Why is external obsolescence allocated between land and improvements in the cost approach?
Correct Answer
A) The site value estimate may already reflect the location's damage
Why this is correct: External obsolescence affects the entire property. If land value is estimated from comparables in the same blighted area, it already reflects part of the loss. Allocating prevents double-counting by deducting only the improvement's share from the cost approach. Why the other choices are wrong: "Because land physically absorbs damage much faster than buildings do" is not true; land is often more durable. "To reduce the appraiser's liability exposure" is not the primary reason. "Because lenders require split reporting" is not a standard requirement. Exam tip: In cost approach, allocate external obsolescence between land and improvements to avoid double-counting if land value already reflects the condition.
Why This Is the Correct Answer
Why this is correct: External obsolescence affects the entire property. If land value is estimated from comparables in the same blighted area, it already reflects part of the loss. Allocating prevents double-counting by deducting only the improvement's share from the cost approach. Why the other choices are wrong: "Because land physically absorbs damage much faster than buildings do" is not true; land is often more durable. "To reduce the appraiser's liability exposure" is not the primary reason. "Because lenders require split reporting" is not a standard requirement. Exam tip: In cost approach, allocate external obsolescence between land and improvements to avoid double-counting if land value already reflects the condition.
More Cost Approach Questions
In a cost approach for a proposed building, the appropriate cost basis is generally:
A warehouse cost $210,000 to build when the cost index stood at 105. The index is now 210. Its indicated current cost is:
The age-life method expresses depreciation as:
Market extraction of depreciation is limited by the fact that it:
Functional obsolescence caused by a deficiency is measured as curable when:
Curable physical deterioration is measured at cost to cure because:
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Direct costs in a construction budget include:
An appraiser writes that a 40-year-old house has an effective age of 10 but describes original wiring, original kitchen and a 25-year-old roof. The report's problem is:
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