How does site value enter the cost approach?
Correct Answer
C) Added to the depreciated cost of improvements
In the cost approach, supported site value is added to depreciated improvement value. Land itself is not assigned building-style age-life physical depreciation, but its market value may rise or fall. Site improvements can depreciate; include each component once.
Why This Is the Correct Answer
Option C is correct because, in the cost approach, the appraiser adds the land or site value to the depreciated cost of the improvements to arrive at a value indicator for the total property. Site value is estimated separately, typically by sales comparison, and is not run through the improvement cost and depreciation steps.
Why the Other Options Are Wrong
Option A: Depreciated at the same rate as the building
Option A says site value is depreciated at the same rate as the building. Land is not assigned building-style age-life physical depreciation, though its market value can rise or fall with market conditions.
Option B: Combined with the improvements before costing
Option B combines the site with the improvements before costing. Cost estimates apply to the improvements; the site is valued separately and added after improvement depreciation is deducted.
Option D: Excluded, since only improvements are valued
Option D excludes site value because only improvements are valued. The cost approach indicates value for the total property, so a separately estimated site value is included by adding it to depreciated improvement cost.
Cost minus depreciation plus land
Cost approach formula: cost new of improvements − depreciation + site value = value indication. Land comes in at the end.
How to use: Use this formula to check where site value fits in any cost approach question.
Exam Tip
If an answer depreciates the land itself or leaves land out of the cost approach, it does not match the standard cost approach structure.
Common Mistakes to Avoid
- -Applying building depreciation to the land
- -Leaving site value out of the cost approach
- -Counting site improvements in both the site value and the improvement cost
Concept Deep Dive
Analysis
This question tests the basic structure of the cost approach. Improvements are costed and depreciated, and site value is estimated separately. The two are then added to reach a value indication for the whole property.
Background Knowledge
The cost approach estimates the cost new of improvements, subtracts accrued depreciation, and adds site value. Site improvements such as paving or landscaping can depreciate and are treated as improvements; each component should be counted once.
Real-World Application
An appraiser valuing a newer custom home estimates the replacement cost of the house and garage, deducts depreciation for minor wear, and adds a site value supported by recent lot sales in the subdivision to reach the cost approach indication.
More Land/Site Questions
How should an appraiser account for a site's access to public sewer compared with competing sites that require septic systems?
Which fact, if supported by competitive-market evidence, most directly supports a unit-price premium for an otherwise comparable site?
A rectangular site's frontage is doubled while its depth is halved, keeping area constant. What is the likely value effect in a retail district?
A downtown site's zoning height limit is reduced from six stories to three. Buyers in this market had been paying for six-story development potential. What effect on land value is most supportable?
A zoning change increases permitted density from four to eight units per acre. What is the likely effect on site value?
Using the allocation method, market evidence supports a typical land-to-total-property-value ratio of 28% for similar improved properties in the subject’s location. An improved comparable sold for $825,000. What land (site) contribution is indicated by applying that ratio?
An appraiser is valuing a vacant site near a landfill. A similar vacant site that is not affected by the landfill sold for $480,000. Paired land sales indicate that proximity to the landfill lowers site prices by $70,000. No other adjustments apply. What is the indicated value of the subject site?
An appraiser is extracting site value from a $600,000 cash sale. The seller's records show an original construction cost of $250,000 and a depreciated book value of $110,000. The appraiser estimates current replacement cost new at $400,000 and accrued depreciation from all causes at $100,000. What is the indicated site value?
Three parcels assembled under single ownership (standard appraisal guidance assemblage) support separate as-is values of $290,000, $340,000, and $250,000. After assemblage for a higher-utility use, the combined site is valued at $1,050,000. Assemblage costs (demolition, legal, holding, and related) total $55,000. What is the indicated net plottage (plottage increment after assemblage costs)?
A comparable commercial site with 65 front feet sold for a cash-equivalent price of $585,000. Per standard appraisal guidance, sale price per front foot is a vacant-land unit of comparison when frontage is a primary value determinant. The subject site has 72 front feet and is otherwise similar. What indicated land value does the front-foot unit support before other adjustments?
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