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?
Correct Answer
C) Consider the Mello-Roos-funded improvements as part of the factors that established the land value, and adjust comparable land sales for Mello-Roos status differences
In California's Mello-Roos districts, the special tax funds infrastructure that enhances the land. When estimating land value in the cost approach, the appraiser should recognize that the Mello-Roos-funded improvements (roads, utilities, parks) are already reflected in the comparable land sales prices. If comparing to land outside the Mello-Roos district, adjustments should be made for differences in infrastructure quality and the special tax burden.
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In the cost approach used by California appraisers, all of the following are forms of physical deterioration EXCEPT:
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A California appraiser must estimate the cost of curing functional obsolescence for a home in Palo Alto. The home has an outdated kitchen that does not meet current Silicon Valley market expectations. The cost to renovate the kitchen to current standards is $120,000. An appraiser's paired sales analysis shows that similar kitchen renovations in this California market add $160,000 to property values. A second functional issue is an oversized formal dining room (superadequacy) that cost $40,000 to build but only contributes $15,000 in market value. What is the total functional obsolescence?