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 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:
A 2,050 sq ft dwelling is priced at $178 per square foot with a $34,000 detached garage and $21,500 of site improvements. Cost new is:
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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Previous Question
A house lacks a second bathroom. Adding one now would cost $14,000; including it during construction would have cost $9,000. What functional obsolescence does the deficiency represent?
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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: