17. A broker is developing an opinion of value by starting with the value of the land, adding the price to construct the improvements, and then subtracting the amount of accrued depreciation. The broker is estimating the property value using the
Answer: A
Cost Approach
The broker is estimating the property value using the cost approach, which involves calculating the value of the land, adding the construction costs of the improvements, and subtracting accrued depreciation.
A) cost approach.
This option is correct as it accurately describes the method the broker is using to estimate property value by focusing on the costs associated with land and improvements, adjusted for depreciation.
B) income approach.
The income approach is incorrect because it values property based on the income it generates rather than the costs of construction or depreciation. This method typically involves analyzing rental income and capitalization rates, which is not applicable in the scenario presented.
C) gross rent multiplier.
The gross rent multiplier is not applicable here as it is a method used to evaluate investment properties based on their rental income relative to their purchase price. This approach does not consider the costs of land and improvements or depreciation, which are central to the broker's estimation.
D) market comparison approach.
The market comparison approach is incorrect because it estimates property value based on comparable sales in the market rather than the costs associated with constructing improvements and the land value. The broker's method does not involve analyzing similar properties' sale prices.
Conclusion
The cost approach is the only method that aligns with the broker's process of determining property value through a comprehensive assessment of land value, construction costs, and depreciation. All other options fail to address this specific calculation method, confirming that the cost approach is the definitive correct answer.