A hypothetical site is worth $300,000 unencumbered. Supported market evidence attributes 20% of that value to a strip affected by a utility easement. The strip retains 40% of its former contribution, with no value effect on the rest of the site. What is the supported loss?
Correct Answer
B) $36,000
Unencumbered strip contribution = $300,000 × 0.20 = $60,000; retained contribution = $60,000 × 0.40 = $24,000; loss = $60,000 − $24,000 = $36,000. The indicated result is $36,000. Common errors: treating the whole strip contribution as lost gives $60,000; reporting the retained contribution instead of the loss gives $24,000; applying the 40% to the whole site gives $120,000.
Why This Is the Correct Answer
Option B is correct because the strip contributes $300,000 × 0.20 = $60,000 unencumbered and retains $60,000 × 0.40 = $24,000 after the easement. The loss is $60,000 − $24,000 = $36,000. This follows the before-and-after logic of deducting the after value from the before value.
Why the Other Options Are Wrong
Option A: $24,000
Option A, $24,000, is the retained contribution ($300,000 × 0.20 × 0.40), not the loss. The loss is $60,000 − $24,000 = $36,000.
Option C: $60,000
Option C, $60,000, treats the whole strip contribution as lost ($300,000 × 0.20). The strip keeps 40% of its contribution, so the loss is $60,000 − $24,000 = $36,000.
Option D: $120,000
Option D, $120,000, applies the 40% to the whole site ($300,000 × 0.40). The easement affects only the 20% strip, and the loss is $36,000.
Before minus after equals loss
Find what the strip was worth before and what it is worth after. The loss is the gap between them.
How to use: Use this to avoid reporting the retained value as the loss.
Exam Tip
Read whether the percentage given is the share retained or the share lost before you calculate.
Common Mistakes to Avoid
- -Reporting the retained contribution as the loss
- -Treating the entire strip contribution as lost
- -Applying the retained percentage to the whole site
Concept Deep Dive
Analysis
This question tests a before-and-after loss calculation for a partial encumbrance. Find the strip's unencumbered contribution, find how much it retains after the easement, and subtract. The loss is the difference, not the retained amount.
Background Knowledge
Easements can reduce the utility of the land they burden without eliminating all of its value. The before-and-after method measures the loss as the difference between the property's value without and with the encumbrance, based on market evidence.
Real-World Application
A utility company acquires an overhead power line easement across the back of a residential lot. The appraiser estimates the strip's value before and after the easement, recognizing that the owner can still use the strip for lawn and setback.
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