Land is valued separately by sales comparison and never depreciates
Before you read
Test yourself first: 5 questions
Question 1 of 5
An appraiser values a 20-year-old duplex. The most reliable approach is likely:
Answer: B. Small residential income property leans on comparable sales and the income approach; reconciliation weighs them. Cost is weakest for older buildings (depreciation is hard to estimate), and GRM alone is a rough check, not a primary method.
Question 2 of 5
Accrued depreciation in the cost approach represents:
Answer: A. Accrued depreciation is the cumulative loss in value (physical, functional, external) subtracted from current building cost.
Question 3 of 5
A building has a reproduction cost of $300,000 and is 25% depreciated. The land is worth $80,000. Using the cost approach, the indicated value of the property is:
Answer: A. Depreciated improvement value = $300,000 minus 25% ($75,000) = $225,000; add land of $80,000 for an indicated value of $305,000.
Question 4 of 5
An appraiser values a small office building. The income approach indicates $820,000, the sales comparison approach $810,000, and the cost approach $760,000. For an income property, reconciliation would most likely give the greatest weight to:
Answer: B. For an income-producing property, the income approach is usually the most relevant and reliable indicator, so it generally receives the greatest weight in reconciliation.
Question 5 of 5
Which valuation approach is generally MOST appropriate for estimating the value of an income-producing investment property such as an apartment building?
Answer: B. Income-producing properties are bought for the cash flow they generate, so the income approach, which converts income into value, is the most relevant method.
Keep the streak going with more questions like these, each with a full rationale.
Must-know rules
- Value = land value + replacement/reproduction cost NEW − depreciation
- Reproduction: exact duplicate; Replacement: same utility, modern materials (usual choice)
- Best for: NEW or special-use buildings (schools, churches) with no comps or income
- Land is valued separately by sales comparison and never depreciates
- Sets the practical ceiling of value for new construction
Cost Approach — Build It Fresh: FAQs
Is Cost Approach — Build It Fresh on the real estate exam?
Yes. Valuation & Appraisal is a scored domain on the real estate licensing exam, and this topic appears in the national portion.
Is this cheat sheet free?
Yes — every page on Cinna RE's resource library is free to read, print and share. The app adds practice questions, mock exams and a readiness score.
