Improvement cost new is $540,000. Separately supported improvement depreciation deductions of $38,000, $22,000 are expressly nonoverlapping and not already excluded from cost new. Add supported site value of $98,000, already reflecting any site losses. What total indicated value results?
Correct Answer
B) $578,000
540000−(38000+22000)+98000 = 578000. Common errors: leaving out the site value gives $480,000; leaving out the $22,000 item gives $600,000; not deducting any depreciation gives $638,000.
Why This Is the Correct Answer
Option B is correct because total depreciation is $38,000 + $22,000 = $60,000, and $540,000 − $60,000 + $98,000 = $578,000. Total depreciation is found by adding the individual supported estimates, and the site value is then added to the depreciated improvement cost.
Why the Other Options Are Wrong
Option A: $480,000
Option A is wrong because $480,000 is $540,000 − ($38,000 + $22,000), which leaves out the $98,000 site value. The correct total is $480,000 + $98,000 = $578,000.
Option C: $600,000
Option C is wrong because $600,000 results from $540,000 − $38,000 + $98,000, which leaves out the $22,000 depreciation item. Both items must be deducted: $540,000 − $60,000 + $98,000 = $578,000.
Option D: $638,000
Option D is wrong because $638,000 is $540,000 + $98,000 with no depreciation deducted. Subtracting the $60,000 of depreciation gives $578,000.
Cost minus loss plus land
The cost approach runs in order: cost new, minus all depreciation, plus land or site value. Skipping any of the three steps produces a wrong answer.
How to use: Use this sequence to check that a cost approach calculation has deducted all losses and added the site.
Exam Tip
Before you calculate, list each stated depreciation item and confirm whether the site is to be added. Distractors are often built by dropping one item.
Common Mistakes to Avoid
- -Forgetting to add the site value at the end
- -Deducting only some of the stated depreciation items
- -Reporting cost new plus site with no depreciation deducted
Concept Deep Dive
Analysis
This question tests the basic cost approach sequence: cost new, less total depreciation, plus site value. The depreciation items are stated as nonoverlapping and not already excluded, so both are deducted in full. Site value is added at the end because it already reflects any site losses.
Background Knowledge
The cost approach estimates value as the cost new of the improvements, less accrued depreciation from all causes, plus the value of the site. When depreciation is broken down into separate items, the total is the sum of the individual estimates, provided they do not overlap. The site is valued separately, typically as if vacant.
Real-World Application
An appraiser estimates a home's replacement cost new at $540,000 and supports separate deductions for roof wear and a dated kitchen. After subtracting both and adding the site value from land 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?
A new feature in the improvements has a current cost of $45,000 and a market contribution of $18,000. The entire difference is due to superadequacy, with no physical or external loss and no overlap. What is the loss from the superadequacy?
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?
People Also Study
Real Estate Market
13.6% of exam
Property Description
11.8% of exam
Land or Site Valuation
4.5% of exam
Sales Comparison Approach
16.4% of exam
Income Approach
8.2% of exam
Previous Question
Which statement correctly describes on-site improvements?
Next Question
A dwelling is 30 years old but has an estimated effective age of 10 years and a total economic life of 55 years. The current cost new of the improvements is $340,000. What is the depreciation by the straight-line age-life method, to the nearest dollar?