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 45-year-old office building has undergone multiple high-quality renovations, including HVAC replacement, seismic retrofitting, and full interior modernization. Its functional layout remains competitive with new construction, and it occupies a stable, well-located corridor. The appraiser estimates its total economic life at 70 years. Which estimate of effective age is most supportable under USPAP and recognized cost approach methodology?
A warehouse cost $210,000 to build when the cost index stood at 105. The index is now 210. Its indicated current cost is:
An appraiser is estimating accrued depreciation for a commercial office building using the age-life method. The building was constructed in 1992 and has a total economic life of 60 years. As of the appraisal date in 2024, the appraiser determines the property’s effective age is 36 years due to consistent maintenance, modernized systems, and favorable market perception. What is the percent of accrued depreciation indicated by the age-life method?
Which event would RAISE a building's effective age relative to last year's estimate?
Two identical houses were built the same year; one has been meticulously maintained, the other neglected. Their age-life analyses differ because:
Which statement is MOST consistent with USPAP Standards Rule 6 regarding the identification and treatment of external obsolescence in the cost approach?
A 40-year-old industrial warehouse has undergone no major renovations and suffers from outdated electrical systems, inefficient insulation, and obsolescent loading dock design. Market evidence indicates similar properties typically exhibit functional obsolescence reducing utility by 15% and external obsolescence reducing value by 10%. If the appraiser uses the age-life method with a total economic life of 50 years, how should effective age be adjusted to reflect these conditions?
In developing an age-life depreciation estimate, an appraiser assigns an effective age of 16 years and a total economic life of 40 years. Later, the appraiser discovers that comparable properties in the same submarket have recently sold with effective ages averaging 12 years and total economic lives averaging 45 years — and those sales exhibited superior energy efficiency and adaptive reuse features. What is the appraiser’s USPAP-compliant obligation regarding the original effective age estimate?
The age-life method expresses depreciation as:
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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?
Next Question
A warehouse built in 1992 has 24-foot clear ceiling heights — adequate for its original pallet-racking system. Today’s logistics tenants require 36-foot clear heights to accommodate automated storage/retrieval systems (AS/RS). Retrofitting the roof to increase height would cost $1.2 million and disrupt operations for 14 months. Market analysis shows comparable modern warehouses with 36-foot ceilings lease for $0.75/sq ft/month, while this property leases for $0.52/sq ft/month — a $0.23 differential over its 100,000-sq-ft area. Assuming a 10% capitalization rate and ignoring vacancy and expenses, what is the indicated amount of incurable functional obsolescence?