Review ProblemsCOST APPROACH 1. The improvements on the subject property have an effective age of 20 years, remainingeconomic life of 30 years and RCN of $50,000. Estimate the contributory value of theimprovements. RCN = $50,000Effective age = 20 yearsRemaining economic life = 30 yearsAge life ratio = 20/50 = 0.4 Accrued Depreciation (AD) = $50,000 * 0.4 = $20,000Contributory Value (CV) = $50,000 - $20,000 = $30,0002. The subject property has a barn which would cost $ 40,000 to reproduce today. Effectiveage is 40 years and remaining economic life is 40 years. Curable physical deterioration ofshort lived items is $10,000. Estimate the contributory value of the barn.RCN = $40,000Effective age = 40 yearsRemaining economic life = 40 yearsAge life ratio = 40/80 = 0.5Curable Physical Deterioration of Short Lived Items = $10,000RCN less Curable Physical Deterioration of Short Lived Items:$40,000 - $10,000 = $30,000Incurable Physical Deterioration = $30,000 * 0.5 = $15,000AD = $10,000 + $15,000 = $25,000CV = $40,000 - $25,000 = $15,0003. 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 of short lived items is $2,000 and curable functional obsolescencedue to a deficiency is $3,000. Estimate the contributory value of the barn. RCN = $60,000Effective age = 30 yearsRemaining economic life = 30 yearsAge life ratio = 30/60 = 0.5Curable Physical Deterioration of Short Lived Items = $2,000RCN less Curable Physical Deterioration of Short Lived Items:$60,000 - $2,000 = $58,000Incurable Physical Deterioration = $58,000 * 0.5 = $29,000Curable Functional Obsolescence = $3,000. AD = $2,000 + $29,000 + $3,000 = $34,000CV = $60,000 - $34,000 = $26,000 4. You estimate it would cost $30,000 to replace the dwelling on the residential propertyyou are appraising. From reliable market data you are aware of a similar residentialproperty that recently sold for $32,000 with a RCN for the residence of $ 40,000. If theland has a value of $6,000 for both properties, what is the percent depreciation indicatedby the comparable sale? What is the dollar amount of the depreciation for the subjectproperty? What is the estimated value of the subject property? Comparable:Sale Price = $32,000Land value = $6,000CV of residence = $32,000 - $6,000 = $26,000RCN = $40,000AD = $40,000 - $26,000 = $14,000Percent AD = $14,000/$40,000 = 0.35 or 35.0%Subject:RCN = $30,000AD = $30,000 * 0.35 = $10,500CV = $30,000 - $10,500 = $19,500Property value = CV + Land = $19,500 + $6,000 = $25,5005. You have been retained to appraise a 640 acre farm. Improvements include a shop andlivestock handling faculties. Given the following information use the cost approach toestimate the value of this subject property. Curable Effective Remaining EconomicRCN Deterioration Age LifeShop $50,000 $ 12,000 15 years 35 yearsLivestockFacilities $36,000 $ 2,500 20 years 30 yearsAn analysis of comparable sales in the area indicate that the value of similar land is $ 475 peracre.a. Estimate the accrued depreciation for the improvements.b. Estimate the contributory value of the improvements.c. What is the estimated value of the ranch using the cost approach?You have made the following determinations regarding effective age and expected life:Total Expected Effective Age Economic Life (years) (years)RATIOShop 15 50 0.30Livestock faculties 20 50 0.40You estimate the following curable repairs on short lived items:Shop - $ 12,000Livestock facilities - 2,500Total Curable Depr. $ 14,500 Incurable Depr.Shop $50,000 - 12,000 = $38,000 * 0.30 = $11,400Livestock Fac. $36,000 - 2,500 = $23,100 * 0.200 = $13,400Total Incurable Depr. $24,800A. Total Depreciation: $ 14,500 + $24,800 = $39,300B. CV = $86,000 - $39,300 = $46,700C. Property Value = Land Value ($475/acre * 640) = $304,000 Improvement CV = $ 46,700 Total Property Value = $350,700INCOME APPROACHA 160 acre farm has net rental income of $12,750 per year. Similar properties in size,location and quality have recently sold. Sale sale price acres net rental income A $144,000 160 $11,520 B 160,000 160 13,125 C 161,500 160 12,600Estimate the capitalization rate for each farm and based upon these estimates determine the rangein values for the subject farm.Sale A: $144,000/160 = $900/ac $11,520/160 = $72/ac Cap rate = 72/900 = 0.080Sale B: $160,000/160 = $1000/ac $13,125/160 = $82/ac Cap rate = 82/1000 = 0.082Sale C: $161,500/160 = $1009/ac $12,600/160 = $79/ac Cap rate = 79/1009 = 0.078Indicated Capitalization Rate of 0.08 or 8.0% Subject: $12,750/0.08 = $159,375 or $996/acSALES COMPARISON APPROACHUsing the market data approach, estimate the value for the subject property. Subject: 100 acres, irrigated, good location. Sale no. 1: 100 acres, dryland, good location, sold 1 year ago for $36,364. Sale no. 2: 100 acres, dryland, poor location, sold 6 months ago for $33,333. Sale no. 3: 150 acres, irrigated, poor location, sold 9 months ago for $62,791. Sale no. 4: 100 acres, dryland, good location, sold yesterday for $40,000. This is the samefarm as sale no. 1SUBJECT1234SALE PRICE 36,364 33,333 62,791 40,000SALE PRICE$/AC364 333 419 400SIZE ACRES100 100 100 150 100LOCATION good good poor poor goodLAND TYPE Irrg Dry Dry Irrg DryDATE CUR 12 Mo 6 Mo 9 Mo CurSALE PRICE$/AC364 333 419 400TIME ADJ10%/Yr36 17 31 0 Based onsales 1 & 4PRICE ADJFOR TIME400 350 450 400LOCATIONADJ050500 Based onsales 1 & 2PRICE ADJFORLOCATION400 400 500 400IRRG ADJ 100 100 0 100 Based onsales 2 & 3PRICE ADJFOR IRRG500 500 500 500USING THE MARKET DATA APPROACH, ESTIMATE THE VALUE FOR THE SUBJECTPROPERTY.Subject: 150 acres total which includes 60 acres of irrigated cropland and 90 acres of drycroplandSale No. 1: 100 acres of irrigated cropland which sold for $47,619 six months agoSale No. 2: 150 acres total which includes 100 acres of irrigated cropland and 50 acres of drycropland. Sold for $65,000 this week.Sale No. 3: 150 acres total which includes 100 acres of dry cropland and 50 acres ofpastureland. Sold for $35,354 one year ago. Financing and conditions of salewere more favorable than those typically found, requiring a 10