Valuation and Financing Practice Question

Question

An investor is comparing two properties involving cost approach. The parties need a practical answer before moving forward. Which answer best applies the rule? (Item 4)

Answer choices

1. A. It is controlled only by local custom rather than by law, contract, or professional duty.
2. B. It is valid only when the buyer pays cash and no lender is involved.
3. C. It prevents any later disclosure, even when new facts become known.
4. D. Use replacement cost minus depreciation plus land value.

Correct Answer

D. Use replacement cost minus depreciation plus land value.

Explanation

The correct answer is D because cost approach requires candidates to use replacement cost minus depreciation plus land value. The other options overstate the effect of custom, oral agreement, escrow, or independent salesperson action and do not reflect safe California exam practice.

Question details

• Difficulty: medium
• Domain: Valuation and Financing
• Objective: cost approach

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