A California appraiser is using the cost approach and determines that a home's swimming pool cost $60,000 to build. However, paired sales analysis in the local California market shows that pools add only $30,000 to property values. In the cost approach, how should the appraiser handle this situation?
Correct Answer
C) Include the pool at $60,000 replacement cost but recognize $30,000 as a superadequacy, representing $30,000 in functional obsolescence
In the cost approach, the pool is included at its full replacement cost ($60,000) as part of the cost new. However, the difference between the cost ($60,000) and the market value contribution ($30,000) represents a superadequacy — a form of functional obsolescence equal to $30,000. This depreciation is then subtracted as part of total accrued depreciation.
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Previous Question
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?
Next Question
An appraiser in California is estimating external obsolescence for a residential property adjacent to a state-designated Superfund cleanup site in the San Fernando Valley. The contamination is on the neighboring property, not the subject. The appraiser determines through paired sales that properties near the site sell for 12% less than similar properties further away. In the cost approach, how should this external obsolescence be allocated?