CGA Cost Approach 3

Question 1

An appraiser uses the 'sales comparison (market extraction)' method to estimate depreciation. What data is primarily analyzed?

Accepted Answer

Sales of improved properties compared to land value and cost new

Answer

Market extraction derives depreciation by subtracting land value and cost new from the sale price of comparable improved properties, reflecting what the market actually recognizes.

Question 2

When estimating site value in the cost approach, which method is most appropriate when there are adequate sales of comparable vacant land?

Accepted Answer

Sales comparison approach

Answer

The sales comparison approach is the preferred method for estimating land value when sufficient sales of similar vacant parcels are available in the market.

Question 3

The 'allocation method' of land valuation is used when:

Accepted Answer

No vacant land sales exist and ratios from comparable markets are applied

Answer

The allocation method applies a typical land-to-total-value ratio (derived from similar markets) to the subject's total value when direct vacant land sales are unavailable.

Question 4

What is meant by 'economic life' of an improvement in the cost approach?

Accepted Answer

The total period over which improvements contribute to property value

Answer

Economic life is the total period during which an improvement is expected to contribute to property value, used as the denominator in the age-life depreciation method.

Question 5

A property has a cost new of $500,000 and accrued depreciation of $125,000. Site value is $100,000. What is the value indicated by the cost approach?

Accepted Answer

$475,000

Answer

Cost approach value = (Cost New − Depreciation) + Site Value = ($500,000 − $125,000) + $100,000 = $475,000.

(CGA) Certified General Appraiser Practice Test

(CGA) Certified General Appraiser Practice Test

CGA Cost Approach 3