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.
Why This Is the Correct Answer
Update cost first: $2.5 million x 1.15 is $2,875,000. Then deduct 8% depreciation: $2,875,000 x 0.92 is $2,645,000, to which land value is added.
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