Building cost new $540,000 has total building depreciation $72,000. Separate site improvements cost new $35,000 have their own total loss $5,000. Add supported land $190,000 excluding sitework, and do not double count any component. What total results?
Correct Answer
C) $688,000
540000−72000+35000−5000+190000 = 688000. Common errors: leaving out the land value gives $498,000; leaving out the site improvements gives $658,000; not deducting the building depreciation gives $760,000.
Why This Is the Correct Answer
Option C is correct because the depreciated building is $540,000 - $72,000 = $468,000, the depreciated site improvements are $35,000 - $5,000 = $30,000, and adding $190,000 land gives $688,000. Each component appears once with its own depreciation.
Why the Other Options Are Wrong
Option A: $498,000
Option A, $498,000, is $540,000 - $72,000 + $35,000 - $5,000, which leaves out the $190,000 land value. Adding it gives $688,000.
Option B: $658,000
Option B, $658,000, is $540,000 - $72,000 + $190,000, which leaves out the depreciated site improvements of $30,000. Including them gives $688,000.
Option D: $760,000
Option D, $760,000, is $540,000 + $35,000 - $5,000 + $190,000, which does not deduct the $72,000 building depreciation. Deducting it gives $688,000.
Each piece, its own loss
Depreciate the building and the sitework separately, then add the land once at the end.
How to use: Use this to set up cost approach totals with separate site improvements.
Exam Tip
Line up each component with its own depreciation and confirm the land figure excludes sitework so nothing is counted twice.
Common Mistakes to Avoid
- -Forgetting the land value
- -Leaving out depreciated site improvements
- -Skipping building depreciation
Concept Deep Dive
Analysis
This question tests a full cost approach buildup with separate depreciation for the building and the site improvements. Each component is depreciated by its own loss, then land, which excludes sitework, is added once.
Background Knowledge
The cost approach lists cost new of the dwelling, deducts physical, functional and external depreciation, adds the depreciated value of site improvements, and adds site value. Total depreciation is the sum of the individual estimates, with no loss counted twice.
Real-World Application
An appraiser completing a cost approach lists the house cost new less depreciation, then adds the driveway, fencing and landscaping at their depreciated value, and finally the land value.
More Cost Approach Questions
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Previous Question
A 30-year-old dwelling has a current cost new of $480,000, an effective age of 12 years and a total economic life of 60 years. There is no salvage value and no other depreciation. By the straight-line age-life method, what is the depreciated cost of the improvements, excluding the site?
Next Question
An external influence reduces a property's net income by $400 every month. The annual capitalization rate for the loss is 8%. What is the indicated loss to the whole property, before allocation between site and improvements?