A new improvement is consistent with highest and best use, and cost new, site value and minimal depreciation are reliably supported. What does that imply?
Correct Answer
C) The cost indication may deserve substantial weight, subject to comparison with other evidence.
Reliable cost, site and depreciation inputs can make cost persuasive for a new improvement consistent with highest and best use. Newness alone does not prove cost equals market value or dictate weights. Evaluate the evidence supporting all applicable approaches.
Why This Is the Correct Answer
Option C is correct because reliable cost, site and depreciation inputs can make cost persuasive for a new improvement consistent with highest and best use. Guidance notes that real property cost tends to equal value only when the improvement is new and reflects highest and best use. The appraiser still compares the cost indication with other evidence before setting weights.
Why the Other Options Are Wrong
Option A: Each developed approach must still receive one-third of the weight.
Option A says each developed approach must still receive one-third of the weight. No rule fixes equal weights; weight follows support.
Option B: New improvements require discarding the cost analysis.
Option B says new improvements require discarding the cost analysis. The opposite is true: new improvements are where the cost approach tends to be most reliable.
Option D: Income capitalization alone may receive substantial weight for new residential property in this case.
Option D gives income capitalization alone substantial weight for new residential property here. Nothing in the facts supports income alone; the stated reliable inputs are for the cost approach.
New and best fits cost
When the building is new and is the right use for the site, cost tends to track value.
How to use: Use this to recognize when the cost approach can deserve substantial weight.
Exam Tip
Look for new, highest and best use, and supported inputs together. That combination points to more weight on cost, still subject to other evidence.
Common Mistakes to Avoid
- -Applying fixed one-third weights
- -Discarding cost for new construction
- -Assuming newness alone proves cost equals market value
Concept Deep Dive
Analysis
This question tests when the cost approach becomes persuasive. A new improvement consistent with highest and best use, with reliable cost, site and depreciation inputs, is the classic case where cost tends to approximate value. The cost indication may then deserve substantial weight, still checked against other evidence.
Background Knowledge
For new construction, depreciation is minimal and cost estimates are current, so the cost approach is easier to support. Cost approximates value when the improvement is the highest and best use of the site.
Real-World Application
An appraiser values a newly built home in a growing subdivision. With reliable builder costs, a supported lot value and essentially no depreciation, she gives the cost approach substantial weight alongside sales of similar new homes.
More Reconciliation Questions
In a cost approach for an improved property, an appraiser estimates site value by sales comparison, allocation and extraction, then settles on one site-value figure before final reconciliation. How is this step best described?
An extraordinary assumption was reasonably supported, properly used and disclosed in an appraisal report. Later, the assumed information is found to be false. Which conclusion is best supported?
An otherwise applicable valuation approach cannot be developed reliably from the available data. The remaining scope can produce credible assignment results. What should the appraiser do?
May an appraiser use a hypothetical condition in any assignment?
An appraisal has a current effective date and permits an extraordinary assumption if its requirements are met. Which situation involves uncertain information rather than a fact known to be contrary to reality on that date?
Why must a report identify any real property interest that is being excluded from the value opinion?
Which review best helps explain divergent cost, sales-comparison and income indications?
Two value indications are $340,000 and $392,000. What is the difference as a percentage of the lower indication, rounded to one decimal place?
An unauthorized third party requests a lender-client’s report. No due-process or other permitted disclosure exception applies. How should the appraiser respond?
An appraiser proposes to assume there are no hidden defects. Which fact would characterize that assumption as extraordinary under the USPAP 2024 definition, rather than justify dismissing it as routine boilerplate?
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