Replacement cost new is $350,000, total depreciation is 15% and site value is $110,000. Sales comparison indicates $400,000. With 70% weight on sales comparison and 30% on cost, what is the reconciled value?
Correct Answer
B) $402,250
The cost indication is $350,000 × 0.85 + $110,000 = $407,500. Weighted: $400,000 × 0.70 + $407,500 × 0.30 = $280,000 + $122,250 = $402,250.
Why This Is the Correct Answer
Option B is correct because the cost indication is $350,000 × 0.85 + $110,000 = $297,500 + $110,000 = $407,500. Applying the weights gives $400,000 × 0.70 + $407,500 × 0.30 = $280,000 + $122,250 = $402,250. That is the reconciled value under the stated weighting.
Why the Other Options Are Wrong
Option A: $403,750
Option A, $403,750, comes from equal weights: ($400,000 + $407,500) / 2 = $403,750. The stated weights are 70% on sales comparison and 30% on cost, which give $280,000 + $122,250 = $402,250.
Option C: $405,250
Option C, $405,250, comes from swapping the weights: $400,000 × 0.30 + $407,500 × 0.70 = $120,000 + $285,250 = $405,250. The correct weighting is $400,000 × 0.70 + $407,500 × 0.30 = $402,250.
Option D: $407,500
Option D, $407,500, is the cost approach indication alone ($350,000 × 0.85 + $110,000) with no weight given to sales comparison. Weighting 70/30 gives $402,250.
Depreciate, add land, then weight
Build the cost indication first (cost new less depreciation, plus site), then multiply each indication by its own weight and add.
How to use: Use this sequence on any weighted reconciliation problem that includes a cost approach.
Exam Tip
Match each weight to the approach named in the question before multiplying, because a swapped-weight answer is often among the options.
Common Mistakes to Avoid
- -Forgetting to add site value to the depreciated improvement cost
- -Applying 70% to the cost indication instead of sales comparison
- -Averaging the two indications equally
Concept Deep Dive
Analysis
This calculation tests two steps: building the cost approach indication and then applying the stated weights. First depreciate replacement cost new and add site value, then weight the sales comparison and cost indications by 70% and 30%. Errors usually come from using equal weights, swapping the weights or using only one approach.
Background Knowledge
In the cost approach, depreciation is subtracted from replacement cost new and site value is added. A weighted reconciliation multiplies each approach's indication by its weight and adds the results. Weights should reflect how applicable and reliable each approach is for the subject.
Real-World Application
An appraiser values a ten-year-old house with strong sales data and a reasonable cost estimate. She gives most weight to sales comparison because buyers in the area rely on recent sales. Her report explains why the cost approach received less weight.
More Reconciliation Questions
In a cost approach for an improved property, an appraiser estimates site value by sales comparison, allocation and extraction, then settles on one site-value figure before final reconciliation. How is this step best described?
An extraordinary assumption was reasonably supported, properly used and disclosed in an appraisal report. Later, the assumed information is found to be false. Which conclusion is best supported?
An otherwise applicable valuation approach cannot be developed reliably from the available data. The remaining scope can produce credible assignment results. What should the appraiser do?
May an appraiser use a hypothetical condition in any assignment?
An appraisal has a current effective date and permits an extraordinary assumption if its requirements are met. Which situation involves uncertain information rather than a fact known to be contrary to reality on that date?
Why must a report identify any real property interest that is being excluded from the value opinion?
Which review best helps explain divergent cost, sales-comparison and income indications?
Two value indications are $340,000 and $392,000. What is the difference as a percentage of the lower indication, rounded to one decimal place?
An unauthorized third party requests a lender-client’s report. No due-process or other permitted disclosure exception applies. How should the appraiser respond?
An appraiser proposes to assume there are no hidden defects. Which fact would characterize that assumption as extraordinary under the USPAP 2024 definition, rather than justify dismissing it as routine boilerplate?
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