The cost approach is generally most reliable for which property?
Correct Answer
A) A new custom home on a purchased lot
Why this is correct: The cost approach is most reliable when depreciation is minimal or easily measured. A new custom home has negligible physical, functional, or external obsolescence. The value estimate is essentially land value plus known construction costs, which is straightforward. Why the other choices are wrong: A 60-year-old bungalow has significant and difficult-to-measure depreciation. A downtown condominium unit's value is heavily influenced by market comparables and income, not cost. A heavily renovated century farmhouse has complex accrued depreciation from various eras. Exam tip: The cost approach weakens as the property ages or becomes more unique because estimating depreciation becomes the dominant and most subjective step.
Why This Is the Correct Answer
Why this is correct: The cost approach is most reliable when depreciation is minimal or easily measured. A new custom home has negligible physical, functional, or external obsolescence. The value estimate is essentially land value plus known construction costs, which is straightforward. Why the other choices are wrong: A 60-year-old bungalow has significant and difficult-to-measure depreciation. A downtown condominium unit's value is heavily influenced by market comparables and income, not cost. A heavily renovated century farmhouse has complex accrued depreciation from various eras. Exam tip: The cost approach weakens as the property ages or becomes more unique because estimating depreciation becomes the dominant and most subjective step.
More cost-approach Questions
In a cost approach for a proposed building, the appropriate cost basis is generally:
A 45-year-old office building has undergone multiple high-quality renovations, including HVAC replacement, seismic retrofitting, and full interior modernization. Its functional layout remains competitive with new construction, and it occupies a stable, well-located corridor. The appraiser estimates its total economic life at 70 years. Which estimate of effective age is most supportable under USPAP and recognized cost approach methodology?
A warehouse cost $210,000 to build when the cost index stood at 105. The index is now 210. Its indicated current cost is:
An appraiser is estimating accrued depreciation for a commercial office building using the age-life method. The building was constructed in 1992 and has a total economic life of 60 years. As of the appraisal date in 2024, the appraiser determines the property’s effective age is 36 years due to consistent maintenance, modernized systems, and favorable market perception. What is the percent of accrued depreciation indicated by the age-life method?
Which event would RAISE a building's effective age relative to last year's estimate?
Two identical houses were built the same year; one has been meticulously maintained, the other neglected. Their age-life analyses differ because:
Which statement is MOST consistent with USPAP Standards Rule 6 regarding the identification and treatment of external obsolescence in the cost approach?
A 40-year-old industrial warehouse has undergone no major renovations and suffers from outdated electrical systems, inefficient insulation, and obsolescent loading dock design. Market evidence indicates similar properties typically exhibit functional obsolescence reducing utility by 15% and external obsolescence reducing value by 10%. If the appraiser uses the age-life method with a total economic life of 50 years, how should effective age be adjusted to reflect these conditions?
In developing an age-life depreciation estimate, an appraiser assigns an effective age of 16 years and a total economic life of 40 years. Later, the appraiser discovers that comparable properties in the same submarket have recently sold with effective ages averaging 12 years and total economic lives averaging 45 years — and those sales exhibited superior energy efficiency and adaptive reuse features. What is the appraiser’s USPAP-compliant obligation regarding the original effective age estimate?
The age-life method expresses depreciation as:
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Previous Question
A 40-year-old industrial warehouse has undergone no major renovations and suffers from outdated electrical systems, inefficient insulation, and obsolescent loading dock design. Market evidence indicates similar properties typically exhibit functional obsolescence reducing utility by 15% and external obsolescence reducing value by 10%. If the appraiser uses the age-life method with a total economic life of 50 years, how should effective age be adjusted to reflect these conditions?
Next Question
A property has a 1,200 sq ft heated indoor pool room in a market where no comparable has one and pool rooms show no measurable premium. The excess cost is: