Ch 4-5 Quiz Site Valuation Flashcards
“A loss in property value from any cause” is _________.
Depreciation
“Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat” is the definition of
Fee simple estate
“The difference between the cost of an improvement on the effective date of the appraisal and the market value of the improvement on the same date” is _____.
Depreciation
“The expectation of future profit” is called _______.
Entrepreneurial incentive
“The profit actually earned on a development or improvement” is called ______.
Entrepreneurial profit
A _________ cost estimate eliminates functional obsolescence.
Replacement
A comparable new property recently sold for $335,000 and contained 2,630 SF. You estimate the site value to be $70,000 and the value of the site improvements to be $15,000. What portion of the selling price would be attributed to the building improvements?
- 335,000 minus 70,000 minus 15,000 = 250,000.
A comparable new property recently sold for $380,000 and contained 2,450 SF. You estimate the site value to be $90,000 and the value of the site improvements to be $20,000. There was a garage that would cost $35,000. How much did the house sell for per SF?
95.92. First, subtract the site value, site improvements, and garage from the sale price. $380,000 - $90,000 - $20,000 - $35,000 = $235,000 cost of house. $235,000 / 2,450 = $95.92 per square foot, rounded. (Chapter 5)
A house contains 1,812 square feet. It was constructed in 1999 at a cost of $64.85 per square foot. The cost index at that time was 146.0. The current cost index is 204.4. What is the estimated cost to build the house today (rounded to the nearest $1)?
- 1,812 x 64.85 = $117,508.20 cost in 1999. 204.4 / 146.0 = 1.40. $117,508.20 x 1.40 = $164,511. (Chapter 5)
A house would cost $225,000 to build new. It is 25 years old and has sustained a total of 30% depreciation. It sits on a site worth $55,000. What is its value by the cost approach?
- Cost new $225,000 less 30% depreciation ($67,500) = $157,500 improvement value + $55,000 site value = $212,500. (Chapter 4)
A house would cost $300,000 to build new. It is 15 years old and has sustained a total of 20% depreciation. The site is worth $70,000. What is the value by the cost approach?
- 300,000 times 0.8 = 240,000 plus 70,000 = 310,000.
A house would cost $435,000 to build new. It is 8 years old and has sustained a total of 5% depreciation. It sits on a site worth $90,000. What is its value by the cost approach?
- Cost new $435,000 less 5% depreciation ($21,750) = $413,250 improvement value + 90,000 site value = $503,250. (Chapter 4)
Appraisal fees would be included in the _________ costs.
Indirect
Appraisals for insurance or accounting purposes often require that the land and improvements be valued ___________.
separately
Appraisals for insurance or accounting purposes often require that the land and improvements be valued separately.
TRUE
Cost services include direct and indirect costs in their cost figures, but NOT entrepreneurial profits or incentives.
TRUE
Direct costs would include all of the following
Materials, Labor, Building permits
Entrepreneurial incentive comes from _______________.
The market
Expenditures for labor and materials are called _________ costs.
Hard
Fannie Mae says the cost approach _________.
Is not required
If a property is older or exhibits unusual construction, then perhaps the more accurate method would be to use a reproduction cost.
TRUE
If a property worth $200,000 has a $200,000 addition, we can assume that the value upon completion will be $400,000.
FALSE
If the subject property improvements exhibit depreciation, the cost approach
May still be applicable
In the basic cost approach formula, we start with ____________, then subtract __________, and add ___________.
Cost new, depreciation, site value
In using the basic cost approach formula, a value is developed for the __________interest.
Fee simple
In which of these situations would the cost approach have the best applicability?
The subject is a special-purpose property, such as a school building
In which of these situations would the cost approach have the least applicability?
The property interest being appraised is not fee simple
Indirect costs are sometimes called ________ costs.
Soft
Most fire and casualty insurance is written to pay an amount equal to the replacement cost of the structure.
TRUE
Of the three traditional methods, the simplest, quickest, least complicated and least accurate method of estimating costs is the ____________ method.
Comparative unit
Reproduction cost estimates the cost to construct a building embodying all the deficiencies, superadequacies, and obsolescences of the subject building.
TRUE
Reproduction cost involves estimating the cost of a __________, while replacement cost estimates the cost of a ___________ property.
Replica, substitute
Reproduction cost involves estimating the costs using __________ materials, while replacement cost specifies ________ materials.
