Objective

Demonstrate understanding of cost approach concepts.

Assignment

Estimate the value via the cost approach for the subject property described below. Credit will be given

based on explanations and rationale. Partial credit will be given, so provide explanations for your

answers. Your analysis should show the depreciation for both long$-$ and short$-$lived items.

Scenario

You are asked to estimate the value of a small office building nearby via the cost approach. The office

building is $40,000$ square feet and is $25$ years old. There are two stories and no basement. The building

is fully sprinklered with wet sprinklers. The building does not have an elevator, but that is acceptable for

a two story building in this market. You have determined that the subject would be classified as a Class

A office. The building is brick with metal and glass panels, has fluorescent lighting and features a zoned

warm and cool air system. A similarly sized parcel of land that has similar zoning has recently sold for

$$500,000.$ You have already completed the land valuation portion of the subject and have estimated the

land value at $$500,000.$ You have also estimated the depreciated cost of the site improvements at

$$40,000.($Note this is already a depreciated amount$$ do not apply depreciation again to the site

improvements$)$

You have estimated that the effective age of the short$-$lived components is $10$ years. You noted no

functional obsolescence, but the subject is located nearby a school, making parking difficult and causing

a lot of extra traffic near school start and end times. You estimate this external obsolescence at $5\%,$ half

of which is attributable to the building.