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?
Correct Answer
A) $2,300,000
Using summation approach: Land Value + (Replacement Cost New - Depreciation) = $800,000 + ($2,000,000 - $500,000) = $2,300,000. Depreciation only applies to the building component, not the land.
Why This Is the Correct Answer
Depreciation applies only to the building: 25% of $2,000,000 is $500,000, leaving $1,500,000. Adding the $800,000 land value gives $2,300,000.
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