The subject improvements contain 2,150 sf, and current cost new is $240 per square foot. Total depreciation of the improvements is $66,000, and site value is $100,000. No other costs or losses apply. What value does the cost approach indicate?
Correct Answer
C) $550,000
2150×240−66000+100000 = 550000. Common errors: leaving out the site value gives $450,000; adding the depreciation instead of deducting it gives $682,000; stopping at cost new, before deducting depreciation and adding the site gives $516,000.
Why This Is the Correct Answer
Option C is correct because cost new is 2,150 sf × $240 = $516,000. Deducting $66,000 of depreciation gives $450,000, and adding the $100,000 site gives $550,000. This follows the standard cost approach order of cost new, less depreciation, plus site value.
Why the Other Options Are Wrong
Option A: $450,000
Option A, $450,000, leaves out the site value: $516,000 − $66,000 = $450,000. The cost approach adds site value, so the total is $450,000 + $100,000 = $550,000.
Option B: $516,000
Option B, $516,000, stops at cost new (2,150 × $240) before deducting depreciation and adding the site. Completing the steps gives $516,000 − $66,000 + $100,000 = $550,000.
Option D: $682,000
Option D, $682,000, adds the depreciation instead of deducting it: $516,000 + $66,000 + $100,000 = $682,000. Depreciation reduces cost new, giving $516,000 − $66,000 + $100,000 = $550,000.
Cost, Minus Loss, Plus Land
Cost approach value = Cost new − Depreciation + Site value. Build it, wear it down, then set it on the land.
How to use: Use this order for multi-step cost approach calculation.
Exam Tip
Write out each step separately; a missing site value or a reversed depreciation sign produces common distractors.
Common Mistakes to Avoid
- -Forgetting to add site value
- -Adding depreciation instead of subtracting it
- -Stopping at cost new
Concept Deep Dive
Analysis
This question tests the basic cost approach sequence: estimate cost new, deduct depreciation, then add site value. The cost new comes from the square foot method, multiplying area by unit cost.
Background Knowledge
The square foot method combines all construction costs into one price per square foot applied to the subject's area. In the cost approach, depreciation from physical, functional and external causes is subtracted from cost new. Site value, estimated as if vacant, is then added to reach the indicated value.
Real-World Application
An appraiser measures a 2,150 sf house, applies a $240/sf cost from a cost service, deducts $66,000 for depreciation and adds a $100,000 site value from land sales. The cost approach indicates $550,000.
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?
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Previous Question
A driveway and walk have a separate cost new of $18,000, an effective age of 8 years and their own total economic life of 20 years. Using straight-line age-life depreciation, with no salvage value and no other loss, what is the depreciated contribution of this site improvement?
Next Question
Improvements with a cost new of $580,000 have a remaining economic life of 40 years out of a total economic life of 50 years, and the site is worth $90,000. Assuming straight-line depreciation with no salvage value and no additional losses, what is the cost approach indication?