Illinois Real Estate Practice Exam

When estimating the value of a property using the cost approach, what should the appraiser consider?

1. The replacement cost of the property's improvements

2. Market demand for similar properties

3. The property's rental potential

4. The property's purchase price history

The correct answer is: The replacement cost of the property's improvements

When estimating the value of a property using the cost approach, the appraiser should consider the replacement cost of the property's improvements. This approach involves determining the cost to replace the property with a property of equal utility, using current construction costs and materials. By focusing on the replacement cost of the improvements, the appraiser can calculate an accurate value for the property based on its structure and features. Options B, C, and D are incorrect because the cost approach specifically looks at the physical characteristics and value of the property itself, rather than market demand, rental potential, or purchase price history. While these factors may be considered in other valuation methods, they are not the primary focus of the cost approach.