The subject is a dwelling next to a new industrial use. Paired sales show the influence reduces total property value by $50,000, of which $12,000 is attributable to the site, and the $140,000 site value already reflects that site loss. Improvement cost new is $650,000, effective age is 20 years and total economic life is 50 years. The age-life estimate does not capture the influence. What value does the cost approach indicate?
Correct Answer
B) $492,000
Age-life depreciation is $650,000 × 20 ÷ 50 = $260,000, leaving $390,000. Only the improvement share of the external loss, $50,000 − $12,000 = $38,000, counts as depreciation because the site value already reflects the rest, so $390,000 − $38,000 + $140,000 = $492,000. Deducting the full $50,000 double counts and gives $480,000, deducting the site share instead gives $518,000, and omitting the loss gives $530,000.
Why This Is the Correct Answer
Option B is correct because age-life depreciation of $260,000 leaves $390,000, and the improvement share of the external loss is $38,000. That leaves $352,000 of depreciated improvements. Adding the $140,000 site, which already reflects its own $12,000 share, gives $492,000.
Why the Other Options Are Wrong
Option A: $480,000
Option A shows $480,000, from 390,000 − 50,000 + 140,000. It deducts the whole $50,000 even though the site value already reflects $12,000, so that $12,000 is counted twice; the correct total is $492,000.
Option C: $518,000
Option C shows $518,000, from 390,000 − 12,000 + 140,000. It deducts the site's share from the improvements rather than the improvements' $38,000 share, so the correct total is $492,000.
Option D: $530,000
Option D shows $530,000, from 390,000 + 140,000. It leaves out the $38,000 external loss attributable to the improvements, which is not part of the age-life figure; the correct total is $492,000.
Site takes its share first
A whole-property loss splits in two: the site's share is already in the site value, and the rest is improvement depreciation.
How to use: Use this when a whole-property external loss and a site value appear in the same cost-approach problem.
Exam Tip
Ask whether the stated site value already reflects the influence. If it does, the site's share is not deducted again.
Common Mistakes to Avoid
- -Deducting the whole-property external loss from the improvements
- -Forgetting to add the supported site value after depreciation
- -Leaving out the improvement share because the site value reflects the influence
Concept Deep Dive
Analysis
This tests where an external loss belongs in the cost approach. The influence reduces the whole property, but the supported site value already carries the site's share. Depreciation on the improvements should therefore take the remaining share and no more.
Background Knowledge
External obsolescence arises from negative influences outside the property and generally affects both land and improvements. A correctly estimated site value already reflects the site's portion, so a whole-property loss is allocated and the improvement portion is counted as depreciation.
Real-World Application
An appraiser values a house after a new industrial use opens next door. Paired sales measure the total loss, and land sales near the facility already show a lower site value. The appraiser deducts the balance of the loss from the improvements so that the site's share is not counted twice.
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
Building cost new is $410,000 and total building depreciation $90,000. Separate site improvements are already valued as-is at $35,000 and are not in the building figures. Add supported vacant-site value $100,000, which excludes those improvements. What total results?
Next Question
Building cost new is $480,000, with total building depreciation $90,000. Separate site improvements are already as-is $40,000 and not included in the building or land figures. Supported vacant-site value is $125,000. What total indication results?