An appraiser in California is explaining the cost approach to a client. The client asks when this approach is most reliable. In California appraisal practice, the cost approach is MOST reliable for which type of property?
Correct Answer
D) New or relatively new construction where depreciation is minimal and construction costs are verifiable
The cost approach is most reliable for new or relatively new construction because the replacement cost can be accurately estimated from actual construction costs, and depreciation is minimal or nonexistent. As buildings age, estimating accumulated depreciation becomes increasingly subjective, reducing the reliability of the cost approach.
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Previous 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?
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Which statement best explains why the cost approach is typically the most applicable valuation method for special-purpose properties such as churches?