Affiliate Broker Tennessee (TN PSI) National Practice Exam `

What is the best approach for appraising newly constructed energy-efficient houses?

1. Sales comparison approach

2. Cost approach

3. Income approach

4. Market analysis approach

The correct answer is: Cost approach

The cost approach is considered the best method for appraising newly constructed energy-efficient houses because it focuses on determining the value based on the cost to replace or reproduce the property, accounting for the value of improvements made for energy efficiency. This approach is particularly useful for new construction as it allows the appraiser to consider the current costs of materials, labor, and technology that contribute to energy efficiency, as these can be distinctly quantified. In the context of newly constructed homes, the cost approach provides a clear understanding of the value of enhancements related to energy efficiency. These homes may include features like advanced insulation, energy-efficient windows, and high-efficiency heating and cooling systems, which can significantly influence their overall value compared to standard construction. By accurately calculating these costs and considering depreciation, an appraiser can arrive at a well-supported market value. While other approaches exist, they may not be as effective in this context. The sales comparison approach relies heavily on comparable sales, which can be challenging to find for very new and unique energy-efficient constructions. The income approach is more suitable for rental properties where cash flows can be analyzed, which doesn't apply to newly constructed single-family homes. The market analysis approach, while providing useful data for understanding trends, does not deliver a specific value for