Question

12. Given the following:

Market value of land (if vacant): $595,000

Replacement value of existing improvements: $300,000

Reproduction cost of existing improvements: $405,000

Demolition cost: $ 40,000

Accrued Economic Depreciation: $300,000

The property is an old single-family home on a riverfront lot with ocean access. The highest and best use of the property is as a large estate home. Using the above information, what is the property value?

Answer 1

The value of Replacement of existing improvements as well as the value of Reproduction cost of existing improvements is given, since improvements will be an expenditure to the owner of the property, lower of the value will be considered.

Replacement Value = $ 300,000 and Reproduction Cost = $ 405,000. Therefore the value of Replacement will be considered in the valuation.

The cost of Replacement and demolition will be added to the market value of the property as these are the costs which are being incurred by the owner of the property and will be recovered from the buyer of the property.

The Demolition cost of the property is being deducted from the value of the property, as this is the cost that the buyer of the property will have to incur to use the property.

The Economic Depreciation available in the question, will also be added to the value of the property, as this has been reduced from the House over a period of time. Thus, the same has been added to know the actual value of the House. This is also because, the Market Value of the Land if vacant is available.

Therfore, applying the above the Value of the Property will be as follows:

Particulars	Amount in $
Market Value of the Land	595,000
Add:
Repacement Value of the Existing Improvements	300,000
Accurred Economic Depreciation	300,000
Deduct:
Demolition cost	(40,000)
Total Market Value of the Property	1,155,000

Therefore, the value of the property is $1,155,000