A California appraiser is using the cost approach for a property in a designated California Coastal Commission permit area. The property's improvements could not be rebuilt as-is if destroyed because the Coastal Commission would require setbacks and height restrictions under the current California Coastal Act. How does this affect the cost approach?
Correct Answer
D) The appraiser should estimate the replacement cost of what could legally be built under current Coastal Commission requirements, which may be a smaller or differently configured structure
Under California appraisal practice, when current regulations (such as California Coastal Commission requirements under Public Resources Code §30000 et seq.) would not permit rebuilding the existing improvements, the appraiser should estimate the cost of improvements that COULD legally be built. This reflects the economic principle that value is limited by what could be legally constructed on the site.
Why This Is the Correct Answer
Why the Other Options Are Wrong
Deep Analysis of This Property Valuation Financial Analysis Question
Background Knowledge for Property Valuation Financial Analysis
Real World Application in Property Valuation Financial Analysis
Common Mistakes to Avoid on Property Valuation Financial Analysis Questions
Related Topics & Key Terms
Key Terms:
More Property Valuation Financial Analysis Questions
Example of economic obsolescence in real estate?
Which appraisal report type do California lenders commonly rely on for single-family residence financing?
Return of an investor’s investment is provided for through:
All of the following are one of the four important elements of value, except:
Which of the following is the least important factor used to determine the market value of a property?
- → 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?
- → The appraisal approach that estimates value by comparing a property to similar recently sold properties is the:
- → The period of time a structure continues to earn sufficient income to continue operations is referred to as the structure’s:
- → 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?
- → A California real estate agent is selecting comparable sales for a CMA on a property in Fresno. The agent finds a sale from 14 months ago in the same neighborhood. Under standard California CMA practice, why might the agent hesitate to use this comparable?
- → 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?
People Also Study
Buyer Representation Agreement
8% of exam
Property Ownership
10% of exam
Land Use Controls and Regulations
8% of exam
Valuation and Market Analysis
10% of exam
Previous Question
An appraiser in California is using the cost approach to value a home that was built in compliance with California's CalGreen (Title 24, Part 11) mandatory green building standards. The home includes solar panels, low-flow fixtures, and enhanced insulation beyond what older homes have. How should these CalGreen features affect the cost approach analysis?
Next Question
An appraiser in California is using the cost approach to value an older home with an unpermitted addition discovered during the visual inspection. The addition was built without a California building permit and does not appear to comply with local building codes. Under California appraisal practice, how should the appraiser handle this?