An otherwise supported value before a particular easement’s effect is $580,000. Market evidence supports a $42,000 diminution for that easement, not already reflected in the baseline. What indicated encumbered value follows?
Correct Answer
A) $538,000
Subtract the stipulated incremental diminution once: $580,000 − $42,000 = $538,000. The figure is expressly market-supported and absent from the baseline. Easement area or a generic cost to cure would not establish this amount, and an effect already reflected in the baseline must not be deducted again.
Why This Is the Correct Answer
Option A is correct because the market-supported $42,000 diminution is not already reflected in the $580,000 baseline, so it is subtracted once: $580,000 − $42,000 = $538,000. The effect of an easement must be analyzed to reach a supported opinion of value. Here the market evidence supplies that effect directly.
Why the Other Options Are Wrong
Option B: $580,000
Option B, $580,000, leaves the value unchanged and ignores the $42,000 market-supported diminution that is not reflected in the baseline. The encumbered value is $580,000 − $42,000 = $538,000.
Option C: $622,000
Option C, $622,000, adds the diminution instead of subtracting it ($580,000 + $42,000 = $622,000). A diminution lowers value, so the correct calculation is $580,000 − $42,000 = $538,000.
Option D: $42,000
Option D, $42,000, is the amount of the diminution itself, not the value of the encumbered property. The indicated value is $580,000 − $42,000 = $538,000.
Before minus diminution equals after
Start with the value before the easement's effect, subtract the market-supported loss once, and you have the encumbered value.
How to use: Use this on any before-and-after easement value question.
Exam Tip
Check whether the diminution is already in the baseline; subtract it once only if it is not.
Common Mistakes to Avoid
- -Adding the diminution to the baseline instead of subtracting it
- -Reporting the diminution amount as the property value
- -Deducting an easement effect already reflected in the baseline
Concept Deep Dive
Analysis
This question tests applying a market-supported easement diminution to a baseline value. The baseline value of $580,000 does not yet reflect the easement, and the market supports a $42,000 diminution. Subtracting it once gives the indicated encumbered value.
Background Knowledge
Easements can reduce value by limiting how a property can be used. A before-and-after approach compares value without the easement effect to value with it, and the difference is the diminution. The amount should come from market evidence and should not be deducted twice if already reflected in the baseline.
Real-World Application
An appraiser values a residential lot crossed by a newly recorded pipeline easement. Paired sales show similar lots with comparable easements selling for less, so the appraiser deducts the supported diminution from the unencumbered value to reach the encumbered value.
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