For older improvements, the available evidence cannot support a reliable depreciation estimate, while other applicable approaches are well supported. What follows for reconciliation?
Correct Answer
B) The weak depreciation support can justify little or no weight to the cost indication.
Depreciation uncertainty can weaken the cost approach even when cost new is available. Weight follows the actual support, not age alone. Older property is not universally excluded from cost analysis, and a cost indication remains useful if all material inputs are adequately supported.
Why This Is the Correct Answer
Option B is correct because the weak depreciation support can justify little or no weight to the cost indication. Guidance says the cost estimate should be reviewed for the reliability of the depreciation estimate and whether market data support it. The cost approach is most reliable for relatively new property with little depreciation, which this property is not.
Why the Other Options Are Wrong
Option A: More accrued depreciation makes the cost result more reliable for older improvements.
Option A says more accrued depreciation makes the cost result more reliable for older improvements. The reverse is true: larger depreciation estimates add uncertainty and make the cost result less reliable.
Option C: Chronological age alone prohibits all sales-comparison analysis.
Option C says chronological age alone prohibits all sales-comparison analysis. Age does not prohibit sales comparison, and the facts say other approaches are well supported.
Option D: Replacement cost new requires giving cost all the weight.
Option D says replacement cost new requires giving cost all the weight. Cost new is only one input; without supported depreciation, the cost indication is weak.
Older building, shakier cost
The more depreciation you must estimate, the more room for error in the cost approach.
How to use: Use this when deciding how much weight cost deserves for an older property.
Exam Tip
Look for whether depreciation is supported. Weak depreciation support points to less weight on cost, not to banning other approaches.
Common Mistakes to Avoid
- -Thinking more depreciation makes cost more reliable
- -Assuming age alone excludes an approach
- -Giving cost full weight just because cost new is available
Concept Deep Dive
Analysis
This question tests how weak depreciation support affects the cost approach. Even when cost new is available, unreliable depreciation makes the cost indication less reliable. Weight follows the support actually available.
Background Knowledge
The cost approach subtracts accrued depreciation from cost new and adds site value. For older improvements, depreciation is larger and harder to measure, so the cost approach often becomes less reliable unless depreciation is well supported.
Real-World Application
An appraiser values a 70-year-old bungalow with good sales data but no reliable way to measure its functional obsolescence. She develops the cost approach but gives it little weight, relying on sales comparison.
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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