A property has a reproduction cost of $400,000, land value of $150,000, and total depreciation of $75,000. What is the property value using the cost approach?
Correct Answer
C) $475,000
Cost approach value = land value + (reproduction cost - depreciation) = $150,000 + ($400,000 - $75,000) = $150,000 + $325,000 = $475,000. Depreciation reduces the cost of the improvements, and land, which is not depreciated, is added at its separate value.
Why This Is the Correct Answer
Reproduction cost $400,000 minus depreciation $75,000 gives a depreciated improvement value of $325,000. Adding the $150,000 land value gives $475,000.
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Previous Question
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?
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A property sold for $450,000 and generates annual net operating income of $27,000. What is the capitalization rate?