An appraiser in California is using the cost approach to value a newly constructed home in a master-planned community in the Inland Empire. Under California appraisal practice, which type of cost estimate is MOST commonly used for a recently built residential property?
Correct Answer
D) Replacement cost, which estimates the cost to build a structure with similar utility using current materials and building standards
Under USPAP and California appraisal practice, replacement cost is the most commonly used cost estimate for residential properties. It estimates the cost to construct a building with equivalent utility using current construction standards, materials, and design. For a newly built home, replacement cost closely approximates the actual construction cost and is the preferred method.
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Related Concepts
RESPA is a federal law that requires lenders to provide borrowers with information about settlement costs, prohibits kickbacks and referral fees, and limits escrow account deposits. It applies to federally related mortgage loans.
The secondary mortgage market is where existing mortgage loans are bought and sold between lenders, investors, and government-sponsored enterprises (GSEs) like Fannie Mae, Freddie Mac, and Ginnie Mae.
TILA is a federal law that requires lenders to disclose the true cost of credit to borrowers, including the annual percentage rate (APR), total finance charges, and loan terms. It is implemented by Regulation Z.
More Property Valuation Financial Analysis Questions
Return of an investor’s investment is provided for through:
An appraiser in California is estimating external obsolescence for a residential property adjacent to a state-designated Superfund cleanup site in the San Fernando Valley. The contamination is on the neighboring property, not the subject. The appraiser determines through paired sales that properties near the site sell for 12% less than similar properties further away. In the cost approach, how should this external obsolescence be allocated?
A California buyer purchases a newly built home in a subdivision that has supplemental property taxes. What triggers the supplemental assessment?
A California homeowner's property is reassessed under Proposition 13 after a change of ownership. The new owner's son later inherits the property. Under Proposition 19, what condition must the son meet to avoid full reassessment to market value?
Which of these is a direct building cost?
- → A California home was purchased in 2020 for $750,000. In 2023 the owner completed a permitted ADU, to which the county assessor assigned a base year value of $200,000 on completion. The owner sells in 2026. Under Proposition 13, how is the property assessed immediately before that sale closes?
- → A 6-unit apartment building in San Francisco is subject to rent control. Contract rents total $15,800 per month. The appraiser uses a 3% vacancy and collection loss, annual operating expenses of $72,000, and a 4.5% capitalization rate to reflect rent control risk. What value does the income approach indicate on contract rents?
- → Which valuation method estimates the current cost to build a structure of equivalent utility, deducts accrued depreciation, and adds land value, and is relied on for unique properties when comparable sales are unavailable?
- → Under the replacement cost approach of appraisal, an appraiser is least interested in:
- → A buyer in San Jose purchases a home for $800,000 using a conventional loan with 20% down payment. Under Proposition 13, the base property tax rate is 1% of assessed value, plus a local Mello-Roos assessment of $2,400 per year. What is the buyer's total annual property tax in the first year?
- → A California appraiser is valuing a property that has both an ADU (Accessory Dwelling Unit) and a JADU (Junior Accessory Dwelling Unit) built under California's recent ADU legislation. Using the cost approach, how should the appraiser handle these additional units?
- → When conducting a sales comparison analysis in California, an appraiser discovers that the subject property has an Accessory Dwelling Unit (ADU) that was built under California's recent ADU legislation. How should the appraiser handle this feature?
- → A California appraiser is using the income approach for a rental property and must determine whether to include ADU (Accessory Dwelling Unit) rental income. The property has a legally permitted ADU that rents for $1,500/month. How should the appraiser treat this ADU income?
- → According to the principle of contribution, which scenario best illustrates an improvement that adds less value than it cost to build?
- → A California couple, both over 55 and neither having used a base year value transfer before, own two properties: their primary residence (assessed at $300,000, market value $900,000) and a vacation home (assessed at $200,000, market value $600,000). They want to sell both and buy a single new home for $1,200,000 using Proposition 19's base year value transfer. Under Prop 19, what is allowed?
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Previous Question
A California appraiser is valuing a condominium in downtown San Diego. Under Proposition 19 (effective February 2021), certain intergenerational transfers may receive partial reassessment exclusions. The appraiser identifies a comparable condo that was a parent-to-child transfer where the child received a Prop 19 exclusion. The child subsequently sold the condo six months later at market value. Should the appraiser use this subsequent sale as a comparable?
Next Question
An appraiser is estimating the cost new of improvements for a single-family home using the cost approach. The living area is 1,800 sq ft at $285 per sq ft. The attached garage is 600 sq ft at $95 per sq ft. Site improvements (driveway, landscaping, and pool) are estimated at $65,000. What is the total cost new of improvements before depreciation?