What is the exam-ready answer?
| Official syllabus topic | Cost Approach to Value |
|---|---|
| Official PSI area | Valuation and Market Analysis |
| Published area weight | 8% of the 100-question national portion |
| Exam portion | National salesperson portion |
| Source edition | PSI Georgia Candidate Information Bulletin dated July 1, 2026 |
The Rule
PSI publishes the weight for the complete content area, not a fixed question count for this lesson. Learn the rule well enough to apply it when PSI changes names, numbers, or parties in a new scenario.
The lesson
These ideas work together. On the exam, the wrong answers usually describe a nearby concept, so learn where each one stops.
Replacement and reproduction
Replacement cost creates equivalent utility with modern materials and standards. Reproduction cost creates a replica using the same design and materials as closely as possible.
Three depreciation categories
Physical deterioration concerns wear or damage. Functional obsolescence arises within the property. External obsolescence comes from outside the property.
Land value
Land is valued separately, commonly through market comparison, because appraisal depreciation applies to improvements rather than land itself.
Accrued depreciation
Accrued depreciation is total loss in value from all causes as of the effective date, not merely accounting depreciation or age.
Decision rule
Georgia-specific distinction
Worked example
Scenario. Land is worth $90,000, replacement cost new is $360,000, and accrued depreciation is $75,000.
Reason it through. Depreciated improvement value is $360,000 minus $75,000, or $285,000. Add land value.
Answer. The cost-approach indication is $375,000.
Common exam traps
- Depreciating land
- Adding depreciation
- Confusing reproduction with replacement
- Using book depreciation as appraisal loss
Original practice questions with detailed explanations
These questions were written for instruction and mapped to the current outline. They are not copied from PSI or any live examination. Choose an answer before opening the explanation.
Question 1Land is worth $80,000, replacement cost new of the house is $320,000, and accrued depreciation is $60,000. What value does the cost approach indicate?
- A. $260,000
- B. $340,000
- C. $180,000
- D. $460,000
Show answer and explanation →
Answer: B. $340,000
Subtract accrued depreciation from cost new, then add the land: $320,000 minus $60,000 is $260,000, plus $80,000 of land gives $340,000. Stopping at $260,000 leaves out the land, and $460,000 adds the depreciation instead of subtracting it.
Question 2A four-bedroom house has only one bathroom, and buyers in the area pay less for it because of that layout. What type of depreciation is this?
- A. Physical deterioration
- B. External obsolescence
- C. Accounting depreciation
- D. Functional obsolescence
Show answer and explanation →
Answer: D. Functional obsolescence
Functional obsolescence is a loss in value from a problem within the property itself, such as a poor floor plan or too few bathrooms. External obsolescence comes from outside the property, like highway noise, so the mention of local buyers makes it plausible, but the cause here is the house's own layout.
Question 3An appraiser values a 1920s courthouse by estimating the cost to build an exact replica with the same design and materials. Which cost is this?
- A. Reproduction cost
- B. Replacement cost
- C. Historical cost
- D. Assessed cost
Show answer and explanation →
Answer: A. Reproduction cost
Reproduction cost prices an exact replica using the same design and materials as closely as possible. Replacement cost prices equivalent utility with modern materials, so it is the wrong choice if you miss the words "exact replica" and "same materials."
Ready to move on?
You are ready for the next lesson when all of these are true.
- Explain Cost Approach to Value in one clear answer without notes.
- Separate Replacement and reproduction from Three depreciation categories using a fresh example.
- Apply the decision rule to a new fact pattern and name the fact that controls the result.
- State the Georgia-specific point or explain why the national rule applies unchanged.
- Answer every practice question and explain the rule each rejected option misapplies.
- Revisit this topic later in mixed practice without category labels.
Recommended next lesson
Continue with Income Approach and Market Analysis. Next, the income approach turns net operating income into value with a capitalization rate, the method appraisers lean on for investment property rather than the new or special-purpose buildings where the cost approach is most useful.
Return to the Valuation and Market Analysis hub to see every official branch and the complete lesson sequence for this content area.