Improvement cost new $540,000 has supported 70% good factor accounting for all loss. Add supported site $155,000. What total indication results?
Correct Answer
C) $533,000
540000×0.70+155000 = 533000. Common errors: leaving out the site value gives $378,000; applying the depreciation share (30%) instead of the 70% good factor gives $317,000; not applying the good factor gives $695,000.
Why This Is the Correct Answer
Option C is correct because the depreciated improvement value is $540,000 × 0.70 = $378,000. Adding the supported site value of $155,000 gives $378,000 + $155,000 = $533,000. This follows the cost approach sequence of depreciated improvements plus site value.
Why the Other Options Are Wrong
Option A: $317,000
Option A, $317,000, comes from applying the 30% depreciation share instead of the 70% good factor: $540,000 × 0.30 + $155,000 = $317,000. The correct calculation is $540,000 × 0.70 + $155,000 = $533,000.
Option B: $378,000
Option B, $378,000, is only the depreciated improvement value, $540,000 × 0.70. It leaves out the $155,000 site value; adding it gives $533,000.
Option D: $695,000
Option D, $695,000, adds full cost new and site ($540,000 + $155,000) without applying the 70% good factor. The improvements must be reduced to $378,000 before adding the site, giving $533,000.
Good times cost, plus dirt
Multiply cost new by percent good to get what is left of the building, then add the land. Percent good plus percent depreciation equals 100%.
How to use: Use this whenever a cost question gives a percent good factor and a separate site value.
Exam Tip
Check whether the given percentage is percent good or percent depreciation before multiplying. Then confirm whether the question asks for the improvement value alone or the total indication.
Common Mistakes to Avoid
- -Multiplying cost new by the depreciation percentage instead of the percent good
- -Forgetting to add the site value to the depreciated improvements
- -Applying the depreciation factor to the site value as well
Concept Deep Dive
Analysis
This question tests the percent-good form of the cost approach. Because the 70% good factor already accounts for all loss, multiplying cost new by 70% gives the depreciated improvement value directly. The supported site value is then added to reach the total indication.
Background Knowledge
Percent good is the complement of depreciation expressed as a percentage, so a 70% good factor means 30% total depreciation. In the cost approach, depreciated improvement value is added to site value, which is estimated separately and not depreciated.
Real-World Application
An appraiser estimates replacement cost new for a single-family home and, from market evidence, concludes the improvements retain 70% of that cost after all forms of depreciation. Adding land value supported by vacant site sales produces the cost approach indication reported in the reconciliation.
More Cost Approach Questions
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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?
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What best supports a claimed loss from a bathroom-layout deficiency?
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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?
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Previous Question
An appraiser is estimating curable physical deterioration and treats an item as curable only when the full benefit of curing it exceeds the full cost. Item A would cost $4,800 to cure, with a benefit of $7,200. Item B would cost $22,000 to cure, with a benefit of $11,000. There are no other costs or benefits. What is the total cure cost of the items that qualify?
Next Question
An appraiser is extracting depreciation from a comparable dwelling that was listed at $410,000 and sold for $395,000 in a cash transaction. The price included $15,000 of furniture conveyed with the house. At the sale date, site value was $105,000 and improvement cost new was $340,000. What are the improvement contribution and the total depreciation?