An improved sale closed at $425,000. The dwelling’s replacement cost new is $300,000, with an effective age of 12 years and a total economic life of 60 years. Site improvements contribute $15,000. What land value does extraction indicate?
Correct Answer
A) $170,000
Age-life depreciation is 12 ÷ 60 = 20%, so the dwelling contributes $300,000 × 0.80 = $240,000. Deducting the contributory value of all improvements: $425,000 − $240,000 − $15,000 = $170,000.
Why This Is the Correct Answer
Option A is correct because depreciation is 12 ÷ 60 = 20%, so the dwelling contributes $300,000 × 0.80 = $240,000. Subtracting all improvements gives $425,000 − $240,000 − $15,000 = $170,000.
Why the Other Options Are Wrong
Option B: $110,000
Option B ($110,000) uses cost new without depreciation: $425,000 − $300,000 − $15,000. The dwelling contributes only $240,000 after 20% depreciation, giving $170,000.
Option C: $185,000
Option C ($185,000) omits the site improvements: $425,000 − $240,000. The $15,000 site improvements must also be deducted, giving $170,000.
Option D: $125,000
Option D ($125,000) uses cost new and omits site improvements: $425,000 − $300,000. The correct calculation is $425,000 − $240,000 − $15,000 = $170,000.
Depreciate, then deduct everything
First shrink the dwelling by age over life, then subtract it and every site improvement.
How to use: Use this in extraction problems that give cost new, age data and site improvements.
Exam Tip
List every improvement component before subtracting; distractors usually drop depreciation, site improvements or both.
Common Mistakes to Avoid
- -Using cost new instead of depreciated cost
- -Forgetting to deduct site improvements
- -Using actual age instead of effective age
Concept Deep Dive
Analysis
This question combines age-life depreciation with extraction. You depreciate the dwelling by the ratio of effective age to total economic life, then subtract both the depreciated dwelling and the site improvements from the sale price.
Background Knowledge
The age-life method estimates depreciation as effective age divided by total economic life. Extraction deducts the contributory value of all improvements, including site improvements such as driveways and landscaping, from the sale price. The remainder is the land indication.
Real-World Application
An appraiser in an older neighborhood analyzes a home sale with a dwelling of known cost and effective age plus a paved driveway and landscaping. After depreciating the dwelling and deducting all improvements, the remainder supports a site value estimate.
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Previous Question
The subject property is a vacant lot on a corridor recently rezoned for fourplexes and actively redeveloping with them. The only improved sale available for extraction is a house on a similar-sized lot in a stable single-unit neighborhood, and it indicates a site value of $140,000. How should the appraiser treat this indication?
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A property has stabilized NOI of $217,000. The building value is $1,850,000 and the building capitalization rate is 8.0%. The land capitalization rate is 6.0%. Using the land residual technique, what is the indicated land value?