In the cost approach used by California appraisers, all of the following are forms of physical deterioration EXCEPT:
Correct Answer
A) A home's floor plan with only one bathroom in a California market where two bathrooms are standard
A floor plan with only one bathroom in a market where two are standard is functional obsolescence, not physical deterioration. It represents a deficiency in the property's design or layout relative to current market standards, not actual physical wear, decay, or damage to the structure.
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- → A 4-unit apartment building in Sacramento has monthly rents of $1,500 per unit. The submarket vacancy rate is 5%. Annual operating expenses are $28,800. The prevailing cap rate for comparable properties is 6%. Using the income approach, what is the estimated value of the property?
- → Under California law, when a real estate licensee prepares a Comparative Market Analysis (CMA) for a property, what is the legal distinction between a CMA and a formal appraisal?
- → Owner converted master bedroom into 'granny flat' costing $50,000 but adding $30,000 value. Later, kitchen remodel cost $15,000 but added $20,000 value. Which statement is correct?
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- → An appraiser in California is using the cost approach for a property in Sacramento and must account for entrepreneurial profit (also called developer's profit). A local developer confirms that typical profit margins in the Sacramento market are 15-20% of total development costs. How should the appraiser handle entrepreneurial profit?
- → A California buyer's agent is reviewing comparable sales data and notices that the county recorder's office lists different documentary transfer tax amounts for similar properties in the same city. Some properties show both a county and city transfer tax, while others show only the county tax. What does this difference indicate about the sale verification process?
- → 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?
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- → A California real estate licensee is preparing a CMA and notices that one comparable property sold in a foreclosure auction conducted by a trustee under a deed of trust. How should this sale be handled in the CMA?
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Previous Question
An appraiser is valuing a 40-year-old Los Angeles apartment building using the cost approach. Replacement cost new (RCN) = $3,200,000. Physical deterioration: curable deferred maintenance = $80,000; incurable short-lived items = $120,000; incurable long-lived items = $200,000. Functional obsolescence (superadequacy) = $60,000. External obsolescence = $160,000. Land value = $2,400,000. What is the indicated value via the cost approach?
Next Question
A California appraiser is using the cost approach to value a property in a Mello-Roos Community Facilities District. The Mello-Roos special tax funds infrastructure improvements such as roads, sewers, and parks in the district. How should the appraiser treat the Mello-Roos-funded infrastructure when estimating land value?