In the cost approach formula, where does land value come from?
Correct Answer
A) It is valued separately, as if vacant, usually by sales comparison
Why this is correct: In the cost approach, land value is an independent input. It is the market value of the site as if vacant and available for its highest and best use. This is typically derived from the sales comparison approach by analyzing sales of similar vacant lots. Why the other choices are wrong: Using an assessed value ratio is unreliable as assessments may not reflect current market value. A standard percentage of total cost is arbitrary and not market-based. The original purchase price is a historic fact, not a current market value indicator. Exam tip: Remember the cost approach formula: Value = Land Value + (Replacement Cost New - Total Depreciation). Land is always valued separately.
Why This Is the Correct Answer
Why this is correct: In the cost approach, land value is an independent input. It is the market value of the site as if vacant and available for its highest and best use. This is typically derived from the sales comparison approach by analyzing sales of similar vacant lots. Why the other choices are wrong: Using an assessed value ratio is unreliable as assessments may not reflect current market value. A standard percentage of total cost is arbitrary and not market-based. The original purchase price is a historic fact, not a current market value indicator. Exam tip: Remember the cost approach formula: Value = Land Value + (Replacement Cost New - Total Depreciation). Land is always valued separately.
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:
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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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