Certified Residential Appraiser Practice Exam

In appraisal language, what does "appraising new properties" typically require?

1. Comparative market studies

2. Cost approach consideration

3. Historical analysis

4. Future market predictions

The correct answer is: Cost approach consideration

The phrase "appraising new properties" involves assessing the value of properties that are newly constructed or have not previously been sold on the market. In these cases, the cost approach is particularly relevant. This approach estimates the value of a property based on the costs associated with rebuilding it from scratch, factoring in the costs of land acquisition, construction, and any necessary improvements, alongside depreciation. When appraising new properties, appraisers often do not have a large pool of comparable sales, as such properties may not have established a market history yet. Hence, relying on comparative market studies may be more challenging. Additionally, historical analysis is not as applicable because new properties typically don't have a significant past to analyze. Future market predictions can inform an appraiser about potential value trends, but they do not directly reflect the current value based on construction costs and current market conditions. Thus, considering the costs associated with building the property thoroughly supports a comprehensive understanding of its current value.