A valuer is assessing a unique architectural property with no recent comparable sales. The property cost $2.5 million to build five years ago, current construction costs have increased 15%, and the valuer estimates 8% total depreciation. What is the indicated value using the summation approach?
Correct Answer
A) $2,645,000 plus land value
Using the summation approach: Current replacement cost = $2.5M × 1.15 = $2,875,000. Less depreciation of 8% = $2,875,000 × 0.92 = $2,645,000. This figure represents the depreciated replacement cost of improvements, to which the land value must be added to determine total property value.
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A valuer is assessing a unique architectural property with no recent comparable sales. The property generates $120,000 net annual income, but market capitalisation rates vary from 5.5% to 7.5% depending on risk assessment. What additional factor is MOST critical for determining the appropriate rate?