On a November 2026 assignment, a home's replacement cost new is $350,000 and site value is $90,000. The appraiser estimates physical deterioration at 10% of the improvements and functional obsolescence at $15,000, with no external obsolescence. What indicated value does the cost approach produce?
Correct Answer
B) $390,000
Step 1: Physical deterioration is $350,000 × 10% = $35,000. Step 2: Total depreciation is $35,000 + $15,000 = $50,000. Step 3: Depreciated improvement value is $350,000 - $50,000 = $300,000. Step 4: Add site value of $90,000 to reach $390,000.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Depreciation is an accounting method of allocating the cost of an asset over its useful life, allowing investors to deduct a portion of the asset's cost each year.
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.
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- → An example of functional obsolescence is:
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All of the following statements about the cost approach are generally true EXCEPT:
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During Dana's August 2026 inspection, she notes a worn roof, an awkward kitchen layout, and a noisy electrical substation across the street. Under the cost approach, how should these items be analyzed?