Cost new of the improvements is $310,000 and they have depreciated 20%. The site is valued at $88,000. What value does the cost approach indicate?
Correct Answer
B) $336,000
Why this is correct: the 20% applies to the improvements only. Calculation: $310,000 x 0.80 = $248,000; $248,000 + $88,000 = $336,000. Why the other choices are wrong: $318,400 depreciates the site along with the building, which treats land as though it wore out; $248,000 omits the site; $460,000 adds the depreciation to both figures instead of deducting it.
Why This Is the Correct Answer
Why this is correct: the 20% applies to the improvements only. Calculation: $310,000 x 0.80 = $248,000; $248,000 + $88,000 = $336,000. Why the other choices are wrong: $318,400 depreciates the site along with the building, which treats land as though it wore out; $248,000 omits the site; $460,000 adds the depreciation to both figures instead of deducting it.
More Cost Approach Questions
In a cost approach for a proposed building, the appropriate cost basis is generally:
A warehouse cost $210,000 to build when the cost index stood at 105. The index is now 210. Its indicated current cost is:
The age-life method expresses depreciation as:
Market extraction of depreciation is limited by the fact that it:
Functional obsolescence caused by a deficiency is measured as curable when:
Curable physical deterioration is measured at cost to cure because:
A 2,050 sq ft dwelling is priced at $178 per square foot with a $34,000 detached garage and $21,500 of site improvements. Cost new is:
A house has three bedrooms sharing one bathroom, and adding a second bath is economically justified. This is:
Direct costs in a construction budget include:
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:
People Also Study
Real Estate Market
13.6% of exam
Property Description
11.8% of exam
Land or Site Valuation
4.5% of exam
Sales Comparison Approach
16.4% of exam
Income Approach
8.2% of exam
Previous Question
Total cost new including entrepreneurial incentive is $352,000. Physical deterioration is $44,000, functional obsolescence is $12,000 and external obsolescence is $9,000. The site is valued at $120,000. What value does the cost approach indicate?
Next Question
Market extraction of depreciation requires which figure to be estimated independently?
