What must be checked before adding separate costs to a cost-service base?
Correct Answer
C) Whether the base already covers the same components, such as sitework and contractor overhead/profit.
Verify cost-service inclusions, coverage, date, location and cost basis before applying adjustments. Site work, contractor overhead and profit may otherwise be omitted or counted twice. Purchase financing is distinguished from construction-period financing; the former is not automatically part of production cost.
Why This Is the Correct Answer
Option C is correct because cost-service bases differ in what they include, and contractor overhead and profit may be either built into the unit cost or computed separately. The appraiser should verify which costs are included and which need to be added. That check prevents double counting or omission.
Why the Other Options Are Wrong
Option A: Whether the subcontractor names are printed in the base.
Option A says to check whether subcontractor names are printed in the base. Subcontractor identities have nothing to do with which cost components the base covers, so this does not prevent double counting.
Option B: Whether assessed value equals the service subtotal.
Option B says to check whether assessed value equals the service subtotal. Assessed value is a tax figure, not a test of cost-service coverage, and it does not reveal which components the base already includes.
Option D: Whether the buyer’s loan amount is large enough to justify adding the separate costs to the base estimate.
Option D says to check whether the buyer's loan amount is large enough to justify the added costs. A buyer's purchase financing is not part of production cost, and loan size does not determine which components a cost base already includes.
Read the Base First
Before you add anything to a cost base, read what is already inside it. You cannot add a box that is already in the cart.
How to use: Use this reminder whenever you add separate line items to a cost-service figure.
Exam Tip
Answers about verifying what the data includes are usually stronger than answers about unrelated figures like loan amounts or assessed values.
Common Mistakes to Avoid
- -Adding contractor overhead and profit when the base already includes it
- -Assuming every cost-service base excludes sitework
- -Treating buyer purchase financing as a construction cost
Concept Deep Dive
Analysis
This question tests careful use of cost-service data. Before adding separate costs to a published base, the appraiser must know what the base already includes. Otherwise items such as sitework or contractor overhead and profit may be omitted or counted twice.
Background Knowledge
Cost manuals publish base costs that include some components and exclude others, and they are tied to a date and location. An appraiser reviews the service's inclusions, coverage, date, location and cost basis before making additions or adjustments.
Real-World Application
An appraiser using a cost manual for a house notices the base cost already includes contractor overhead and profit. She does not add a separate overhead line, avoiding a double count, but adds sitework that the base excludes.
More Cost Approach Questions
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Improvement cost new is $595,000. Separately supported improvement depreciation deductions of $48,000, $27,000 are expressly nonoverlapping and not already excluded from cost new. Add supported site value of $155,000, already reflecting any site losses. What total indicated value results?
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Previous Question
The subject is a dwelling with improvement cost new of $530,000 and site value of $135,000. Its effective age is 12 years and its total economic life is 60 years. Three recent sales of highly comparable dwellings in the same subdivision indicate, by market extraction, total depreciation of 30% of improvement cost new, and the appraiser judges this sales evidence to be adequate. What is the most reliable value indication by the cost approach?
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Why can equivalent-utility replacement cost be useful for an obsolete improvement?