A California appraiser is valuing a 20-year-old commercial building in downtown Sacramento using the cost approach. The replacement cost new is $1,800,000. The appraiser identifies: physical deterioration of $360,000, functional obsolescence (curable) of $90,000 for an outdated HVAC system, and external obsolescence of $150,000 due to a nearby California high-speed rail construction zone that creates noise. The land value is $950,000. What is the indicated value using the cost approach?
Correct Answer
A) $2,150,000
Step 1: Total depreciation = Physical ($360,000) + Functional ($90,000) + External ($150,000) = $600,000. Step 2: Depreciated improvement value = $1,800,000 - $600,000 = $1,200,000. Step 3: Property value = Depreciated improvements + Land = $1,200,000 + $950,000 = $2,150,000.
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A fixed-rate mortgage has an interest rate that remains constant for the entire term of the loan, resulting in equal monthly principal and interest payments throughout the life of the mortgage.
Foreclosure is the legal process by which a lender takes possession of a property when a borrower fails to make mortgage payments. It allows the lender to sell the property to recover the outstanding debt.
The loan-to-value ratio (LTV) is the percentage of a property's appraised value or purchase price (whichever is lower) that is being financed through a mortgage. LTV = Loan Amount / Property Value.
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An appraiser in California is evaluating a 40-year-old home near the San Andreas Fault in the Bay Area. The home has outdated plumbing that does not meet current California building codes. In the cost approach, this outdated plumbing is classified as what type of depreciation?
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In the cost approach to valuation in California, all of the following are examples of external (economic) obsolescence EXCEPT: