Current cost new is 2,400 sf×$175/sf with all relevant cost components included. Deduct supported total improvement depreciation $105,000, then add supported site $190,000. No further deductions apply. What cost indication results?
Correct Answer
C) $505,000
2400×175−105000+190000 = 505000. Common errors: leaving out the site value gives $315,000; adding the depreciation instead of deducting it gives $715,000; stopping at cost new, before depreciation and site gives $420,000.
Why This Is the Correct Answer
Option C is correct because cost new is 2,400 sf x $175/sf = $420,000. Subtracting $105,000 depreciation gives $315,000, and adding the $190,000 site gives $505,000. That is the complete cost indication.
Why the Other Options Are Wrong
Option A: $315,000
Option A, $315,000, leaves out the site value: 2,400 x $175 - $105,000 = $315,000. Adding the $190,000 site gives $505,000.
Option B: $420,000
Option B, $420,000, stops at cost new: 2,400 x $175 = $420,000. It skips both the $105,000 depreciation and the $190,000 site; including them gives $505,000.
Option D: $715,000
Option D, $715,000, adds the depreciation instead of deducting it: 2,400 x $175 + $105,000 + $190,000 = $715,000. Depreciation reduces cost new, so the result is $420,000 - $105,000 + $190,000 = $505,000.
Size times rate, then CDL
First size times rate gives cost new. Then cost, minus depreciation, plus land.
How to use: Use this two-stage check when a cost problem starts with a square-foot rate.
Exam Tip
When cost new must be computed from area and a rate, do that multiplication first, then follow the usual minus depreciation, plus site sequence.
Common Mistakes to Avoid
- -Stopping at area times rate
- -Adding depreciation instead of subtracting
- -Leaving the site out of the final figure
Concept Deep Dive
Analysis
This question tests a comparative-unit cost calculation followed by the standard cost-approach steps. Multiply the area by the unit cost to get cost new, subtract total depreciation, then add the site. Each step must be included once and in the correct direction.
Background Knowledge
The comparative-unit method estimates cost new by multiplying a building's area by a unit cost from comparable buildings. Total depreciation, which may be the sum of physical, functional and external estimates, is then deducted. The site value is added to reach the cost indication.
Real-World Application
An appraiser measures a 2,400-square-foot house and applies a local cost-service rate per square foot for its quality class. She subtracts the depreciation she has supported and adds the site value from recent lot sales to reach the cost 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
Total economic life differs from remaining economic life in that total economic life:
Next Question
An appraiser is developing the cost approach for a dwelling built in 1920. Reproduction cost new is $780,000, which includes $90,000 for extra-thick masonry walls that add no value and no added cost of ownership. Replacement cost new is $690,000, which excludes those walls. Accrued depreciation, estimated against replacement cost, is $120,000. Site value is $230,000. What value does the cost approach indicate?