Reference no: EM132940901

Problem 1: An appraiser valuing a 20-year-old office building with 250,000 square feet determines that it can be constructed using modern methods and materials for $160 per square foot. Developers in that market generally require 10 percent of construction costs as profit. Such a building would have a 75-year economic life, and cap rates in the area are 6.5 percent. Roof repairs totaling $120,000 are required, but will add at least that much to the value of the property. Other incurable structural problems will reduce economic life by 10 years. Additional HVAC costs will reduce NOI by $15,000 annually. Curable design deficiencies that reduce the building's value will cost $250,000 to remedy. The building is located in a retail area with excessive traffic for the type of business expected to locate in such a building. The appraiser expects this will reduce NOI by $30,000 per year. Land for a similar use is valued at $1.8 million. The appraised value using the cost approach will be closest to