The cost approach's summation formula is:
Correct Answer
A) Land value plus depreciated improvement cost
Why this is correct: The cost approach summation formula is: Land Value + (Replacement Cost New of Improvements - Accrued Depreciation). This is the standard equation. Why the other choices are wrong: "Cost new plus land value, less accrued financing" is wrong; financing is not deducted in the cost approach. "Sale price less land value, plus depreciation" is wrong; this rearranges the formula incorrectly. "Improvement cost less land value, plus profit" is wrong; profit is not a standard component. Exam tip: Memorize: Cost Approach Value = Land + (Cost New - Depreciation).
Why This Is the Correct Answer
Why this is correct: The cost approach summation formula is: Land Value + (Replacement Cost New of Improvements - Accrued Depreciation). This is the standard equation. Why the other choices are wrong: "Cost new plus land value, less accrued financing" is wrong; financing is not deducted in the cost approach. "Sale price less land value, plus depreciation" is wrong; this rearranges the formula incorrectly. "Improvement cost less land value, plus profit" is wrong; profit is not a standard component. Exam tip: Memorize: Cost Approach Value = Land + (Cost New - Depreciation).
More Cost Approach Questions
In a cost approach for a proposed building, the appropriate cost basis is generally:
A warehouse cost $210,000 to build when the cost index stood at 105. The index is now 210. Its indicated current cost is:
The age-life method expresses depreciation as:
Market extraction of depreciation is limited by the fact that it:
Functional obsolescence caused by a deficiency is measured as curable when:
Curable physical deterioration is measured at cost to cure because:
A 2,050 sq ft dwelling is priced at $178 per square foot with a $34,000 detached garage and $21,500 of site improvements. Cost new is:
A house has three bedrooms sharing one bathroom, and adding a second bath is economically justified. This is:
Direct costs in a construction budget include:
An appraiser writes that a 40-year-old house has an effective age of 10 but describes original wiring, original kitchen and a 25-year-old roof. The report's problem is:
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Previous Question
A certified general appraiser is valuing a 40-year-old office building affected by chronic noise and air pollution from a nearby airport. The appraiser estimates total external obsolescence at $620,000 using the sales comparison approach with paired sales. The site value, as confirmed by vacant land sales, is $380,000, and the reproduction cost new of the improvements is $1,850,000. Physical and functional depreciation total $310,000. What is the indicated value of the improvements after accounting for all forms of depreciation, including external obsolescence?
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Direct and indirect costs total $340,000 and entrepreneurial incentive in this market is 12% of those costs. What is the total cost new?