An appraiser is valuing a 40-year-old Los Angeles apartment building using the cost approach. Replacement cost new (RCN) = $3,200,000. Physical deterioration: curable deferred maintenance = $80,000; incurable short-lived items = $120,000; incurable long-lived items = $200,000. Functional obsolescence (superadequacy) = $60,000. External obsolescence = $160,000. Land value = $2,400,000. What is the indicated value via the cost approach?
Correct Answer
A) $4,980,000
Total depreciation = $80,000 + $120,000 + $200,000 + $60,000 + $160,000 = $620,000. Depreciated improvement value = $3,200,000 − $620,000 = $2,580,000. Adding land of $2,400,000 yields an indicated value of $4,980,000.
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An appraiser in California is deciding between using reproduction cost and replacement cost for a historic Victorian home in San Francisco's Painted Ladies neighborhood. Which cost method is MOST appropriate and why?
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In the cost approach used by California appraisers, all of the following are forms of physical deterioration EXCEPT: