A 2,200-sf dwelling has a cost of $195 per square foot, and a separate 400-sf garage costs $65 per square foot. These figures include all relevant cost components with no overlap. Excluding land, what is the total cost new of the improvements?
Correct Answer
B) $455,000
2200×195+400×65 = 455000. Common errors: leaving out the garage gives $429,000; pricing the garage at the dwelling rate gives $507,000; including the garage area in the dwelling area and also pricing the garage separately gives $533,000.
Why This Is the Correct Answer
Option B is correct because the dwelling costs 2,200 × $195 = $429,000 and the garage costs 400 × $65 = $26,000, for a total of $429,000 + $26,000 = $455,000. The square foot method applies a cost per square foot to the area it fits, so each component uses its own rate.
Why the Other Options Are Wrong
Option A: $429,000
Option A is wrong because $429,000 is 2,200 × $195, the dwelling alone, leaving out the $26,000 garage. Adding the garage gives $455,000.
Option C: $507,000
Option C is wrong because $507,000 is (2,200 + 400) × $195, pricing the garage at the dwelling rate. The garage uses its own $65 rate, giving $429,000 + $26,000 = $455,000.
Option D: $533,000
Option D is wrong because $533,000 is (2,200 + 400) × $195 + 400 × $65, which puts the garage area in the dwelling area and then prices the garage again. Each area is priced once at its own rate, giving $455,000.
Each area, its own rate
Multiply each building component's area by the rate that matches it, then add the pieces together.
How to use: Use this rule when a cost problem gives different per-square-foot rates for the dwelling and the garage.
Exam Tip
Match each area to its own rate and add once; distractors often blend the rates or double count one component.
Common Mistakes to Avoid
- -Applying the living-area rate to the garage
- -Leaving the garage out of total cost new
- -Including the garage area in the dwelling area and also pricing it separately
Concept Deep Dive
Analysis
This question tests applying separate unit costs to separate building components in the square foot method. The dwelling and the garage have different construction quality and therefore different rates. Each area is multiplied by its own rate and the results are added.
Background Knowledge
The square foot method combines construction costs into a price per square foot applied to the improvement's area. Living area and garage area are typically priced separately because their construction and finish differ. Total cost new should include all direct and indirect costs without double counting.
Real-World Application
Using a cost service, an appraiser prices a home's 2,200 square feet of finished living area at one rate and its attached 400-square-foot garage at a lower rate. The two amounts are added to produce the improvement cost new for the cost approach.
More Cost Approach Questions
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