Improvement cost new is $280,000 and a supported 72% good factor represents the entire remaining improvement proportion after all loss. Add supported site $95,000. What total results?
Correct Answer
C) $296,600
280000×0.72+95000 = 296600. Common errors: leaving out the site value gives $201,600; applying the depreciation share (28%) instead of the 72% good factor gives $173,400; not applying the good factor gives $375,000.
Why This Is the Correct Answer
Option C is correct because percent good is the complement of depreciation, so $280,000 x 0.72 = $201,600 of improvement value remains. Adding the $95,000 site gives $296,600.
Why the Other Options Are Wrong
Option A: $173,400
Option A, $173,400, applies the 28% depreciation share instead of the 72% good factor: $280,000 x 0.28 + $95,000 = $173,400. The remaining value is $280,000 x 0.72 + $95,000 = $296,600.
Option B: $201,600
Option B, $201,600, leaves out the site value: $280,000 x 0.72 = $201,600. Adding the $95,000 site gives $296,600.
Option D: $375,000
Option D, $375,000, does not apply the good factor: $280,000 + $95,000 = $375,000. Applying 72% good gives $201,600 + $95,000 = $296,600.
Good Is What Remains
Percent good is the part still standing; percent depreciation is the part lost. Together they make 100 percent.
How to use: Use this when a question gives a percent good factor instead of a depreciation rate.
Exam Tip
Multiply by the percent good to get remaining value; multiply by the depreciation rate only to get the loss.
Common Mistakes to Avoid
- -Multiplying by the depreciation share when the percent good is given
- -Forgetting to add the site value
- -Ignoring the good factor and using full cost new
Concept Deep Dive
Analysis
This question tests the percent good concept. A 72% good factor means 72% of cost new remains after all depreciation. Multiply cost new by 0.72 and then add the site value.
Background Knowledge
Percent good is the complement of percent depreciation: 72% good means 28% depreciated. Multiplying cost new by percent good gives the depreciated improvement value directly.
Real-World Application
An appraiser uses a cost manual's percent good table for a 20-year-old home in average condition. She multiplies the cost new by the table factor and adds the supported site value.
More Cost Approach Questions
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Direct improvement costs are $315,000, indirect costs are $47,000 and an additional incentive is $36,000, with no overlap among them. Straight-line depreciation is 12/60 of their total, with no other loss, and the site value is $198,000. What is the indicated value by the cost approach?