Under Standard 1, when must an appraiser develop the cost approach?
Correct Answer
D) When it is necessary for credible assignment results
Standards Rule 1-4(b) requires a cost approach when it is necessary for credible assignment results. The appraiser then develops site value, cost new and depreciation using appropriate methods and available data. It is not mandatory in every assignment or only for new construction.
Why This Is the Correct Answer
Option D is correct because Standards Rule 1-4(b) applies when a cost approach is necessary for credible assignment results. In that case the appraiser develops site value, cost new and depreciation with appropriate methods and data. The trigger is necessity for credibility, not a fixed category.
Why the Other Options Are Wrong
Option A: For all real property appraisals of any kind
Option A, requiring the cost approach for all real property appraisals of any kind, is wrong because USPAP requires it only when it is necessary for credible results.
Option B: Whenever the client is a federally regulated lender
Option B, requiring it whenever the client is a federally regulated lender, is wrong because the client's identity is not USPAP's trigger; the test is necessity for credible results.
Option C: For new construction, and not for existing homes
Option C, requiring it for new construction and not for existing homes, is wrong because USPAP does not split the requirement by construction status; the approach may be necessary for an existing home or unnecessary for a new one.
Necessary for credibility decides
For any approach to value, ask one question: is it necessary for credible assignment results?
How to use: Use the necessity question to reject answers based on property type, age or client type.
Exam Tip
When asked when an approach must be developed, look for the phrase necessary for credible assignment results.
Common Mistakes to Avoid
- -Believing the cost approach is required in every appraisal
- -Tying the requirement to lender type
- -Thinking the cost approach applies only to new construction
Concept Deep Dive
Analysis
This question tests when Standard 1 requires the cost approach. USPAP ties the requirement to whether the approach is necessary for credible assignment results. It does not set a blanket rule by property type, age or client.
Background Knowledge
USPAP applies the same test to each approach: develop it when it is necessary for credible assignment results. When the cost approach is developed, the appraiser estimates site value, replacement or reproduction cost new and accrued depreciation. If an approach is not developed, an Appraisal Report must state the reason.
Real-World Application
For a unique custom home with few comparable sales, an appraiser decides the cost approach is necessary for credible results. She develops site value from land sales and estimates cost new and depreciation.
More USPAP Questions
Under USPAP, what are assignment results?
The certification required by Standards Rule 2-3 must be signed by:
Under 2024 USPAP, which statement correctly combines the requirements for an oral real property appraisal report and its workfile?
An appraiser accepts an assignment involving a property type the appraiser has valued once before, years ago. Competency requires:
A Certified General appraiser is asked to value a specialized industrial property for the first time. The appraiser knows a competency gap exists before agreeing to the assignment. What is required if the appraiser proceeds?
Under 2024 USPAP Standard 1, which listed assignment element must be identified in developing a real property appraisal?
An appraiser provided an appraisal of the same property for another client 18 months ago. No confidentiality obligation prevents disclosing the fact of that service. Before agreeing to a new assignment, the appraiser must:
According to USPAP, what is the primary purpose of the Ethics Rule?
An appraiser is asked to determine 'fair market value' for an assignment. According to USPAP, the appraiser should:
Which list gives the sections of the 2024 USPAP Ethics Rule?
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