A property has a land value of $300,000 and replacement cost of $450,000. Physical depreciation is estimated at $50,000, functional obsolescence at $30,000, and external obsolescence at $20,000. What is the property's estimated value using the cost approach?
Correct Answer
C) $650,000
Using the cost approach: Land Value ($300,000) + Replacement Cost ($450,000) - Total Depreciation ($50,000 + $30,000 + $20,000 = $100,000) = $650,000. All forms of depreciation must be subtracted from the total of land value plus replacement cost.
Why This Is the Correct Answer
The cost approach formula is Land Value + Replacement Cost - Total Depreciation. Here: $300,000 (land) + $450,000 (replacement cost) - $100,000 (total depreciation: $50,000 physical + $30,000 functional + $20,000 external) = $650,000. All three types of depreciation must be subtracted from the sum of land value and replacement cost to arrive at the final property value.
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