A 2,050 sq ft dwelling is priced at $178 per square foot with a $34,000 detached garage and $21,500 of site improvements. Cost new is:
Correct Answer
C) $420,400
Why this is correct: Calculate dwelling cost: 2,050 sq ft × $178/sq ft = $364,900. Add garage ($34,000) and site improvements ($21,500): $364,900 + $34,000 + $21,500 = $420,400. Why the other choices are wrong: "$398,900 omitting the site improvements" is wrong because site improvements must be included. "$364,900 for the dwelling alone" is wrong because it excludes other components. "$455,400 pricing the garage at the dwelling rate" is wrong because the garage has its own cost. Exam tip: In cost approach, sum all components: dwelling, garage, site improvements separately.
Why This Is the Correct Answer
Price the dwelling first: 2,050 square feet x $178 = $364,900. Add the detached garage at its stated lump sum of $34,000 and the site improvements at $21,500. The three components total $420,400, which is cost new for all improvements. Every figure supplied in the stem is used exactly once.
Why the Other Options Are Wrong
Option A: $398,900 omitting the site improvements
$398,900 is the dwelling plus the garage, stopping one line short by dropping the $21,500 of site improvements. Site improvements are depreciable improvements, not part of the land, so they belong in cost new. Omitting them understates the cost approach by the full amount.
Option B: $364,900 for the dwelling alone
$364,900 is the dwelling by itself, the raw product of square footage times the unit rate. It answers a narrower question than the one asked and leaves both the garage and the site work out. The stem supplies three dollar inputs and expects all three to appear.
Option D: $455,400 pricing the garage at the dwelling rate
$455,400 prices the garage at the dwelling's $178 rate instead of using the $34,000 figure given. A detached garage is unfinished or lightly finished space and costs far less per square foot than heated living area, which is why the stem states its cost as a lump sum. Substituting the dwelling rate inflates cost new substantially.
House, Garage, Ground
Three lines every time: house by the square foot, garage at its own price, ground work as a lump sum. Write the three lines before you compute anything, so a missing component shows up as an empty line rather than a missing dollar figure.
How to use: When a cost new stem lists three dollar inputs, your answer must consume all three. Check your total against the option that omits one; the exam always includes it.
Exam Tip
Never apply the dwelling's per-square-foot rate to a garage, porch or basement unless the question explicitly tells you to.
Common Mistakes to Avoid
- -Leaving site improvements out of cost new or folding them into land value
- -Applying the dwelling square-foot rate to the garage
- -Reporting only the dwelling figure when the question asks for total cost new
Concept Deep Dive
Analysis
Cost new in the cost approach is the sum of every improvement component, each priced by the method appropriate to it. The dwelling is priced by the comparative-unit method at a rate per square foot of gross living area. A detached garage is not living area and is priced separately, usually at its own lower rate or as a lump sum, because its construction quality and finish differ from the house. Site improvements such as driveway, walks, fencing, landscaping and utility connections are a third line item and are always separated from land value. Losing a component or pricing one at the wrong rate is the error pattern this question tests.
Background Knowledge
You need to know that gross living area excludes garages and other unheated or below-grade space, and that garages and site improvements are costed as separate line items. You also need to remember that site improvements are part of the improvements, not the land, in the cost approach.
Real-World Application
Building a cost approach from a cost service, the appraiser selects a quality class and base rate for the dwelling, then adds the garage from the service's separate table and enters driveway, walks and landscaping as site improvements with their own shorter economic lives.
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