In which appraisal approach to value would the value for the land be calculated separately?
Correct Answer
D) Cost.
In the cost approach, the appraiser first estimates the value of the land as if it were vacant and available for its highest and best use, typically using the sales comparison method applied to comparable vacant land sales. The appraiser then separately estimates the replacement or reproduction cost of the building new, subtracts all applicable forms of depreciation — physical deterioration, functional obsolescence, and external obsolescence — and adds the resulting depreciated building value to the land value to arrive at a total property value estimate. This two-component structure is the defining characteristic of the cost approach and is why it is the only approach that explicitly and separately calculates land value as a distinct step in the valuation process.
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A VA loan is a mortgage guaranteed by the Department of Veterans Affairs available to eligible veterans, active-duty service members, and surviving spouses. It offers no down payment and no private mortgage insurance requirements.
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Closing costs are the fees and expenses paid by the buyer and seller at the closing of a real estate transaction, beyond the purchase price. They typically range from 2-5% of the purchase price.
More Property Valuation Financial Analysis Questions
Return of an investor’s investment is provided for through:
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?
A California buyer purchases a newly built home in a subdivision that has supplemental property taxes. What triggers the supplemental assessment?
A California homeowner's property is reassessed under Proposition 13 after a change of ownership. The new owner's son later inherits the property. Under Proposition 19, what condition must the son meet to avoid full reassessment to market value?
Which of these is a direct building cost?
- → 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?
- → 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?
- → 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?
- → A California couple, both over 55 and neither having used a base year value transfer before, own two properties: their primary residence (assessed at $300,000, market value $900,000) and a vacation home (assessed at $200,000, market value $600,000). They want to sell both and buy a single new home for $1,200,000 using Proposition 19's base year value transfer. Under Prop 19, what is allowed?
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