10. Let’s assume that we are about to appraise a house using the cost approach.

Question

10. Let’s assume that we are about to appraise a house using the cost approach. The home was originally constructed in the early 1900s and is one of the last of its kind in this area. The cost of constructing an exact replica of this residence is estimated to be $350,000. On our trip to the actual property, we notice that this is the only residential unit located on this particular road. Based on the current usage of adjacent real estate, we estimate that the property would be worth an additional $25,000 in its highest and best use. However, due to the dramatic shift in the perceived safety of the neighborhood, values of any remaining residential properties in the area have fallen by $20,000. Due to the home’s age, we also notice that there has been a significant amount of physical deterioration to the building, amounting to an estimate of $50,000 in lost value. Since the home was built over 100 years ago, the floor plan is quite obsolete relative to current preferences. This has a detrimental effect on the value of the property that is estimated to be approximately $15,000. Given this information, determine the appraised value of the home using the cost approach

Explanation / Answer

Step by Step:

1: Cost to rebuild the replica = 350,000

2: Increase in value to the unique location = $25,000

3: Decrease in value due to shift in the percieved safety = ($20,000)

4: Decrease in value due to physical deterioration= ($50,000)

5:Decrease in value due to obsolete floor plan=($15,000)

Apprasied value is summation of all of these = 350,000+25,000-20,000-50,000-15,000=$290,000

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