A new highway causes a monthly rent loss of $150. The gross rent multiplier in this market is 110, and the site accounts for 25% of total property value. How much external obsolescence is charged to the improvements?
Correct Answer
D) $12,375
Why this is correct: capitalizing the rent loss gives the loss to the whole property, and only the improvements share is deducted in the cost approach, because the site value was estimated with the highway already there. Calculation: $150 x 110 = $16,500; $16,500 x 0.75 = $12,375. Why the other choices are wrong: $16,500 charges the improvements with the site share as well, deducting it twice; $4,125 is the site share; $1,650 capitalizes one month at ten rather than applying the multiplier given.
Why This Is the Correct Answer
Why this is correct: capitalizing the rent loss gives the loss to the whole property, and only the improvements share is deducted in the cost approach, because the site value was estimated with the highway already there. Calculation: $150 x 110 = $16,500; $16,500 x 0.75 = $12,375. Why the other choices are wrong: $16,500 charges the improvements with the site share as well, deducting it twice; $4,125 is the site share; $1,650 capitalizes one month at ten rather than applying the multiplier given.
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A building's actual age is 25 years, effective age 18, and total economic life 55. Age-life depreciation is:
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An appraiser writes that a 40-year-old house has an effective age of 10 but describes original wiring, original kitchen and a 25-year-old roof. The report's problem is: