When applying extraction, which depreciation must be reflected in the improvement estimate?
Correct Answer
D) All relevant accrued depreciation attributable to the improvements
The improvement contribution must reflect relevant physical deterioration, functional obsolescence and attributable external obsolescence. Allocate effects consistently with market evidence and avoid deducting a loss twice between land and improvements. Owner accounting depreciation is not a substitute for market contribution.
Why This Is the Correct Answer
Option D is correct because the improvement contribution must reflect relevant physical deterioration, functional obsolescence and external obsolescence attributable to the improvements. External obsolescence generally affects both land and improvements, so only the loss attributable to the improvements is counted to avoid double counting. Owner accounting depreciation is not a measure of market contribution.
Why the Other Options Are Wrong
Option A: Visible physical deterioration, but no other depreciation
Option A limits depreciation to visible physical deterioration. Functional and attributable external obsolescence also reduce the improvements' contribution and must be reflected.
Option B: Physical and functional loss, excluding all external effects
Option B includes physical and functional loss but excludes all external effects. The portion of external obsolescence attributable to the improvements should also be counted.
Option C: Only the owner’s recorded accounting depreciation
Option C uses only the owner's recorded accounting depreciation. Book depreciation follows tax or accounting rules, not market evidence, so it does not measure the improvements' contribution to value.
Physical, functional, external: count all three
Accrued depreciation has three types, and extraction needs every one that applies to the improvements. Only the improvements' share of external loss is counted.
How to use: Use this to check whether an answer leaves out any type of depreciation.
Exam Tip
Answers that exclude a whole category of depreciation or substitute book depreciation are usually incomplete.
Common Mistakes to Avoid
- -Counting only physical deterioration
- -Using tax or book depreciation
- -Deducting the full external loss from improvements and land
Concept Deep Dive
Analysis
This question tests what the improvement estimate must reflect in the extraction method. Extraction subtracts the contribution of the improvements from total property value, so that contribution must reflect all relevant accrued depreciation. Only the portion of external obsolescence attributable to the improvements is counted.
Background Knowledge
Accrued depreciation is the difference between cost new and the improvements' contribution to value. It has three types: physical deterioration, functional obsolescence and external obsolescence. In extraction, an accurate depreciated improvement value is essential because any error passes directly into the land indication.
Real-World Application
An appraiser uses extraction on a home sale near a busy highway. The appraiser deducts physical wear, an outdated floor plan, and the portion of the highway's negative influence attributable to the house, while leaving the land's share of that influence in the land value.
More Land/Site Questions
How should an appraiser account for a site's access to public sewer compared with competing sites that require septic systems?
Which fact, if supported by competitive-market evidence, most directly supports a unit-price premium for an otherwise comparable site?
A rectangular site's frontage is doubled while its depth is halved, keeping area constant. What is the likely value effect in a retail district?
A downtown site's zoning height limit is reduced from six stories to three. Buyers in this market had been paying for six-story development potential. What effect on land value is most supportable?
A zoning change increases permitted density from four to eight units per acre. What is the likely effect on site value?
Using the allocation method, market evidence supports a typical land-to-total-property-value ratio of 28% for similar improved properties in the subject’s location. An improved comparable sold for $825,000. What land (site) contribution is indicated by applying that ratio?
An appraiser is valuing a vacant site near a landfill. A similar vacant site that is not affected by the landfill sold for $480,000. Paired land sales indicate that proximity to the landfill lowers site prices by $70,000. No other adjustments apply. What is the indicated value of the subject site?
An appraiser is extracting site value from a $600,000 cash sale. The seller's records show an original construction cost of $250,000 and a depreciated book value of $110,000. The appraiser estimates current replacement cost new at $400,000 and accrued depreciation from all causes at $100,000. What is the indicated site value?
Three parcels assembled under single ownership (standard appraisal guidance assemblage) support separate as-is values of $290,000, $340,000, and $250,000. After assemblage for a higher-utility use, the combined site is valued at $1,050,000. Assemblage costs (demolition, legal, holding, and related) total $55,000. What is the indicated net plottage (plottage increment after assemblage costs)?
A comparable commercial site with 65 front feet sold for a cash-equivalent price of $585,000. Per standard appraisal guidance, sale price per front foot is a vacant-land unit of comparison when frontage is a primary value determinant. The subject site has 72 front feet and is otherwise similar. What indicated land value does the front-foot unit support before other adjustments?
People Also Study
Real Estate Market
13.6% of exam
Property Description
11.8% of exam
Sales Comparison Approach
16.4% of exam
Cost Approach
13.6% of exam
Income Approach
8.2% of exam
Previous Question
A market study shows lot prices in a proposed subdivision are likely to soften during the sell-out. How should the appraiser handle this?
Next Question
A hypothetical site is worth $300,000 unencumbered. Supported market evidence attributes 20% of that value to a strip affected by a utility easement. The strip retains 40% of its former contribution, with no value effect on the rest of the site. What is the supported loss?