Paired sales show homes adjacent to a new commercial development sell for $28,000 less. The subject's land represents 30% of total value. The improvements' share of the external obsolescence is:
Correct Answer
C) $19,600
Why this is correct: The correct answer is '$19,600.' The total external obsolescence from the paired sales is $28,000. The land represents 30% of total property value, so the land's share of the loss is 30% × $28,000 = $8,400. The improvements' share is the remaining 70% × $28,000 = $19,600. The original explanation correctly notes that in the cost approach, the land value is typically estimated from comparable sales that already reflect the external obsolescence. Therefore, applying the full $28,000 deduction to the improvements would incorrectly deduct the land's loss a second time. Why the other choices are wrong: '$28,000 assigned entirely to the improvements' double-counts the land's loss. '$8,400, the land's proportionate share' is the land's portion, not the improvements'. '$14,000, divided evenly between the two' incorrectly splits the loss 50/50 instead of using the given value proportions. Exam tip: In cost approach external obsolescence allocation: Total loss × Improvement Value Ratio = Improvement's share. Land's share is already in the land value estimate.
Why This Is the Correct Answer
Why this is correct: The correct answer is '$19,600.' The total external obsolescence from the paired sales is $28,000. The land represents 30% of total property value, so the land's share of the loss is 30% × $28,000 = $8,400. The improvements' share is the remaining 70% × $28,000 = $19,600. The original explanation correctly notes that in the cost approach, the land value is typically estimated from comparable sales that already reflect the external obsolescence. Therefore, applying the full $28,000 deduction to the improvements would incorrectly deduct the land's loss a second time. Why the other choices are wrong: '$28,000 assigned entirely to the improvements' double-counts the land's loss. '$8,400, the land's proportionate share' is the land's portion, not the improvements'. '$14,000, divided evenly between the two' incorrectly splits the loss 50/50 instead of using the given value proportions. Exam tip: In cost approach external obsolescence allocation: Total loss × Improvement Value Ratio = Improvement's share. Land's share is already in the land value estimate.
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