COST APPROACH PROBLEMS

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# COST APPROACH PROBLEMS - PowerPoint PPT Presentation

COST APPROACH PROBLEMS. THE IMPROVEMENTS ON THE SUBJECT PROPERTY HAVE AN EFFECTIVE AGE OF 20 YEARS, REMAINING ECONOMIC LIFE OF 30 YEARS AND RCN OF \$50,000. ESTIMATE THE CONTRIBUTORY VALUE OF THE IMPROVEMENTS. . Effective age 20 years Remaining life 30 years

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## COST APPROACH PROBLEMS

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### COST APPROACH PROBLEMS

THE IMPROVEMENTS ON THE SUBJECT PROPERTY HAVE AN EFFECTIVE AGE OF 20 YEARS, REMAINING ECONOMIC LIFE OF 30 YEARS AND RCN OF \$50,000.
• ESTIMATE THE CONTRIBUTORY VALUE OF THE IMPROVEMENTS.
Effective age 20 years

Remaining life 30 years

Total life 50 years

• 20/50 = 0.4 = 40% Depreciation
• RCN = \$ 50,000
• Depr. = \$20,000
• Contributory Value = \$30,000
THE SUBJECT PROPERTY HAS A BARN WHICH WOULD COST \$ 40,000 TO REPRODUCE TODAY.
• EFFECTIVE AGE IS 40 YEARS AND REMAINING ECONOMIC LIFE IS 40 YEARS.
• CURABLE PHYSICAL DETERIORATION IS \$10,000.
• ESTIMATE THE CONTRIBUTORY VALUE OF THE BARN.
Effective age 40 years

Remaining life 40 years

Total life 80 years

40/80 = 0.5 = 50% Depreciation

RCN = \$40,000

LESS \$10,000 of Curable deterioration

EQUALS \$30,000

LESS \$15,000 of Incurable deterioration (0.50*30,000)

Contributory Value = \$ 15,000

THE SUBJECT PROPERTY IMPROVEMENTS INCLUDE A BARN WHICH COULD BE REPRODUCED TODAY FOR \$ 60,000. EFFECTIVE AGE IS 30 YEARS AND REMAINING ECONOMIC LIFE IS 30 YEARS.
• CURABLE PHYSICAL DETERIORATION IS \$2,000 AND CURABLE FUNCTIONAL OBSOLESCENCE DUE TO A DEFICIENCY IS \$3,000.
• ESTIMATE THE CONTRIBUTORY VALUE OF THE BARN.
Effective age 30 years

Remaining life 30 years

Total life 60 years

30/60 = 0.5 = 50% Depreciation

RCN = \$ 60,000

LESS \$ 2,000 of Curable deterioration

EQUALS \$ 58,000

LESS \$ 29,000 of Incurable deterioration (0.50*58,000)

EQUALS \$ 29,000

LESS \$ 3,000 of Curable functional obsolescence

Contributory Value = \$ 26,000

YOU ESTIMATE IT WOULD COST \$30,000 TO REPLACE THE DWELLING ON THE RESIDENTIAL PROPERTY YOU ARE APPRAISING.
• FROM RELIABLE MARKET DATA YOU ARE AWARE OF A SIMILAR RESIDENTIAL PROPERTY THAT RECENTLY SOLD FOR \$32,000 WITH A RCN FOR THE RESIDENCE OF \$40,000.
• IF THE LAND HAS A VALUE OF \$6,000 FOR BOTH PROPERTIES, WHAT IS THE PERCENT DEPRECIATION INDICATED BY THE COMPARABLE SALE?
WHAT IS THE DOLLAR AMOUNT OF THE DEPRECIATION FOR THE SUBJECT PROPERTY?
• WHAT IS THE ESTIMATED VALUE OF THE SUBJECT PROPERTY?
Market value of comparable \$ 32,000
• LESS the comparable land value \$ 6,000
• EQUALS Improvement value of \$ 26,000
• RCN of the comparable \$ 40,000
• LESS the improvement value of \$ 26,000
• EQUALS accrued depr. of \$ 14,000

or 35% of RCN

RCN of the subject property \$ 30,000
• LESS the estimated accrued depr. of

\$ 10,500 (30000* 0.35)

• EQUALS estimated contributory value of the residence \$19,500
• Contributory value of the residence \$19,500
• PLUS land value \$ 6,000
• EQUALS estimated property value of

\$ 25,500