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?
Correct Answer
B) $300,000
The improvement contribution is based on current replacement cost new less market-supported depreciation: $400,000 − $100,000 = $300,000, so land is $600,000 − $300,000 = $300,000. Omitting depreciation gives $200,000. Using the seller's historic cost gives $350,000, and using book value gives $490,000; neither records figure measures what the improvements contribute at the sale date.
Why This Is the Correct Answer
Option B is correct because the contribution of the improvements rests on current replacement cost new less accrued depreciation: $400,000 − $100,000 = $300,000. Subtracting that from the $600,000 price leaves $300,000 for land.
Why the Other Options Are Wrong
Option A: $200,000
Option A, $200,000, comes from $600,000 − $400,000, which subtracts replacement cost new with no depreciation. That overstates the improvements by $100,000; the correct land figure is $600,000 − $300,000 = $300,000.
Option C: $350,000
Option C, $350,000, comes from $600,000 − $250,000, which uses the original construction cost. Historic cost reflects past prices, not what the improvements contribute at the sale date; the supported contribution is $300,000.
Option D: $490,000
Option D, $490,000, comes from $600,000 − $110,000, which uses the seller's book value. Book depreciation is an accounting record rather than a market measure, so the supported contribution of $300,000 applies and land is $300,000.
Current Cost, Market Depreciation
Think today's cost and the market's depreciation. Figures from the seller's books describe the past, not current contribution.
How to use: Use this phrase to sort cost figures when a problem lists more numbers than the calculation needs.
Exam Tip
When several cost figures appear, name what each one measures before using any of them. Extra figures are often there to test that judgment.
Common Mistakes to Avoid
- -Using book value as the measure of depreciated improvements
- -Subtracting original construction cost instead of current replacement cost
- -Forgetting to subtract depreciation from replacement cost new
Concept Deep Dive
Analysis
Four cost-related figures are offered, and only two belong in the calculation. The candidate must separate current market measures from the seller's accounting records. Current replacement cost new and accrued depreciation produce the contribution, and the rest is noise.
Background Knowledge
In extraction, the contributory value of the improvements is typically based on depreciated cost, meaning replacement cost new less depreciation. Appraisal depreciation is a market-based measure of loss in value. Accounting book value and original cost serve other purposes and are not substitutes for it.
Real-World Application
While verifying a sale, an appraiser receives the seller's construction invoices and depreciation schedule. The appraiser notes them but develops current cost new and market-supported depreciation for the extraction.
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?
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?
An appraiser's value indication for a whole property is $2,450,000, and the depreciated contribution of all nonland improvements, including site improvements, is $1,180,000. What land value does the extraction method indicate?
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In a neighborhood where market evidence supports a 35% land-to-total-value ratio, an improved property sells for $812,000. Using the allocation method, what site value is indicated?
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