Market extraction of depreciation requires which figure to be estimated independently?
Correct Answer
D) The comparable's site value as of its sale date
Why this is correct: The comparable's site value as of its sale date. The governing concept of market extraction is: Depreciation = Cost New - (Sale Price - Land Value). Therefore, you must independently estimate the land value of the comparable property at the time of its sale to isolate the depreciated improvement value. Why the other choices are wrong: The comparable's original construction contract price is historical and not needed for extraction; you use current cost new. The seller's remaining basis for income tax purposes is irrelevant for market value appraisal. The buyer's mortgage terms on the comparable sale do not affect the extraction calculation. Exam tip: In depreciation extraction, the accuracy of the land value estimate is as critical as the cost new estimate.
Why This Is the Correct Answer
Why this is correct: The comparable's site value as of its sale date. The governing concept of market extraction is: Depreciation = Cost New - (Sale Price - Land Value). Therefore, you must independently estimate the land value of the comparable property at the time of its sale to isolate the depreciated improvement value. Why the other choices are wrong: The comparable's original construction contract price is historical and not needed for extraction; you use current cost new. The seller's remaining basis for income tax purposes is irrelevant for market value appraisal. The buyer's mortgage terms on the comparable sale do not affect the extraction calculation. Exam tip: In depreciation extraction, the accuracy of the land value estimate is as critical as the cost new estimate.
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:
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