In a cost approach for a proposed building, the appropriate cost basis is generally:
Correct Answer
C) Current cost to construct as of the effective date
Why this is correct: The cost approach values a property based on the current cost to construct a replica (or replacement) as of the appraisal's effective date. For a proposed building, this requires a current cost estimate, possibly forecasted to a future date. Why the other choices are wrong: "Historic cost of similar buildings from a decade ago" is outdated and irrelevant. "The developer's original feasibility budget estimate" may be inaccurate and not reflect current costs. "The assessed value of comparable completed buildings" reflects market value, not construction cost. Exam tip: In cost approach, cost means current cost to build, not historical cost, budget, or assessed value.
Why This Is the Correct Answer
Why this is correct: The cost approach values a property based on the current cost to construct a replica (or replacement) as of the appraisal's effective date. For a proposed building, this requires a current cost estimate, possibly forecasted to a future date. Why the other choices are wrong: "Historic cost of similar buildings from a decade ago" is outdated and irrelevant. "The developer's original feasibility budget estimate" may be inaccurate and not reflect current costs. "The assessed value of comparable completed buildings" reflects market value, not construction cost. Exam tip: In cost approach, cost means current cost to build, not historical cost, budget, or assessed value.
More Cost Approach Questions
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:
A 45-year-old office building has undergone extensive system upgrades (HVAC, electrical, fire suppression) and interior modernization, resulting in strong tenant demand and rental rates exceeding those of newer buildings in the area. The appraiser estimates its total economic life at 65 years. Which statement best reflects the likely relationship among its chronological age, effective age, and remaining economic life?
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Previous Question
An appraiser is estimating external obsolescence for a retail strip center located adjacent to a newly rezoned heavy industrial corridor. Market evidence shows that comparable centers without such adjacency rent for $18.50/sf/year, while the subject rents for $14.20/sf/year. The subject’s gross leasable area is 25,000 sf, and its effective gross income multiplier (EGIM) is 7.5. The appraiser has determined that the land-to-improvements ratio is 30% land / 70% improvements. How much of the estimated external obsolescence is allocated to the improvements?
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A cost estimate that omits entrepreneurial incentive will: