The subject improvements have a current cost new of $650,000, an effective age of 16 years and a total economic life of 80 years. Depreciation is by the straight-line age-life method, with no salvage value or other deductions. The site value of $190,000 already reflects any site influences. What is the total indicated value, including the site?
Correct Answer
C) $710,000
Age-life depreciation=650000×16÷80=130000; remainder=650000−130000−0+190000=710000. Common errors: leaving out the site value gives $520,000; not deducting the age-life depreciation gives $840,000; adding the depreciation, rather than the depreciated cost, to the site gives $320,000.
Why This Is the Correct Answer
Option C is correct because depreciation is $650,000 × 16 ÷ 80 = $130,000. Then $650,000 − $130,000 = $520,000, plus the $190,000 site value equals $710,000.
Why the Other Options Are Wrong
Option A: $320,000
Option A, $320,000, adds the depreciation amount rather than the depreciated cost to the site ($130,000 + $190,000). The depreciated improvements are $520,000, so the total is $520,000 + $190,000 = $710,000.
Option B: $520,000
Option B, $520,000, is the depreciated improvement value only ($650,000 − $130,000). It leaves out the $190,000 site value; adding it gives $710,000.
Option D: $840,000
Option D, $840,000, adds site value to undepreciated cost ($650,000 + $190,000). The $130,000 age-life depreciation must be deducted, giving $710,000.
EA over EL times cost
Divide effective age by economic life, multiply by cost new for depreciation, subtract, then add land.
How to use: Use this formula on any straight-line age-life problem.
Exam Tip
Simplify the ratio first: 16 ÷ 80 is 20%. Then check whether the question asks for value with site included.
Common Mistakes to Avoid
- -Adding depreciation to site value instead of the depreciated cost
- -Leaving out the site value
- -Using remaining economic life in place of total economic life
Concept Deep Dive
Analysis
This question tests the age-life method. Effective age of 16 over economic life of 80 gives 20% depreciation. Subtract that from cost new and add site value.
Background Knowledge
The age-life method estimates depreciation by dividing effective age by total economic life and applying the ratio to cost new. The depreciated improvement cost is then added to the site value. The method assumes straight-line loss over the economic life.
Real-World Application
An appraiser assigns a 16-year effective age and 80-year economic life to a well-built home. Deducting 20% of cost new and adding the site value from land sales gives the cost approach indication.
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