Question 32

The current value of the property using the cost approach is $248,600.

To determine the current value of the property, we first calculate the replacement cost, which is 7 percent more than the original cost of $250,000, resulting in $267,500. We then subtract the total depreciation, which includes $70,000 in physical depreciation and $20,000 in incurable obsolescence, totaling $90,000. Finally, we add the land value of $60,000 to arrive at a current property value of $248,600.

A) $250,000

This option represents the original cost of the home without accounting for depreciation or the updated replacement cost. Since the question requires a current value considering physical depreciation and obsolescence, this figure does not accurately reflect the property's worth.

B) $260,000

Option B fails to consider the full extent of the depreciation and the additional costs involved. While it is somewhat close, it does not take into account the total depreciation of $90,000 that needs to be subtracted from the adjusted replacement cost.

C) $248,600

This is the correct answer. It accurately reflects the calculation of the replacement cost of $267,500, from which the total depreciation of $90,000 is subtracted, and then the land value of $60,000 is included, resulting in a current property value of $248,600.

D) $260,900

This option incorrectly assumes a lesser amount of depreciation or miscalculates the replacement cost. The calculations leading to $260,900 do not align with the necessary deductions for depreciation and incurable obsolescence, making it an incorrect representation of the property's current value.

Conclusion

The correct value of $248,600 is derived from a thorough assessment of the replacement cost, depreciation, and land value. All other options fail because they neglect to properly account for the total depreciation or miscalculate the replacement cost, underscoring the importance of accurate valuation methods in real estate.