Question 15

The broker is estimating the property value using the cost approach.

The cost approach involves determining the value of a property by calculating the cost of land and improvements, while accounting for any depreciation. In this case, the broker is applying this method by starting with the land value, adding construction costs, and subtracting accrued depreciation.

A) cost approach.

This option is correct because the cost approach is explicitly defined by the process of valuing a property based on the costs associated with its land and improvements, minus depreciation. The broker's method aligns perfectly with this definition, demonstrating a clear understanding of this valuation approach.

B) income approach.

The income approach is incorrect in this context as it focuses on the potential income that a property can generate rather than the costs associated with its construction and land value. The broker's method does not consider income generation but rather the physical costs involved.

C) gross rent multiplier.

This option is also incorrect because the gross rent multiplier is a valuation method that estimates property value based on rental income. The broker's approach does not involve rental income analysis, making this choice unsuitable.

D) market comparison approach.

The market comparison approach is not applicable here as it relies on comparing similar properties that have sold recently to determine value. The broker's methodology does not involve comparative analysis but rather a cost-based evaluation, rendering this option incorrect.

Conclusion

The cost approach is definitively the correct answer, as it accurately describes the method the broker is using to estimate property value through direct calculation of costs and depreciation. All other options fail to match the specific valuation process being utilized, highlighting the distinctiveness of the cost approach in property appraisal.