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COST APPROACH PROBLEMS

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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  1. COST APPROACH PROBLEMS

  2. 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.

  3. 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

  4. 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.

  5. Effective age 40 years Remaining life 40 years Total life 80 years 40/80 = 0.5 = 50% Depreciation

  6. 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

  7. 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.

  8. Effective age 30 years Remaining life 30 years Total life 60 years 30/60 = 0.5 = 50% Depreciation

  9. 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

  10. 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?

  11. WHAT IS THE DOLLAR AMOUNT OF THE DEPRECIATION FOR THE SUBJECT PROPERTY? • WHAT IS THE ESTIMATED VALUE OF THE SUBJECT PROPERTY?

  12. 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

  13. 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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