What combination should be checked when applying a cost-service base?
Correct Answer
B) Class, quality, coverage, date and location basis, and adjustments
Verify classification, quality, scope, date, location, inclusions and necessary multipliers. The publication/date basis can matter and is not an automatically wrong consideration. Subscriber count and contractor names do not by themselves establish a suitable unit rate.
Why This Is the Correct Answer
Option B is correct because a cost-service base is suitable only if its class, quality, coverage of included costs, date basis and location basis match or are adjusted to the subject. The appraiser should verify which costs are included and which need to be added, and apply needed current and local multipliers.
Why the Other Options Are Wrong
Option A: The total number of subscribers to the cost service
Option A, the total number of subscribers to the cost service, says nothing about whether a unit rate fits the subject. Popularity of a service does not establish a suitable cost.
Option C: Ignore the base date, since cost multipliers do not change over time
Option C says to ignore the base date because cost multipliers do not change over time, which is wrong. Costs change over time, so the base date and current multipliers matter.
Option D: The names of contractors listed by the cost service
Option D, the names of contractors listed by the cost service, does not establish whether a unit rate matches the subject's class, quality, scope, date or location.
Match it, then adjust it
First match the base to the subject by class and quality, then adjust it for what it covers, when it was priced and where.
How to use: Use this check before applying any published cost-service rate.
Exam Tip
Choose answers that tie the cost rate to the subject's characteristics and to time and location, not to facts about the publisher.
Common Mistakes to Avoid
- -Using a cost rate without applying current and local multipliers
- -Assuming a published rate includes all needed cost items
- -Choosing a rate for the wrong quality or construction class
Concept Deep Dive
Analysis
This question tests what an appraiser must verify before relying on a cost-service unit cost. The base cost has to match the subject in class and quality, and its coverage, date and location basis must be known so proper adjustments can be made. Unrelated facts about the service itself do not make a rate suitable.
Background Knowledge
Cost services organize unit costs by characteristics such as design type, construction type, quality class, area and shape. Appraisers must check what costs a rate includes, add items not covered, and apply time and location multipliers to bring the base to the subject's market and effective date.
Real-World Application
An appraiser selects a cost-manual rate for an average-quality wood-frame house and checks whether it includes the garage and porches. The appraiser then applies the manual's current and local multipliers so the rate reflects the subject's area and the effective date.
More Cost Approach Questions
Why can equivalent-utility replacement cost be useful for an obsolete improvement?
An appraiser estimates the current replacement cost new of the improvements at $890,000, accrued depreciation from all causes at $170,000, and land value at $325,000. All necessary cost components and depreciation are included in those amounts. What is the indicated property value?
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?
What best supports a claimed loss from a bathroom-layout deficiency?
Improvement cost new is $1,850,000. Separately supported improvement depreciation deductions of $310,000, $620,000 are expressly nonoverlapping and not already excluded from cost new. No site is included. What depreciated improvement amount results?
Which scenario most strongly supports giving the cost approach substantial weight?
A cost total $650,000 explicitly includes $40,000 of non-realty FF&E outside the appraised real-property interest. Exclude it. Supported realty-only total depreciation is $55,000. Add site $200,000, with no overlap. What real-property cost indication results?
A 2,200-sf dwelling costs $200 per square foot, and a separate 400-sf garage costs $75 per square foot. These costs are complete and do not overlap. Both have an effective age of 15 years and a total life of 50 years, with straight-line depreciation and no salvage value. No site value or other loss is involved. What is the combined depreciated cost of the dwelling and garage?
A new feature in the improvements has a current cost of $45,000 and a market contribution of $18,000. The entire difference is due to superadequacy, with no physical or external loss and no overlap. What is the loss from the superadequacy?
An external influence causes an annual net income loss of $9,600. The capitalization rate for the loss is 8%, and no other economic factors change. What is the indicated loss in value of the whole property, before allocation between site and improvements?
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Previous Question
An appraiser measures depreciation in two parts that do not overlap: a separate $12,000 curable allowance, and 20% of the cost new remaining after that allowance is removed. Cost new is $400,000. What is the total depreciation?
Next Question
The improvements have direct costs of $320,000, indirect costs of $40,000 and a separate entrepreneurial incentive of $40,000. These amounts do not overlap and make up the full cost of the improvements. Total depreciation is estimated at 22% of their sum, and the site value is $180,000. What is the indicated value by the cost approach?