In a market-value cost approach, how is the supported site input obtained?
Correct Answer
A) Estimate the site as if vacant for its supported highest and best use using applicable evidence.
For the stated market-value cost approach, estimate site value as if vacant and available for its supported highest and best use, using applicable evidence. Sales comparison often supplies it, but other supported site methods can apply. Tax ratios, untrended purchase price or a fixed cost share are not automatic substitutes.
Why This Is the Correct Answer
Option A is correct because the cost approach estimates site value as if vacant and available for its highest and best use as of the valuation date. That estimate rests on applicable evidence, commonly land sales, though other supported site valuation methods can apply.
Why the Other Options Are Wrong
Option B: Use a fixed fraction of improvement cost without evidence.
Option B uses a fixed fraction of improvement cost without evidence. Site value depends on the land's own market and highest and best use, not on a set percentage of building cost.
Option C: Use the original lot purchase price, without adjustment for time.
Option C uses the original lot purchase price without adjustment for time. A past price may not reflect current market conditions at the valuation date.
Option D: Divide the parcel’s assessed land value by the current assessment ratio, ignoring the valuation basis.
Option D divides assessed land value by the assessment ratio while ignoring the valuation basis. Assessed values follow tax rules and dates that may differ from market value as if vacant on the effective date.
Vacant, Best Use, Today
Site value = the land as if vacant, at its highest and best use, as of the effective date, supported by evidence.
How to use: Use these three checks to judge any proposed site value method.
Exam Tip
Choose the option that values the land as if vacant at its highest and best use with market evidence.
Common Mistakes to Avoid
- -Using the original lot purchase price without time adjustment
- -Relying on assessed land value
- -Using a fixed land-to-building ratio without evidence
Concept Deep Dive
Analysis
This question tests how site value is estimated in a market-value cost approach. The site is valued as if vacant and available for its highest and best use as of the valuation date, using applicable market evidence. Shortcuts based on tax figures, old purchase prices or fixed ratios do not meet that standard.
Background Knowledge
In the cost approach, site value is estimated separately from the improvements, as if the land were vacant and available for development to its highest and best use. Sales comparison is the most common method, with allocation, extraction and other techniques used when supported. The site estimate is as of the same effective date as the rest of the analysis.
Real-World Application
An appraiser preparing a cost approach for a suburban home finds three recent vacant lot sales in the subdivision. She adjusts them for size and location to estimate the subject site's value as if vacant.
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?
A new feature in the improvements has a current cost of $45,000 and a market contribution of $18,000. The entire difference is due to superadequacy, with no physical or external loss and no overlap. What is the loss from the superadequacy?
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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