Improvement cost new $540,000 has total loss $80,000. Primary site value $190,000 expressly excludes an independently marketable excess parcel. That parcel is 0.50 acre at a supported net unit value $120,000/acre, with no additional division, sale or holding costs. Add the nonoverlapping values. What total results?
Correct Answer
B) $710,000
540000−80000+190000+0.50×120000 = 710000. Common errors: leaving out the primary site value gives $520,000; not deducting the improvement loss gives $790,000; valuing the excess parcel as a full acre gives $770,000.
Why This Is the Correct Answer
Option B is correct because $540,000 - $80,000 = $460,000 depreciated improvements, plus $190,000 primary site gives $650,000, plus the excess parcel at 0.50 x $120,000 = $60,000 gives $710,000. The values do not overlap, so each is added once.
Why the Other Options Are Wrong
Option A: $520,000
Option A, $520,000, leaves out the primary site value: $540,000 - $80,000 + $60,000 = $520,000. The excess parcel is added on top of the $190,000 primary site, not in place of it, giving $710,000.
Option C: $770,000
Option C, $770,000, values the excess parcel as a full acre: $460,000 + $190,000 + $120,000 = $770,000. The parcel is 0.50 acre, so it contributes 0.50 x $120,000 = $60,000, giving $710,000.
Option D: $790,000
Option D, $790,000, does not deduct the improvement loss: $540,000 + $190,000 + $60,000 = $790,000. Deducting the $80,000 gives $710,000.
Extra land, extra line
If extra land is left out of the main site value, it gets its own line in the summation at its own size times its own rate.
How to use: Use this when a question separates primary site value from an excess parcel.
Exam Tip
Multiply the excess land's actual area by its unit value, and confirm the primary site value does not already include it.
Common Mistakes to Avoid
- -Letting the excess parcel replace the primary site value instead of adding to it
- -Applying a per-acre value to the wrong acreage
- -Forgetting to deduct depreciation from improvement cost new
Concept Deep Dive
Analysis
This question tests a cost approach summation that includes separately marketable excess land. Depreciated improvement cost and primary site value are combined, and the excess parcel is added at its own supported value because the primary site value expressly excludes it. The acreage must be applied to the per-acre value correctly.
Background Knowledge
Excess land is land beyond what is needed to support the existing use that can be sold separately or support an independent use, so it can have significant value of its own. When the primary site value excludes it, the excess land is valued separately and added so that it is neither omitted nor double counted. Surplus land, by contrast, is extra land that cannot be sold separately or support an independent use.
Real-World Application
A house sits on a lot that includes an extra half acre that could be split off and sold as a separate building site. The appraiser values the primary site using typical lot sales, values the excess half acre separately from acreage sales, and adds both to the depreciated improvement cost.
More Cost Approach Questions
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