Building cost new $360,000 has 20% total building loss. Separate site improvements are already as-is $42,000 and not in the building or vacant-site figure. Vacant-site value is $150,000. What total indication results?
Correct Answer
C) $480,000
360000×0.80+42000+150000=480000. Use the full stated cost buildup and the specified compatible loss base. Common errors: leaving out the vacant-site value gives $330,000; leaving out the as-is site improvements gives $438,000; not deducting the 20% building loss gives $552,000.
Why This Is the Correct Answer
Option C is correct because the building after a 20% loss is $360,000 x 0.80 = $288,000. Adding $42,000 of as-is site improvements and the $150,000 vacant-site value gives $480,000.
Why the Other Options Are Wrong
Option A: $330,000
Option A, $330,000, leaves out the vacant-site value: $360,000 x 0.80 + $42,000 = $330,000. Adding the $150,000 site gives $480,000.
Option B: $438,000
Option B, $438,000, leaves out the as-is site improvements: $360,000 x 0.80 + $150,000 = $438,000. The $42,000 of site improvements must be added to reach $480,000.
Option D: $552,000
Option D, $552,000, does not deduct the 20% building loss: $360,000 + $42,000 + $150,000 = $552,000. Applying the loss gives $288,000 + $42,000 + $150,000 = $480,000.
Building, Extras, Dirt
Add three pieces: the depreciated building, the as-is site extras, and the vacant land. Each piece appears once.
How to use: Use this three-part check when a question lists site improvements separately.
Exam Tip
Apply a percentage loss only to the figure the question says it applies to. Here the 20% applies to the building only.
Common Mistakes to Avoid
- -Applying the building loss percentage to the site improvements or land
- -Forgetting the separately listed site improvements
- -Leaving out the vacant-site value
Concept Deep Dive
Analysis
This question tests a cost-approach summation with separate site improvements. Apply the 20% loss to the building cost new, then add the as-is site improvements and the vacant-site value, since neither is included elsewhere.
Background Knowledge
In the cost approach summary, the depreciated building cost, the as-is value of site improvements such as driveways and landscaping, and the site value are added together. Site improvements are listed separately so they are neither omitted nor double counted.
Real-World Application
An appraiser completes the cost section for a suburban home. She depreciates the dwelling cost new, lists the driveway, fencing and landscaping at their as-is contribution, and adds a site value supported by lot sales.
More Cost Approach Questions
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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?