The base unit cost for 4,000 sf of improvements is $150 per square foot, before a local cost multiplier of 1.10. After the multiplier, the cost covers all cost components. Total depreciation of the improvements is $99,000, and site value is $170,000. What value does the cost approach indicate?
Correct Answer
C) $731,000
150×1.10×4000−99000+170000 = 731000. Common errors: leaving out the site value gives $561,000; adding the depreciation instead of deducting it gives $929,000; omitting the 1.10 local multiplier gives $671,000.
Why This Is the Correct Answer
Option C is correct because $150 × 1.10 = $165 per sf, and $165 × 4,000 sf = $660,000 cost new. Deducting $99,000 depreciation gives $561,000, and adding the $170,000 site gives $731,000. Each step is applied in the right direction.
Why the Other Options Are Wrong
Option A: $561,000
Option A, $561,000, leaves out the site value: $150 × 1.10 × 4,000 − $99,000 = $561,000. The cost approach adds the $170,000 site, giving $731,000.
Option B: $671,000
Option B, $671,000, omits the 1.10 local multiplier: $150 × 4,000 − $99,000 + $170,000 = $671,000. Applying the multiplier gives $660,000 cost new and a total of $731,000.
Option D: $929,000
Option D, $929,000, adds the depreciation instead of deducting it: $660,000 + $99,000 + $170,000 = $929,000. Depreciation reduces cost new, so the correct total is $660,000 − $99,000 + $170,000 = $731,000.
Adjust, apply, deduct, add
Adjust the unit cost, apply it to the area, deduct depreciation, add the site. Four steps, each in one direction.
How to use: Use this four-step order to check each line of a cost approach calculation.
Exam Tip
Write each intermediate figure; the wrong choices usually match a total with one step skipped or reversed.
Common Mistakes to Avoid
- -Forgetting to apply the local cost multiplier
- -Adding depreciation instead of subtracting it
- -Leaving out site value from the cost approach total
Concept Deep Dive
Analysis
This question tests a full cost approach calculation using a local cost multiplier. Adjust the unit cost by the multiplier, apply it to the area, deduct depreciation, then add site value. Each wrong answer reflects skipping or reversing one of those steps.
Background Knowledge
Cost services often publish base unit costs that are adjusted with local multipliers to reflect area construction costs. In the cost approach, cost new less total depreciation gives the depreciated improvement contribution, and site value is added to reach the indication. The order is cost new, less depreciation, plus site.
Real-World Application
An appraiser takes a base cost per square foot from a national cost service and applies the local multiplier for the subject's county. After deducting supported depreciation and adding land value from vacant site sales, the appraiser reports 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?
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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?
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