Cost new for a proposed structure should reflect prices as of:
Correct Answer
A) The assignment's effective date
Why this is correct: All valuation elements must be as of the effective date of the appraisal. For a proposed structure, cost new should reflect construction prices anticipated on that date, requiring a supported forecast if the date is future. Why the other choices are wrong: Original plan dates may be outdated. Construction finish date may differ from the effective date. Engagement date is irrelevant to value dating. Exam tip: Every valuation component is tied to the effective date, including cost estimates.
Why This Is the Correct Answer
The assignment's effective date is correct because value and every input to it are date-specific by definition, and cost is an input. In practice the appraiser selects the cost data and multipliers that correspond to that date, states the source and the date of the cost information used, and explains any forecast where the effective date lies in the future. The related disclosures matter as much: the report identifies the effective date, states whether the value opinion is current, retrospective, or prospective, and discloses the hypothetical condition that the improvements are complete or the extraordinary assumption relied upon, with the required statement that its use might have affected the assignment results.
Why the Other Options Are Wrong
Option B: The date the plans were originally drawn
Plans may have been drawn months or years earlier, during entirely different cost conditions, and material and labor prices can move substantially in that interval. The plan date describes when a design was produced, not when value is being estimated. Using it would import stale prices into a current or prospective opinion.
Option C: The date construction is expected to finish
The completion date matters to the developer's budget and to a discounted analysis of a proposed development, but it is not the valuation date unless the assignment happens to make it so. Costs incurred through completion are a different question from cost new as of the effective date. Conflating the construction schedule with the valuation date is the trap here.
Option D: The date the client engaged the appraiser
The engagement date records when the appraiser was hired and has no valuation significance whatsoever, since the client may order an appraisal with a retrospective or prospective effective date. The report date and the effective date are likewise distinct and both are disclosed. Nothing about when the work was ordered fixes the market context.
Everything Wears the Same Date
One date governs the whole appraisal, and every number in it must be wearing that date: the sales, the rents, the rates, and the costs. If an input carries a different date, either adjust it to the effective date or do not use it.
How to use: When a stem asks what date applies to any input, answer with the effective date and then ask whether the assignment needs a hypothetical condition or extraordinary assumption. For prospective dates, remember that a forecast requires support. Keep effective date, report date, and inspection date distinct in your reporting.
Exam Tip
Effective date governs every element, including cost. Report date, inspection date, and engagement date are separate and never substitute for it.
Common Mistakes to Avoid
- -Using cost figures carrying a date different from the effective date without trending them
- -Confusing the report date or the inspection date with the effective date in the reporting
- -Appraising a proposed structure without disclosing the hypothetical condition or extraordinary assumption relied upon
Concept Deep Dive
Analysis
This item tests the discipline that every element of an appraisal is expressed as of the effective date. The effective date establishes the context in which value is estimated, meaning the market conditions, the price levels, and the property characteristics that apply, and it can be current, retrospective, or prospective depending on the assignment. Cost new is one of those elements, so for a proposed structure the estimate must reflect construction prices as of the effective date, not as of when the plans were drawn, when the contract was signed, or when the building will be finished. Where the effective date is prospective, the appraiser is forecasting costs to that date, which requires supportable reasoning about cost trends rather than a simple lookup, and the report must identify the date and disclose the hypothetical condition or extraordinary assumption that the assignment requires, since a proposed structure that does not yet exist is typically appraised subject to a hypothetical condition of completion.
Background Knowledge
You need to know that value opinions and their inputs are tied to the effective date, and that effective dates may be current, retrospective, or prospective. You should know the difference between the effective date, the date of the report, and the date of inspection, all of which appear in reporting. You also need to know that a proposed structure typically requires a hypothetical condition that the improvements are complete, or an extraordinary assumption regarding completion, together with the required disclosures and the statement that use of the assumption might have affected assignment results.
Real-World Application
A lender orders a prospective value upon completion for a proposed medical office building. The appraiser develops cost new using current cost service data trended to the prospective effective date with support from local contractor bids, states the effective date and its prospective nature, and discloses the hypothetical condition that the improvements are complete as of that date along with the required statement about its potential effect on the results.
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:
The age-life method expresses depreciation as:
Market extraction of depreciation is limited by the fact that it:
Functional obsolescence caused by a deficiency is measured as curable when:
Curable physical deterioration is measured at cost to cure because:
A 2,050 sq ft dwelling is priced at $178 per square foot with a $34,000 detached garage and $21,500 of site improvements. Cost new is:
A house has three bedrooms sharing one bathroom, and adding a second bath is economically justified. This is:
Direct costs in a construction budget include:
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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