Humber/Ontario Real Estate Course 4 Exam Practice

Which principle forms the foundation of the cost approach when applied to resale property?

1. Based on various measures of depreciation

2. Primarily hinged on conformity

3. Relies on an objective evaluation

4. Utilized solely for specialized industrial structures

5. Determines market trends for appraisal

6. Depends on subjective value calculations

The correct answer is: Relies on an objective evaluation

The principle that forms the foundation of the cost approach when applied to resale property is rooted in an objective evaluation of property value. This approach emphasizes calculating the value of a property based on the cost to replace or reproduce it, accounting for depreciation as well. By utilizing objective data such as construction costs, land value, and depreciation rates, appraisers can arrive at a fair market value for the property. This method is particularly useful for properties where comparable sales data is limited or where unique attributes necessitate a focus on the actual costs involved in developing or maintaining the property. Therefore, the reliance on an objective evaluation ensures that the appraisal is based on factual and measurable data, making it a robust method in the cost approach framework. The other choices involve aspects that, while relevant in certain contexts, do not directly underpin the cost approach as fundamentally as an objective evaluation does. For example, while measures of depreciation are important, they are part of the overall calculation rather than the foundational principle; conformity pertains more to uniformity in property types than to the cost approach itself; specialized structures can use cost approaches, but this does not encompass all resale properties, and market trends may influence appraisals but do not form the basis of the cost method. Subjective value calculations