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.
More USPAP Questions
Which statement best defines a hypothetical condition under USPAP?
According to the Competency Rule, if an appraiser lacks the knowledge and experience to complete an assignment competently, which action is NOT acceptable?
An appraiser runs only the sales comparison approach on a standard tract home and omits the cost and income approaches. Under Standard 1 this is:
A value opinion for a subdivision as if fully built out two years from now is what kind of assignment, and what does it require?
A hypothetical condition differs from an extraordinary assumption in that a hypothetical condition:
An appraiser must disclose in the certification whether they have:
A client-imposed requirement — 'use only comps from our approved list' — is best described as:
Under Standard 1, when developing a real property appraisal, an appraiser must:
The certification required by Standards Rule 2-3 must be signed by:
According to Standard 1, when developing an opinion of market value, an appraiser must analyze:
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