limited by the fact that it:
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An appraiser writes that a 40-year-old house has an effective age of 10 but describes original wiring, original kitchen and a 25-year-old roof. The report's problem is:
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