For instance, Colton needs to use the extraction method to value a parcel of land that currently has an old four-story apartment building on it because a next-door commercial property wants the land to expand.
The value of the property and apartment building are $500,000. His research found two comparable sales in the same town that valued similar apartment buildings at $200,000. He deducted $200,000 from $500,000 to arrive at an initial land value of $300,000. However, when he conducted additional research into the condition of the building on his property versus the two similar buildings, Colton determined the other two buildings were in much better condition.
So he then researched the cost of building the actual apartment building, then determined its depreciated value. This figure showed the building was worth $140,000. This left the land with a presumptive value of $360,000.
Adding in the $50,000 cost of demolition, the final extracted value was $410,000. Including the cost of demolition is important because the cost of removing existing improvements needs to be included. Colton maintained detailed notes on both sets of calculations in case he needed to defend his appraised value.