Florida Real Estate Sales Associate Examination Content OutlineReal Estate Valuation and Market AnalysisMedium
An appraiser is using the cost-depreciation approach to value a property. They have determined the cost to rebuild the structure new today is $300,000. The land value is $75,000. The total estimated depreciation is 20%. What is the indicated value of the property using this approach?
- A$360,000
- B$315,000
- C$240,000
- D$375,000
Show answer & explanationAnswer & explanation
Correct answer: B. $315,000
First, calculate the depreciated value of the structure: $300,000 (new cost) * (1 - 0.20 depreciation) = $300,000 * 0.80 = $240,000. Then, add the land value: $240,000 + $75,000 = $315,000.
Why the other options are wrong
- A. This incorrectly applies depreciation to the total value including land, or an incorrect calculation.
- C. This is only the depreciated value of the structure, without adding the land.
- D. This is the total if no depreciation was applied to the structure.
Cost-Depreciation Approach
An appraisal method that estimates the value of a property by determining the cost to build a new replacement, subtracting accumulated depreciation, and adding the value of the land.
- Most effective for new or unique properties where comparables are scarce.
- Land is never depreciated.
- Steps: Estimate land value, estimate new construction cost, estimate depreciation, subtract depreciation from new cost, add land value.
Memory trick: Cost approach: Build it, break it down, then add the dirt back!