Improvement cost new is $520,000, and a supported 75% good factor expresses all remaining improvement contribution after applicable loss. Add supported site $200,000. What total indication results?
Correct Answer
C) $590,000
520000×0.75+200000 = 590000. Common errors: leaving out the site value gives $390,000; applying the depreciation share (25%) instead of the 75% good factor gives $330,000; not applying the good factor gives $720,000.
Why This Is the Correct Answer
Option C is correct because percent good is the complement of depreciation, so a 75% good factor leaves 75% of cost new. $520,000 x 0.75 = $390,000 for the improvements. Adding the $200,000 site gives $590,000.
Why the Other Options Are Wrong
Option A: $330,000
Option A, $330,000, is $520,000 x 0.25 + $200,000, which applies the 25% depreciation share instead of the 75% good factor. The correct total is $390,000 + $200,000 = $590,000.
Option B: $390,000
Option B, $390,000, is $520,000 x 0.75, which leaves out the $200,000 site value. The total indication is $590,000.
Option D: $720,000
Option D, $720,000, is $520,000 + $200,000, which ignores the 75% good factor. Applying it gives $390,000 + $200,000 = $590,000.
Percent good is what's left
Percent good tells you how much of cost new remains; depreciation tells you how much is gone. The two add to 100%.
How to use: Use this to decide whether to multiply by the good factor or by its complement.
Exam Tip
Multiply cost new by percent good, not by the depreciation percentage, when a good factor is given. Then add site value if a total indication is asked.
Common Mistakes to Avoid
- -Multiplying by the depreciation percentage instead of percent good
- -Forgetting to add site value
- -Ignoring the good factor entirely
Concept Deep Dive
Analysis
This question tests the percent good method and the final step of the cost approach. A 75% good factor means 75% of cost new remains as the improvement's contribution after all applicable loss. Apply it to cost new, then add the site value.
Background Knowledge
Percent good is the complement of depreciation expressed as a percentage: if depreciation is 25%, percent good is 75%. Multiplying cost new by percent good gives the depreciated improvement value directly. The cost approach adds site value to the depreciated improvements for the total indication.
Real-World Application
An appraiser uses a cost service table that reports a percent good factor for a building of a certain age and condition. The appraiser multiplies cost new by that factor and adds land value from recent lot sales to reach the cost approach indication.
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