An appraiser is valuing a 40-year-old office building using the cost approach. The land is worth $500,000, replacement cost is $2,000,000, but the building has functional obsolescence due to outdated electrical systems valued at $150,000 and physical depreciation of $300,000. What is the estimated value?
Correct Answer
C) $2,050,000
Using the cost approach: Land Value ($500,000) + Replacement Cost ($2,000,000) - Physical Depreciation ($300,000) - Functional Obsolescence ($150,000) = $2,050,000. All forms of depreciation must be subtracted from the total of land value plus replacement cost.
Why This Is the Correct Answer
This answer correctly applies the cost approach: Land Value + Replacement Cost - All Depreciation. The calculation is $500,000 (land) + $2,000,000 (replacement cost) - $300,000 (physical depreciation) - $150,000 (functional obsolescence) = $2,050,000.
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An appraiser is valuing a 15-unit apartment building. The building generates $180,000 in annual rental income with operating expenses of $60,000. If the capitalization rate for similar properties is 8%, what is the estimated value using the income approach?
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An appraiser is valuing a unique heritage building with no recent comparable sales. The building generates rental income but also has significant historical restrictions on modifications. Which combination of approaches would be most appropriate?