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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

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slide2
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.
slide3
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
slide4
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.
slide5
Effective age 40 years

Remaining life 40 years

Total life 80 years

40/80 = 0.5 = 50% Depreciation

slide6
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

slide7
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.
slide8
Effective age 30 years

Remaining life 30 years

Total life 60 years

30/60 = 0.5 = 50% Depreciation

slide9
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

slide10
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?
slide11
WHAT IS THE DOLLAR AMOUNT OF THE DEPRECIATION FOR THE SUBJECT PROPERTY?
  • WHAT IS THE ESTIMATED VALUE OF THE SUBJECT PROPERTY?
slide12
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

slide13
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

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