California Real Estate SalespersonProperty Valuation and Financial AnalysisEasy
An appraiser is using the cost approach to value a property. The land value is estimated at $180,000. The cost new of the improvements is $700,000. Total accrued depreciation is estimated at $140,000. What is the indicated value of the property using this approach?
- A$880,000
- B$920,000
- C$740,000
- D$1,020,000
Show answer & explanationAnswer & explanation
Correct answer: C. $740,000
The cost approach calculates value as: Land Value + (Cost New of Improvements - Total Accrued Depreciation). So, $180,000 + ($700,000 - $140,000) = $180,000 + $560,000 = $740,000.
Why the other options are wrong
- A. Incorrect, likely from adding depreciation instead of subtracting it from the improvements.
- B. Incorrect, likely from simply adding land value to cost new.
- D. Incorrect calculation, too high.
Cost Approach to Value
An appraisal method that estimates the value of a property by summing the estimated land value and the depreciated cost of the improvements.
- Most reliable for new or unique properties
- Land is valued separately from improvements
- Value = Land Value + (Reproduction/Replacement Cost New - Accrued Depreciation)
Memory trick: Land Plus Building Minus Depreciation