In the cost approach, a California appraiser must distinguish between direct costs and indirect costs of construction. Which of the following is an example of an INDIRECT cost in California construction?
Correct Answer
B) Architectural and engineering fees, building permit fees
Indirect costs (also called soft costs) are expenses that are necessary for the construction process but are not directly part of the physical construction itself. In California, these include architectural and engineering fees, building permit fees (which are notably higher in many California jurisdictions), construction financing costs, insurance during construction, and developer overhead.
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Previous Question
A Malibu coastal property has a land value of $3,500,000 and depreciated improvements of $250,000, yielding a cost approach indication of $3,750,000. Comparable sales, however, suggest a value of $4,200,000. What does this $450,000 discrepancy MOST likely indicate?
Next Question
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 (direct capitalization), what is the estimated value of the property?