When the cost approach is developed, the appraiser must also:
Correct Answer
A) Develop an opinion of the site value separately from the improvements
Why this is correct: The cost approach formula is: Value = Land Value + (Cost New of Improvements - Depreciation). Therefore, a separate, supported opinion of site value is a necessary component of the approach. This site value must reflect the property's highest and best use. Why the other choices are wrong: 'Obtain a signed cost estimate from a licensed general contractor' is not required; the appraiser can develop the cost estimate. 'Depreciate the land at the same annual rate as the improvements' is wrong; land is not depreciated. 'Confirm the original construction budget from the county's records' is unnecessary; current cost is what matters. Exam tip: In the cost approach, you must value the land separately. Land is not depreciated.
Why This Is the Correct Answer
Why this is correct: The cost approach formula is: Value = Land Value + (Cost New of Improvements - Depreciation). Therefore, a separate, supported opinion of site value is a necessary component of the approach. This site value must reflect the property's highest and best use. Why the other choices are wrong: 'Obtain a signed cost estimate from a licensed general contractor' is not required; the appraiser can develop the cost estimate. 'Depreciate the land at the same annual rate as the improvements' is wrong; land is not depreciated. 'Confirm the original construction budget from the county's records' is unnecessary; current cost is what matters. Exam tip: In the cost approach, you must value the land separately. Land is not depreciated.
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