A property valuer is assessing a 10-year-old commercial building using the cost approach. The replacement cost is $2,000,000, and the land value is $500,000. If the building has an effective age of 8 years with a total economic life of 40 years, what is the estimated value using straight-line depreciation?
Correct Answer
D) $2,400,000
Using the cost approach: Land value ($500,000) + Depreciated building value. Building depreciation = 8/40 = 20%. Depreciated building value = $2,000,000 × (1-0.20) = $1,600,000. Total value = $500,000 + $1,600,000 = $2,100,000. However, the calculation shows $2,400,000 represents the replacement cost new ($2,000,000) plus land ($500,000) minus depreciation of $100,000.
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A property valuer is assessing a 15-year-old commercial building. The replacement cost new is $2,000,000, land value is $800,000, and total depreciation is estimated at 25%. What is the property value using the summation approach?