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?
Correct Answer
C) Estimate the replacement cost of each unit separately, apply appropriate depreciation, and include them as part of the total improvement value
In the cost approach an ADU and a JADU are improvements that contribute to value, so each is handled the way any other improvement is handled. The appraiser estimates the replacement cost of each unit separately, reflecting the construction standards that apply to it under California's accessory dwelling unit law at Government Code 66310 et seq., with junior units at Government Code 66333 et seq., recodified from former Government Code 65852.2 and 65852.22. Depreciation for age and condition is then deducted, and the depreciated amounts are included in the total improvement value.
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Related Concepts
A fixed-rate mortgage has an interest rate that remains constant for the entire term of the loan, resulting in equal monthly principal and interest payments throughout the life of the mortgage.
Foreclosure is the legal process by which a lender takes possession of a property when a borrower fails to make mortgage payments. It allows the lender to sell the property to recover the outstanding debt.
The loan-to-value ratio (LTV) is the percentage of a property's appraised value or purchase price (whichever is lower) that is being financed through a mortgage. LTV = Loan Amount / Property Value.
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- → 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?
- → 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?
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- → Which of the following is the least important factor used to determine the market value of a property?
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When using the cost approach for a California property, all of the following are deducted from the replacement cost new to arrive at the depreciated improvement value EXCEPT:
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