Jake is preparing a Comparative Market Analysis on a 5-year-old vacant two-story, 10,000-square foot office building on a one-acre property. Jake knows that a vacant lot next door of about the same size just sold for $100,000. He also knows that market value for comparable office space today would be $100 per square foot. The owner agrees with Jake that his building has experienced a yearly 3% depreciation of its value. What should Jake recommend as a selling price.

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Business

Moises Singh

18 June, 20:19

Jake is preparing a Comparative Market Analysis on a 5-year-old vacant two-story, 10,000-square foot office building on a one-acre property. Jake knows that a vacant lot next door of about the same size just sold for $100,000. He also knows that market value for comparable office space today would be $100 per square foot. The owner agrees with Jake that his building has experienced a yearly 3% depreciation of its value. What should Jake recommend as a selling price.

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Mariah Dorsey · Answer 1

The sale price would be $ 325,000

Explanation:

Present value of the building = $ 100 * 5,000=$ 500,000

(It is taken 5,000 square feet for 2 storey building)

Depreciation = 3/100 * 500,000 = $ 15,000

Depreciation for five years = $15,000 * 5 = $75,000

Sale Value of the same size building = $ 100,000

Average value of the square foot was $20 = $100,000/5,000 (for 2 storey building)

Increase in Price is $ 80 * 5000 = $ 400,000

Net Present Value = $4,00000 - $75,000 = $325,000

The market price or net present value which ever is higher is taken into consideration.

The sale price would be $ 325,000