Dwelling cost new is 3,000 sf×$160/sf and dwelling total loss $96,000. A separate 500 sf garage costs $60/sf with its own $6,000 total loss. No costs or losses overlap. Add site $180,000. What total indication results?
Correct Answer
C) $588,000
3000×160−96000+500×60−6000+180000 = 588000. Common errors: leaving out the site value gives $408,000; leaving out the garage gives $564,000; not deducting either loss gives $690,000.
Why This Is the Correct Answer
Option C is correct because the depreciated dwelling is $480,000 - $96,000 = $384,000 and the depreciated garage is $30,000 - $6,000 = $24,000. Adding the $180,000 site gives $384,000 + $24,000 + $180,000 = $588,000.
Why the Other Options Are Wrong
Option A: $408,000
Option A, $408,000, is wrong because it adds the depreciated dwelling and garage ($384,000 + $24,000) but leaves out the $180,000 site. The full total is $588,000.
Option B: $564,000
Option B, $564,000, is wrong because it leaves out the depreciated garage ($384,000 + $180,000). Adding the garage's $24,000 gives $588,000.
Option D: $690,000
Option D, $690,000, is wrong because it deducts neither loss ($480,000 + $30,000 + $180,000). Subtracting $96,000 and $6,000 gives $588,000.
Each building, then the land
Cost and depreciate each structure on its own, add them up, then add the site.
How to use: Use this whenever a cost question lists more than one structure.
Exam Tip
Track each structure's cost and loss separately so none is skipped. Then confirm the site value is included.
Common Mistakes to Avoid
- -Leaving out a secondary structure such as a garage
- -Forgetting to deduct the depreciation for each structure
- -Omitting site value
Concept Deep Dive
Analysis
This question tests combining separately depreciated structures with site value. The dwelling costs 3,000 x $160 = $480,000 less $96,000, or $384,000. The garage costs 500 x $60 = $30,000 less $6,000, or $24,000. Adding the $180,000 site gives $588,000.
Background Knowledge
In the cost approach, separate structures such as a dwelling and a detached garage may be costed at different unit rates and depreciated separately. Their depreciated values are added together with the site value to reach the indication.
Real-World Application
An appraiser costs a house at one rate per square foot and a detached garage at a lower rate, depreciates each based on its condition, and adds the land value from lot sales. The total is reported as the cost approach indication.
More Cost Approach Questions
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What best supports a claimed loss from a bathroom-layout deficiency?
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