Which of the following cost approach factors might require reconciliation?

• A. Site value
• B. Cost new
• C. Accrued depreciation
• D. All of the above

Answer: (D)

In the cost approach, value is built from three main elements: site value (land), replacement cost or cost to construct the improvements (cost new), and depreciation to reflect loss in value of the improvements. Each of these elements can be estimated in different ways with different data sources, and they may not line up perfectly. Reconciliation is the process of weighing these inputs, assessing their reliability, and blending them into a single, supportable value.

Site value can vary because it might be derived from recent land sales, land residual techniques, or other land-value methods, which can produce different numbers. Cost new can differ depending on which costing method is used (for example, unit-in-place vs. quantity survey, or using different index data), leading to alternative estimates. Accrued depreciation can be estimated through various approaches that attribute deterioration and obsolescence to physical wear, functional shortcomings, or external factors, each potentially yielding different depreciation amounts.

Because these components can diverge, reconciliation is often necessary to produce a credible final value from the cost approach. All of the major cost components may require reconciliation.