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?
Correct Answer
A) Apply the 12% reduction only to the improvement value, not the land value
In the cost approach, site value is estimated from sales of comparable sites, and sites near the cleanup area already trade at the discounted level, so the land's share of the locational loss is already built into the land figure the appraiser carries into the calculation. The paired-sales loss is therefore allocated between land and improvements, and only the improvements' share is deducted as external obsolescence; taking the full loss out of land again would charge the same loss twice. External obsolescence is also deducted after physical deterioration and functional obsolescence rather than off replacement cost new.
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Previous Question
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?
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