A property appraiser is using the cost approach and determines that a building would cost $400,000 to rebuild today, but estimates $80,000 in depreciation. If the land value is $200,000, what is the indicated value using this approach?
Correct Answer
B) $520,000
Using the cost approach, the indicated value equals the land value plus the depreciated building value. The calculation is: $200,000 (land) + $400,000 (replacement cost) - $80,000 (depreciation) = $520,000.
Why This Is the Correct Answer
The cost approach formula is Land Value + (Replacement Cost New - Depreciation) = Property Value. Here: $200,000 (land) + ($400,000 - $80,000) = $200,000 + $320,000 = $520,000. This approach estimates value by determining what it would cost to replace the property today, minus any loss in value due to depreciation, plus the land value.
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