An appraiser in Miami is using the cost approach to value a 5-year-old commercial building. The replacement cost new is $850,000, the land value is $200,000, and the total depreciation is estimated at $75,000. What is the indicated value using the cost approach?
Correct Answer
A) $975,000
Cost approach value = Land Value + (Replacement Cost New - Depreciation) = $200,000 + ($850,000 - $75,000) = $975,000. Option B incorrectly adds depreciation instead of subtracting it. Option C omits the land value. Option D incorrectly calculates the building value.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Highest and best use is an appraisal concept that identifies the most profitable, legally permitted, physically possible, and financially feasible use of a property. It is the foundation of all property valuation.
Homestead portability allows homeowners to transfer a portion of their accumulated homestead tax savings to a new homestead in the same state.
The income approach estimates a property's value based on the income it generates by converting net operating income into a value estimate using a capitalization rate. It is the preferred method for income-producing properties.
More Valuation Appraisal Questions
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Previous Question
A Florida appraiser is valuing a 20-year-old single-family home in a well-established Orlando neighborhood with many comparable recent sales. The property is owner-occupied and in good condition. Which appraisal approach would typically be given the most weight in this valuation?
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A Florida appraiser is valuing a 40-unit apartment complex in Tampa that generates $360,000 in annual net operating income. Recent sales of similar properties indicate a capitalization rate of 7.5%. Using the income approach, what factors must the appraiser consider when applying this cap rate?