Real Estate Appraisal Practice Exam

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Which formula is used with the cost approach to develop an opinion of value?

Net Income + Market Value = Total Value
Sales Price - Closing Costs = Buyer Offer
Reproduction/replacement cost - accrued depreciation + site value = property value
Appraised Value + Land Value = Home Value

The correct answer is: Reproduction/replacement cost - accrued depreciation + site value = property value

The formula that is utilized with the cost approach to establish an opinion of value is the one that states reproduction or replacement cost, minus accrued depreciation, plus site value, equals property value. This method focuses on what it would cost to recreate the property at current prices, while also taking into account any loss in value due to wear and tear or obsolescence, represented by accrued depreciation. Additionally, it includes the value of the land itself, which is a crucial component in determining the overall property value. This formula aligns perfectly with the cost approach, as it emphasizes the intrinsic costs associated with the property, including both the physical structure and the land component. By calculating the reproduction or replacement cost and factoring in depreciation, appraisers can estimate the current value of the property in its existing condition, thus providing a comprehensive view of its worth based on the costs associated with creating a similar property today.