In the cost approach, if a building has a replacement cost of $400,000, land value of $150,000, and total depreciation of $80,000, what is the estimated property value?
Correct Answer
C) $470,000
Cost approach formula: Property Value = (Replacement Cost - Depreciation) + Land Value = ($400,000 - $80,000) + $150,000 = $470,000. Land value is added because land doesn't depreciate in this calculation method.
Why This Is the Correct Answer
Option C ($470,000) correctly applies the cost approach formula: Property Value = (Replacement Cost - Depreciation) + Land Value. The calculation is ($400,000 - $80,000) + $150,000 = $470,000. This follows the fundamental principle that depreciation only applies to the building structure, not the land. Land is considered to have indefinite economic life and maintains its value separately from improvements. This methodology is consistent with appraisal standards taught in Canadian real estate licensing programs and professional appraisal courses.
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