How does site value enter the cost approach?
Correct Answer
C) Added to the depreciated cost of improvements
Why this is correct: The cost approach formula is Land Value + (Replacement Cost New of Improvements - Accrued Depreciation). Land is not depreciated because it does not wear out, so its value is estimated separately and added to the depreciated cost of improvements. Why the other choices are wrong: "Depreciated at the same rate as the building" is wrong because land is not subject to depreciation. "Combined with the improvements before costing" is wrong because land and improvements are valued separately. "Excluded, since only improvements are valued" is wrong because the cost approach explicitly includes land value. Exam tip: Remember the cost approach formula: Land + (Cost New - Depreciation).
Why This Is the Correct Answer
Why this is correct: The cost approach formula is Land Value + (Replacement Cost New of Improvements - Accrued Depreciation). Land is not depreciated because it does not wear out, so its value is estimated separately and added to the depreciated cost of improvements. Why the other choices are wrong: "Depreciated at the same rate as the building" is wrong because land is not subject to depreciation. "Combined with the improvements before costing" is wrong because land and improvements are valued separately. "Excluded, since only improvements are valued" is wrong because the cost approach explicitly includes land value. Exam tip: Remember the cost approach formula: Land + (Cost New - Depreciation).
More Land/Site Questions
Under which condition is the land residual technique most applicable?
Why can the same physical parcel carry different values in two assignments?
In a built-up area where no vacant land has sold for years, which approach to site value is the usual fallback?
How is entrepreneurial profit treated in the subdivision development method?
A land comparable sold 18 months ago in a market rising about 4 percent a year. What adjustment direction applies?
Why does a developer's required profit rise for a longer subdivision project?
How does holding cost enter the valuation of land bought for future development?
Excess land is best described as land that has which characteristic?
Plottage value arises in which of the following situations?
Which of the following is an off-site improvement rather than a site improvement?
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A tract yields 25 lots at $95,000 each. Development costs are $900,000, marketing is 6 percent of gross and required profit is 18 percent of gross. Ignoring discounting, what land value is indicated?