The same, modern
The ________ approach has diminishing applicability as a property ages.
Cost
The basic principle underlying the cost approach is the principle of _________.
Substitution
The contract cost for constructing a house in January 2004 was $214,500. The index for that month was 168.6 and the current index is 227.1. This means the costs have increased ________%.
- 227.1 / 168.6 = 1.35, which means that construction costs have increased by 35%. (Chapter 5)
The contract cost for constructing a house in September 2006 was $288,412. The index for that month was 202.8 and the current index is 294.3. What is the estimated cost to build the house today?
- 294.3 / 202.8 = 1.45. $288,412 x 1.45 = $418,197. (Chapter 5)
The cost approach has good applicability _______.
When the building improvements are new or relatively new
The cost approach has good applicability when the improvements we are appraising are _____________.
new or relatively new
The cost approach has good applicability when the improvements we are appraising are new or relatively new.
TRUE
The cost approach has good applicability when the site value is
Well supported
The cost approach has the best applicability when the site value is not well supported.
FALSE
The cost to construct a building “embodying all the deficiencies, superadequacies, and obsolescence of the subject building” is the ____________ cost.
Reproduction
The cost to construct a building that is “a substitute for a building being or other improvements appraised, using modern materials and current standards, design, and layout.” is the ______________ cost.
Replacement
The definition of replacement cost includes using _______materials and _________ standards, design and layout.
Modern, current
The difference between the market value of a property after completion and its total cost of development (i.e., the amount the entrepeneur actually receives for contribution and risk) is _____________.
Entrepreneurial profit
The estimated cost to construct, at current prices as of a specific date, a substitute for a building or other improvements, using modern materials and current standards, design, and layout is the definition of replacement cost.
TRUE
The ideal situation for developing a cost approach is when the current building improvements truly do represent the highest and best use of the land as though vacant.
TRUE
The ideal situation for developing a cost approach is where the current building improvements
Represent the highest and best use of the land as though vacant
The most popular published cost service among residential appraisers is _______.
Marshall and Swift
The one approach that can be applied to any type of improved property is the ________ approach.
Cost
The subject property is a house that would cost $300,000 to build new. It is 15 years old and has sustained a total of 20% depreciation. It sits on a site worth $70,000. What is the subject property value by the cost approach?
- $300,000 less 20% depreciation ($60,000) = $240,000 improvement value + site value $70,000 = $310,000.
The subject property suffers from a type of depreciation that is difficult to estimate. Which statement is true regarding the applicability of the cost approach in this situation?
The cost approach has limited applicability because of the difficulty estimating depreciation.
The usual measure of area for residential appraisers is cost per cubic foot.
FALSE
Using the Marshall & Swift Residential Cost Handbook will result in an estimate of __________ cost.
Replacement
We stated in the course materials that there are three legs supporting the value estimate by the cost approach. What are they?
Cost, depreciation, land value
Which are the traditional methods of cost estimating?
Comparative unit, Unit-in-place, Quantity survey
Which of the traditional appraisal approaches is the oldest?
Cost
Which of these is a source of building costs?
Marshall & Swift
Which of these would be considered a direct cost?
Building permits
Which of these would be considered indirect costs?
Insurance during construction, Interest on a construction loan, Professional fees
Which of these would be considered soft costs?
Accounting and legal fees
Which type of cost estimate eliminates functional obsolescence?
Replacement cost only
You examine a construction contract to build a 2,388 square foot house. The total replacement cost is $305,850, including site improvements. The site improvements cost $16,000. How much is the indicated cost per square foot of the building improvements?
121.38. $305,850 - $16,000 = $289,850 / 2,388 = $121.38 rounded. (Chapter 5)
You examine a construction contract to build a 2,612 square foot house and the total cost, excluding the site and site improvements, is $248,598. How much is the indicated cost per square foot?
95.18. $248,598 / 2,612 = $95.18 (rounded). (Chapter 5)
Entrepreneurial incentive/profit can be calculated on all of the following bases
Direct costs only, Direct and indirect costs, Direct and indirect costs plus site value
Reproduction cost is the more accurate method if a property is:
older and exhibits unusual construction
The estimated cost to construct a substitute for a the building or improvements being appraised, using ___________ and ________, design, and _______ is the definition of replacement cost.
modern materials, current standards and layout
Most _________________________ is written to pay an amount equal to the replacement cost of the structure.
fire insurance
Which would be an example of direct costs?
Building permits
