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Question:

# When an appraiser values a property under the cost approach, they add the value of the site to the depreciated cost new of improvements. If the value of a site is $150,000, the cost to build a new house is$300,000, the cost to build a new garage is$75,000, and the value of site improvements such as landscaping and the driveway are$75,000, what is the final value of the property under the cost approach when a 20% physical depreciation factor is applied?

A $525,000. explanation The cost approach requires the appraiser to adjust the house and garage costs, known as the “cost new” of constructed improvements, by a depreciation factor. Thus:$300,000 (house) + $75,000 (garage) =$375,000 x 0.2 (20% depreciation) = $75,000. Then subtract the depreciation amount from the cost new.$375,000 (cost new) - $75,000 (accrued depreciation) =$300,000 (depreciated cost new). Finally, add the various amounts: $150,000 (site) +$300,000 (depreciated construction costs) + $75,000 (site improvements) =$525,000.