A 1,850 sq ft dwelling is estimated at $162 per square foot, with a 480 sq ft garage at $58 per square foot and $19,000 of site improvements. Cost new totals:
Correct Answer
D) $346,540
Why this is correct: Total cost new is the sum of all components at their appropriate rates. Calculation: Dwelling: 1,850 sq ft * 162 dollars/sq ft = 299,700 dollars. Garage: 480 sq ft * 58 dollars/sq ft = 27,840 dollars. Site improvements: 19,000 dollars. Sum: 299,700 + 27,840 + 19,000 = 346,540 dollars. Why the other choices are wrong: The choice stating 299,700 for the dwelling alone is incorrect; it omits the garage and site improvements. The choice of 381,300 pricing the garage at the dwelling rate is wrong; it uses the wrong rate (162 dollars) for the garage. The choice of 327,540 excluding the site improvements is false; it includes the garage but incorrectly excludes the 19,000 dollars for site work. Exam tip: In cost estimates, apply component-specific unit rates. Don't inflate value by using the main structure's rate for ancillary items.
Why This Is the Correct Answer
Pricing each component at its own rate gives $299,700 for the dwelling, $27,840 for the garage and $19,000 of site improvements, totalling $346,540.
Why the Other Options Are Wrong
Option A: $299,700 for the dwelling alone
$299,700 is the dwelling alone. It omits both the garage and the site improvements.
Option B: $381,300 pricing the garage at the dwelling rate
Pricing the garage at the dwelling's rate overstates it substantially, since unfinished garage space costs far less per square foot.
Option C: $327,540 excluding the site improvements
$327,540 is the dwelling plus the garage but leaves out the $19,000 of site improvements.
Each Component, Its Own Rate
Each Component, Its Own Rate, then add the site improvements. Garage space is not living space.
How to use: List the components before multiplying. The errors in these questions are always an omitted or mispriced component.
Exam Tip
Site improvements are part of cost new, not part of land value. Adding them to the land is a common double-count error.
Common Mistakes to Avoid
- -Applying the dwelling rate to garage area
- -Omitting site improvements from cost new
- -Treating cost new as the cost approach conclusion
Concept Deep Dive
Analysis
Cost new in the cost approach is built by pricing each component at its own rate and then adding the site improvements, and the arithmetic here is straightforward once the components are kept separate. The dwelling contributes 1,850 × $162 = $299,700. The garage is priced at its own rate because garage construction costs substantially less per square foot than finished living area — no interior finish, no plumbing, minimal electrical — giving 480 × $58 = $27,840. Site improvements of $19,000 cover driveway, walks, landscaping and similar items that are part of the improvements rather than the raw land. The total is $346,540. Each distractor represents a specific error the exam is testing: stopping at the dwelling, pricing the garage at the dwelling's rate, or omitting the site improvements. In practice this figure is only the starting point, since accrued depreciation is then deducted and land value added to reach the cost approach indication.
Background Knowledge
Cost new is developed by pricing each building component at its appropriate unit rate and adding site improvements. Accrued depreciation is then deducted and land value added to produce the cost approach indication.
Real-World Application
An appraiser prices a 1,850 square foot dwelling and its garage at separate unit rates, adds site improvements, and carries $346,540 forward as cost new before depreciation.
More cost-approach Questions
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The age-life method expresses depreciation as: