Chapter 11 - The Cost Approach Pt. 2: Depreciation

Question 1

1. The total difference between a building’s cost new and its market value is called
   a. accrued depreciation.
   b. replacement value.
   c. physical deterioration.
   d. functional obsolescence.

Answer 1

a. accrued depreciation.

Question 2

2. Any loss of value from causes outside the property itself is called
   a. physical deterioration.
   b. functional obsolescence.
   c. external obsolescence.
   d. modified depreciation.

Answer 2

c. external obsolescence.

Question 3

3. A bedroom that can be entered solely through another bedroom is an example of
   a. functional obsolescence.
   b. locational obsolescence.
   c. incurable physical deterioration.
   d. economic obsolescence.

Answer 3

a. functional obsolescence.

Question 4

4. The number of years of useful life left to a building from the date of appraisal is the building’s
   a. effective age.
   b. remaining economic life.
   c. useful life.
   d. physical life.

Answer 4

b. remaining economic life.

Question 5

5. Physical or design features that exceed current requirements are called
   a. a capitalized value.
   b. a long-lived item.
   c. a superadequacy.
   d. a misplaced improvement.

Answer 5

c. a superadequacy.

Question 6

6. A method of computing accrued depreciation in which the cost of a building is depreciated at a fixed annual percentage rate is called
   a. the capitalized value method.
   b. the observed condition method.
   c. the market extraction method.
   d. the age-life method.

Answer 6

d. the age-life method.

Question 7

7. Which method of estimating depreciation is the easiest to apply?
   a. Observed condition method
   b. Age-life method
   c. Market extraction method
   d. Capitalized value method

Answer 7

b. Age-life method

Question 8

8. The chronological age of a house is 47 years. The appraiser renders an opinion of the structure’s effective age of 25 years and remaining economic life of 75 years. What is the percentage of accrued depreciation?
   a. 20%
   b. 25%
   c. 30%
   d. 33%

Answer 8

b. 25%

Question 9

9. The name of the method used to calculate depreciation in question 8 is
   a. age-life.
   b. extraction.
   c. index.
   d. observed condition.

Answer 9

a. age-life.

Question 10

10. In question 8, the replacement cost of the house is estimated at $500,000. What is the current estimated value of the structure?
    a. $375,000
    b. $400,000
    c. $425,000
    d. Not enough information to determine

Answer 10

a. $375,000

Question 11

11. In the cost approach, depreciation is a factor in
    a. the value of land.
    b. the value of the overall property.
    c. the value of the structure.
    d. the residual cost.

Answer 11

c. the value of the structure.

Question 12

12. When does building cost equal value?
    a. When building cost is less than land value
    b. When building cost equals overall value
    c. Building cost never equals value
    d. When depreciation is zero; that is, the building is new

Answer 12

d. When depreciation is zero; that is, the building is new

Question 13

13. When depreciation is greater than the value added by curing it, the depreciation is
    a. observable.
    b. curable.
    c. incurable.
    d. feasible.

Answer 13

c. incurable.

Question 14

14. When depreciation is less than the value added by curing it, the depreciation is
    a. incurable.
    b. curable.
    c. observable.
    d. infeasible.

Answer 14

b. curable.

Question 15

15. The market rent of a house with four bedrooms is $2,000 per month. The market rent of a house with three bedrooms is $1,750 per month. The gross rent multiplier in the subject neighborhood is 100, indicating the value of a fourth bedroom is
    a. $20,000.
    b. $25,000.
    c. $30,000.
    d. $40,000.

Answer 15

b. $25,000.

Question 16

16. The technique used in question 15 is called
    a. the observed rent method.
    b. the gross income multiplier method.
    c. the rent loss method.
    d. the modified observed method.

Answer 16

c. the rent loss method.

Question 17

17. The amount of functional obsolescence in question 15 is
    a. $20,000.
    b. $25,000.
    c. $30,000.
    d. $40,000.

Answer 17

b. $25,000.

Question 18

18. The form of depreciation that is always incurable is
    a. physical obsolescence.
    b. functional obsolescence.
    c. external obsolescence.
    d. physical deterioration.

Answer 18

c. external obsolescence.

Question 19

19. Which of the following components MOST likely suffers from incurable deterioration?
    a. Storms and screens
    b. Carpets
    c. Furniture
    d. Studs and joists

Answer 19

d. Studs and joists

Question 20

20. A weakness of the age-life method is that it is
    a. more subjective than other methods.
    b. less subjective than other methods.
    c. quantitative.
    d. rarely used.

Answer 20

a. more subjective than other methods.