A 2,400 sq ft house is estimated at $145 per square foot, with a garage adding $28,000 and site improvements $14,000. What is the total cost new?
Correct Answer
C) $390,000, before entrepreneurial profit
Why this is correct: Calculate the dwelling cost: 2,400 sq ft * $145/sq ft = $348,000. Add the cost of the garage ($28,000) and site improvements ($14,000): $348,000 + $28,000 + $14,000 = $390,000. This is the total estimated cost new before adding entrepreneurial profit. Why the other choices are wrong: '$348,000, the dwelling alone' omits the garage and site improvements. '$376,000, dwelling plus garage only' omits site improvements. '$402,000, with all components included' incorrectly adds the numbers (e.g., 348+28+14+12?). Exam tip: Build the cost estimate step-by-step: main structure, then ancillary improvements, then site work. Entrepreneurial profit is a separate, final addition if supported.
Why This Is the Correct Answer
The dwelling costs 2,400 square feet x $145 = $348,000. Adding the $28,000 garage and $14,000 of site improvements gives $390,000. That figure uses every input provided and represents cost new for the improvements before any entrepreneurial profit is considered, which is exactly how the credited option describes itself. No number in the stem supports going higher.
Why the Other Options Are Wrong
Option A: $348,000, the dwelling alone
$348,000 is the dwelling alone and ignores both the garage and the site improvements. It is the first product your calculator generates, which is what makes it attractive under time pressure. A question asking for total cost new expects the total, not the largest single line.
Option B: $376,000, dwelling plus garage only
$376,000 adds the garage but drops the $14,000 of site improvements. Driveways, walks and landscaping are depreciable improvements with their own economic lives and belong in cost new. Stopping here leaves one supplied input unused, which is always a signal to recheck.
Option D: $402,000, with all components included
$402,000 exceeds the sum of the components by $12,000, a figure that appears nowhere in the stem. Its label claiming all components are included is bait for candidates who pick by wording instead of arithmetic. Entrepreneurial profit cannot be inserted at an assumed amount; it must be market-derived and stated.
Sum the Sticks, Then the Profit
Add every physical thing first, the sticks and bricks and concrete, and only then ask whether the market supports a developer's profit line. Profit is never buried inside a square-foot rate on an exam question unless the stem says so.
How to use: Total the components, then scan the options for the choice equal to that total. If a higher figure claims to include everything, verify it against your sum rather than trusting its description.
Exam Tip
Match your computed total to the numbers, not to the explanatory phrase attached to each option; the phrases are often deliberately misleading.
Common Mistakes to Avoid
- -Choosing an option because its description sounds complete rather than checking the arithmetic
- -Omitting site improvements from cost new
- -Assuming an unstated entrepreneurial profit amount
Concept Deep Dive
Analysis
The item tests component assembly of cost new and, in the phrasing of the credited option, the position of entrepreneurial profit in that build-up. Direct and indirect construction costs for the dwelling, ancillary structures and site improvements are summed first to produce cost new for the improvements. Entrepreneurial incentive or profit, the return a developer requires for organizing and taking the risk of the project, is a separate line added only when the market supports it and only after the physical components are totaled. The distractors here walk down the assembly line, each stopping one component early, so tracking which pieces you have consumed is the whole task.
Background Knowledge
You need the build-up of cost new: direct costs, indirect costs, then entrepreneurial incentive or profit as a distinct final component supported by market evidence. You also need to know that garages and site improvements are priced separately from the dwelling's per-square-foot rate.
Real-World Application
On a proposed-construction assignment the appraiser totals the builder's hard and soft costs for house, garage and site work, then adds an entrepreneurial incentive extracted from recent land-to-completed-sale spreads in the same subdivision.
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