California Real Estate Practice Exam

Amenity type properties are appraised most often by which of the following methods?

1. Cost method

2. Income method

3. Market data method

4. Risk-rating method

The correct answer is: Cost method

Amenity-type properties, which typically include residential properties that offer various features such as pools, gyms, or scenic views, are most frequently appraised using the cost method. This approach involves calculating the current cost to replace or reproduce the property, factoring in depreciation for any wear and tear or functional obsolescence. This method is particularly suitable for amenity-type properties because it allows appraisers to account for the value added by specific amenities. For instance, if a property has a newly built swimming pool, the cost method can directly assess how much value that pool has contributed to the property. In contrast, the other methods, such as the income method, which evaluates properties based on their ability to generate income, or the market data method, which compares similar properties in the area, might not give an accurate reflection of a property with unique amenities. The risk-rating method is not standard in property appraisal and would not apply here. Therefore, the cost method stands out as the most appropriate for valuing amenity-rich properties.