The current cost of a building is estimated at $62 per square foot for 3,000 square feet. Site improvements not already included in that figure would cost an additional $45,000. What is the total cost of the improvements, excluding land and any other additions?
Correct Answer
C) $231,000
3000×62+45000 = 231000. Common errors: leaving out the site-improvement cost gives $186,000; subtracting the site-improvement cost instead of adding it gives $141,000; counting the building cost twice gives $417,000.
Why This Is the Correct Answer
Option C is correct because 3,000 sf x $62/sf = $186,000 for the building, and adding the separate $45,000 site-improvement cost gives $186,000 + $45,000 = $231,000. The site improvements are not embedded in the square-foot price, so they belong in the improvement subtotal exactly once.
Why the Other Options Are Wrong
Option A: $141,000
Option A, $141,000, comes from subtracting the site-improvement cost instead of adding it: $186,000 - $45,000 = $141,000. Site improvements add cost, so the correct subtotal is $186,000 + $45,000 = $231,000.
Option B: $186,000
Option B, $186,000, is only the building cost (3,000 x $62) and leaves out the $45,000 site-improvement cost that the facts say is not already included. Adding it gives $231,000.
Option D: $417,000
Option D, $417,000, counts the building cost twice: 2 x $186,000 + $45,000 = $417,000. The building is counted once, giving $186,000 + $45,000 = $231,000.
Area times rate, plus extras
First multiply area by the unit rate, then add each separately stated item once. Anything already included in the rate is not added again.
How to use: Use this whenever a cost question lists a unit price plus separately stated components.
Exam Tip
Read whether each extra cost is already included in the unit price; the wording 'not already included' tells you to add it once.
Common Mistakes to Avoid
- -Reporting only the building cost and forgetting separately stated site improvements
- -Counting the building cost twice
- -Subtracting an added cost item instead of adding it
Concept Deep Dive
Analysis
This question tests building a simple improvement cost subtotal from a square-foot cost plus a separate site-improvement cost. The building cost is area times unit cost, and the site improvements are stated as not already included, so they must be added once. Land is expressly outside the requested subtotal.
Background Knowledge
In the square-foot (comparative unit) method, the construction costs covered by a unit rate are expressed as a price per square foot and applied to the subject's area. Items not captured in that unit price, such as separately costed site improvements, are added once so that all direct and indirect costs of the improvements are accounted for without double counting.
Real-World Application
An appraiser prices a 3,000 sf dwelling from a cost manual at a per-square-foot rate that covers the building shell and finishes. The driveway, walks and landscaping are costed separately and added to reach the improvement subtotal before considering depreciation and land.
More Cost Approach Questions
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The historical cost of a structure was $380,000, and a suitable index multiplier for the same construction scope is 1.40. Total depreciation of the improvements is $95,000, and site value is $175,000. What is the indicated value?