California Real Estate SalespersonProperty Valuation and Financial AnalysisMedium
An appraiser is valuing a property that has an estimated replacement cost new of $600,000. Due to its age and condition, the appraiser estimates the physical deterioration (curable and incurable) at $80,000. The property also suffers from outdated design features, costing an estimated $30,000 to cure (functional obsolescence). Additionally, a new highway bypass has significantly reduced traffic and visibility for the commercial property, resulting in a loss of $50,000 in value (external obsolescence). What is the total accrued depreciation?
- A$110,000
- B$180,000
- C$160,000
- D$130,000
Show answer & explanationAnswer & explanation
Correct answer: C. $160,000
Total accrued depreciation is the sum of physical deterioration, functional obsolescence, and external (economic) obsolescence. $80,000 (physical) + $30,000 (functional) + $50,000 (external) = $160,000.
Why the other options are wrong
- A. Incorrect, only accounts for physical and functional obsolescence.
- B. Incorrect, likely a miscalculation.
- D. Incorrect, likely a miscalculation.
Total Accrued Depreciation (Categorized)
The total loss in value from all causes, categorized into physical deterioration, functional obsolescence, and external obsolescence.
- Physical deterioration is wear and tear
- Functional obsolescence is outdated design or utility
- External obsolescence is due to factors outside the property
Memory trick: Physical, Functional, External, Sum Them All