In a cost model, the site estimate and dwelling base expressly exclude driveways and landscaping. How should these separate site improvements be handled?
Correct Answer
D) Include their supported depreciated amounts, without double counting.
Separately account for site improvements when not already included in the supported site or building figure, and apply their own supported loss as appropriate. Some site-development items may be embodied in site value under a chosen basis, so a universal separate-line rule can double count.
Why This Is the Correct Answer
Option D is correct because driveways and landscaping that are excluded from both the site value and the dwelling cost must be added separately or the indication would understate the property. Their contribution should reflect their own supported depreciation, not a borrowed figure. Including them once avoids double counting with the site or dwelling figures.
Why the Other Options Are Wrong
Option A: Depreciate them at the dwelling’s percentage, without separate support.
Option A is wrong because applying the dwelling's depreciation percentage to the driveways and landscaping without separate support assumes they have aged and lost value at the same rate as the house. Site improvements can have very different lives and conditions, so their loss needs its own support.
Option B: Exclude them from the cost approach, since they are not buildings.
Option B is wrong because excluding them from the cost approach just because they are not buildings leaves out real on-site improvements. Driveways, landscaping and paved areas are recognized on-site improvements that contribute to value and belong in the cost approach when not already captured elsewhere.
Option C: Add their full cost twice, once to the land and once to the dwelling.
Option C is wrong because adding their full cost twice, once to the land and once to the dwelling, is plain double counting. It also ignores any depreciation the items have suffered.
Once, and at depreciated value
Site improvements go in once, and at their own depreciated value. Not zero times, not twice, and not at the house's depreciation rate.
How to use: Use this when a cost question asks how to treat driveways, landscaping or other yard improvements.
Exam Tip
First check whether the site value or dwelling cost already includes the item. If neither does, choose the answer that adds it separately with its own supported loss.
Common Mistakes to Avoid
- -Leaving site improvements out because they are not buildings
- -Applying the dwelling's depreciation rate to site improvements without support
- -Adding site improvements that are already embodied in the site value
Concept Deep Dive
Analysis
This question tests how site improvements such as driveways and landscaping fit into the cost approach when neither the site estimate nor the dwelling base includes them. Because they are outside both figures, they need their own line, carried at a supported depreciated amount. The key is to include each item once, with its own supported loss, so nothing is left out or counted twice.
Background Knowledge
On-site improvements include the main structure plus other items on the property, such as grading and drainage, landscaping, walkways, driveways, paved areas and utility connections. In the cost approach, these items are added at their depreciated contribution unless the site value or building cost already includes them. Depending on the basis used, some site-development items may already be embodied in site value.
Real-World Application
An appraiser's site value comes from vacant lot sales, and the cost service figure covers only the house. The subject has a concrete driveway and mature landscaping, so the appraiser adds a separate site-improvement line at their depreciated contribution.
More Cost Approach Questions
Why can equivalent-utility replacement cost be useful for an obsolete improvement?
An appraiser estimates the current replacement cost new of the improvements at $890,000, accrued depreciation from all causes at $170,000, and land value at $325,000. All necessary cost components and depreciation are included in those amounts. What is the indicated property value?
Improvement cost new is $595,000. Separately supported improvement depreciation deductions of $48,000, $27,000 are expressly nonoverlapping and not already excluded from cost new. Add supported site value of $155,000, already reflecting any site losses. What total indicated value results?
What best supports a claimed loss from a bathroom-layout deficiency?
Improvement cost new is $1,850,000. Separately supported improvement depreciation deductions of $310,000, $620,000 are expressly nonoverlapping and not already excluded from cost new. No site is included. What depreciated improvement amount results?
Which scenario most strongly supports giving the cost approach substantial weight?
A cost total $650,000 explicitly includes $40,000 of non-realty FF&E outside the appraised real-property interest. Exclude it. Supported realty-only total depreciation is $55,000. Add site $200,000, with no overlap. What real-property cost indication results?
A 2,200-sf dwelling costs $200 per square foot, and a separate 400-sf garage costs $75 per square foot. These costs are complete and do not overlap. Both have an effective age of 15 years and a total life of 50 years, with straight-line depreciation and no salvage value. No site value or other loss is involved. What is the combined depreciated cost of the dwelling and garage?
A new feature in the improvements has a current cost of $45,000 and a market contribution of $18,000. The entire difference is due to superadequacy, with no physical or external loss and no overlap. What is the loss from the superadequacy?
An external influence causes an annual net income loss of $9,600. The capitalization rate for the loss is 8%, and no other economic factors change. What is the indicated loss in value of the whole property, before allocation between site and improvements?
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
An appraiser is developing the cost approach in an appraisal assignment. As of which date should the cost estimate be measured?
Next Question
An improvement has an effective age of 18 years and a total economic life of 45 years. Using the straight-line age-life method, what is the percentage of depreciation?