An appraiser is using the cost approach to value a 15-year-old office building in Albany. The replacement cost new is estimated at $2,400,000. The appraiser determines that physical deterioration equals $180,000, functional obsolescence equals $95,000, and external obsolescence equals $65,000. The land value is estimated at $450,000. What is the indicated value using the cost approach?
Correct Answer
C) $2,510,000
Using the cost approach: Depreciated building value = Replacement Cost New - Total Depreciation = $2,400,000 - ($180,000 + $95,000 + $65,000) = $2,400,000 - $340,000 = $2,060,000. Total property value = Depreciated building value + Land value = $2,060,000 + $450,000 = $2,510,000.
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Related Concepts
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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.
Many states have laws to limit how much property taxes can increase each year, regardless of market value fluctuations.
More Valuation Market Analysis Questions
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- → An appraiser is using the income approach to value a 12-unit rental building in Brooklyn. The building generates $180,000 in annual gross rental income. Operating expenses total $54,000 annually. The appraiser determines that a 7.5% capitalization rate is appropriate for this type of property in this location. What is the indicated value using the income approach?
- → An example of functional obsolescence is:
- → The best method to determine fair market value is:
- → Who typically hires the appraiser in a real estate transaction?
- → A depth table is used to estimate property value for:
- → Under federal law, which type of loan typically does NOT require a property appraisal?
- → FIRREA (Financial Institutions Reform, Recovery, and Enforcement Act) requires:
- → For appraising a vacant lot for single-family residence construction, which approach applies?
- → The final appraisal step of weighing different approaches is called:
- → For 1930s buildings, the cost approach is least accurate due to:
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