The DUST framework identifies four factors of value: Demand, Utility, Scarcity, and Transferability. Which factor is MOST responsible for the significant price premium of California beachfront properties over comparable inland properties?
Correct Answer
C) Scarcity, because the physical coastline is finite and regulatory restrictions on new coastal development keep the supply of beachfront properties essentially fixed
Scarcity is the primary driver of the beachfront premium. California's coastline is geographically finite, and the California Coastal Commission — created by voter initiative in 1972 and made permanent by the Coastal Act of 1976 — strictly limits new development along the coast. This regulatory constraint, combined with the physical impossibility of creating new oceanfront land, keeps beachfront supply essentially fixed. High demand intensifies the effect of scarcity, but it is the constrained supply that produces the extreme premium: demand alone cannot create a large price gap without a corresponding supply limitation.
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Related Topics & Key Terms
Key Terms:
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- → The appraisal approach that estimates value by comparing a property to similar recently sold properties is the:
- → The period of time a structure continues to earn sufficient income to continue operations is referred to as the structure’s:
- → 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?
- → A California buyer's agent is reviewing comparable sales data and notices that the county recorder's office lists different documentary transfer tax amounts for similar properties in the same city. Some properties show both a county and city transfer tax, while others show only the county tax. What does this difference indicate about the sale verification process?
- → 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 real estate agent is selecting comparable sales for a CMA on a property in Fresno. The agent finds a sale from 14 months ago in the same neighborhood. Under standard California CMA practice, why might the agent hesitate to use this comparable?
- → A California real estate licensee is preparing a CMA and notices that one comparable property sold in a foreclosure auction conducted by a trustee under a deed of trust. How should this sale be handled in the CMA?
- → Compared to other appraisal factors, appraisers generally find the the most difficult calculation to measure precisely.
- → When a comparable sale used in an appraisal was not an arm’s length transaction, this affects the:
- → A property’s cost basis is most affected by an owner’s:
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