Building cost new is $480,000, with total building depreciation $90,000. Separate site improvements are already as-is $40,000 and not included in the building or land figures. Supported vacant-site value is $125,000. What total indication results?
Correct Answer
C) $555,000
480000−90000+40000+125000 = 555000. Common errors: leaving out the vacant-site value gives $430,000; leaving out the as-is site improvements gives $515,000; not deducting the building depreciation gives $645,000.
Why This Is the Correct Answer
Option C is correct because the depreciated building is $480,000 - $90,000 = $390,000. Adding $40,000 of as-is site improvements and the $125,000 vacant-site value gives $555,000.
Why the Other Options Are Wrong
Option A: $430,000
Option A, $430,000, leaves out the vacant-site value: $480,000 - $90,000 + $40,000 = $430,000. Adding the $125,000 site gives $555,000.
Option B: $515,000
Option B, $515,000, leaves out the as-is site improvements: $480,000 - $90,000 + $125,000 = $515,000. Adding the $40,000 site improvements gives $555,000.
Option D: $645,000
Option D, $645,000, does not deduct the building depreciation: $480,000 + $40,000 + $125,000 = $645,000. Deducting the $90,000 gives $555,000.
Building, Extras, Dirt
Depreciated building plus as-is site extras plus vacant land. Three parts, each counted once.
How to use: Use this to check every component appears in your total.
Exam Tip
Track each figure in the stem and confirm your total uses all of them with the correct sign.
Common Mistakes to Avoid
- -Forgetting to deduct building depreciation
- -Leaving out separately listed site improvements
- -Omitting the vacant-site value
Concept Deep Dive
Analysis
This question tests a cost summation with separately stated site improvements and land. Deduct the building depreciation, then add the as-is site improvements and the vacant-site value.
Background Knowledge
The cost approach separates the depreciated value of the main building, the contributory value of site improvements and the value of the site as though vacant. Each component is added once to reach the indication.
Real-World Application
An appraiser valuing a home with a detached pool and patio lists those items as site improvements at their depreciated contribution. She adds them to the depreciated dwelling and a site value from comparable lot sales.
More Cost Approach Questions
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The subject is a dwelling next to a new industrial use. Paired sales show the influence reduces total property value by $50,000, of which $12,000 is attributable to the site, and the $140,000 site value already reflects that site loss. Improvement cost new is $650,000, effective age is 20 years and total economic life is 50 years. The age-life estimate does not capture the influence. What value does the cost approach indicate?
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