Chapter 5 cost approach replacement/reproduction costs cost new Flashcards
The three traditional methods of estimating costs will be introduced:
Comparative-unit method
Unit-in-place method
Quantity survey method
The estimated cost to construct, at current prices as of the effective date of the appraisal, an exact duplicate or replica of the building being appraised, using the same materials, construction standards, design, layout, and quality of workmanship and embodying all the deficiencies, superadequacies, and obsolescences of the subject building.
reproduction cost
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.
replacement cost
The definition of replacement cost includes using \_\_\_\_\_\_\_materials and \_\_\_\_\_\_\_\_\_ standards, design and layout. Imitation, modern Modern, current Equivalent, new Today's, equivalent
modern, current
A \_\_\_\_\_\_\_\_\_ cost estimate eliminates functional obsolescence. Reproduction Replacement Depreciated None of the above
replacement
If a property is older or exhibits unusual construction, then perhaps the more accurate method would be to use a reproduction cost.
True
False
true
Reproduction cost involves estimating the cost of a \_\_\_\_\_\_\_\_\_\_, while replacement cost estimates the cost of a \_\_\_\_\_\_\_\_\_\_\_ property. Substitute, replica Substitute, duplicate Replica, substitute Similar structure, duplicate
replica, substitute
Using the Marshall & Swift Residential Cost Handbook will result in an estimate of \_\_\_\_\_\_\_\_\_\_ cost. Reproduction Utility Replacement Depreciated
replacement
Reproduction cost estimates the cost to construct a building embodying all the deficiencies, superadequacies, and obsolescences of the subject building.
True
False
true
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
False
true
Most fire and casualty insurance is written to pay an amount equal to the replacement cost of the structure.
True
False
true
Which type of cost estimate eliminates functional obsolescence?
Replacement cost only
Reproduction cost only
Both reproduction and replacement cost
No type of cost eliminates functional obsolescence
replacement cost only
If a property is older or exhibits unusual construction, then perhaps the more accurate method would be to use a reproduction cost.
True
False
true
Where does this cost data come from? Cost data may be obtained from:
Construction contracts for similar properties Appraiser's files Local building contractors Professional cost estimators Cost estimating services
Expenditures for the labor and materials used in the construction of improvements; also called hard costs.
direct costs
Expenditures or allowances for items other than labor and materials that are necessary for construction, but are not typically part of the construction contract. Indirect costs may include administrative costs; professional fees; financing costs and the interest paid on construction loans; taxes and the builder’s or developer’s all-risk insurance during construction; and marketing, sales, and lease-up costs incurred to achieve occupancy or sale. Also called soft costs.
indirect costs
The amount an entrepreneur expects to receive for his or her contribution to a project. Entrepreneurial incentive may be distinguished from entrepreneurial profit (often called developer’s profit) in that it is the expectation of future profit as opposed to the profit actually earned on a development or improvement. The amount of entrepreneurial incentive required for a project represents the economic reward sufficient to motivate an entrepreneur to accept the risk of the project and to invest the time and money necessary in seeing the project through to completion.
entrepreneurial incentive
Direct costs include:
Building permits Materials used to construct buildings Labor used to construct buildings Equipment used in construction Security during construction Contractor's shack and temporary fencing Material storage facilities Installation of power line Contractor's overhead and profit Worker's compensation, fire and liability insurance
Indirect costs include
Architectural and engineering fees
Appraisal, accounting and legal fees
Cost of carrying the investment - points, service charges and interest on construction loans
Insurance and taxes during construction
Marketing, sales and lease-up costs and commissions
Administrative expenses of the developer
Costs of title changes
Cost of carrying the investment after construction until stabilized occupancy is achieved
Direct costs would include all of the following EXCEPT Building permits Labor Materials Advertising
advertising
Appraisal fees would be included in the \_\_\_\_\_\_\_\_\_ costs. Indirect Direct Depreciated Entrepreneurial
indirect
Expenditures for labor and materials are called \_\_\_\_\_\_\_\_\_ costs. Construction Soft Durable Hard
hard
The most popular published cost service among residential appraisers is \_\_\_\_\_\_\_. W.D. Ford Marshall and Swift CoStar R.S. Means
Marshall and Swift
Which of these is a source of building costs? Marshall & Swift CoStar W.D. Ford H.M. Stuffleberg
Marshall & Swift
Entrepreneurial incentive/profit may be estimated as a percentage of:
Direct costs only
Direct and indirect costs
Direct and indirect costs plus site value
The value of the completed project
A house contains 2,826 square feet. It was constructed in 1995 at a cost of $54.18 per SF.
The cost index at that time was 193.4.
The cost index today is 286.3.
What is the estimated cost to build the building today?
$226,607
2,826 SF X $54.18 = $153,113
286.3 / 193.4 = 1.480352 (round to 1.48)
$153,113 x 1.48 = $226,607
costs have gone up 48% since 1995 and it would cost $226,607 to build the same house today.
The usual measure of area for residential appraisers is
cost per square foot
It is possible to derive unit costs from the market. We can just follow these steps.
Select sales of recently constructed buildings that are similar to the subject property and represent the highest and best use of the site
Subtract the value of the site and site improvements from the sales price to arrive at the cost new of the improvements (including entrepreneurial incentive)
Make adjustments for physical differences between the subject and the sale properties
Divide the adjusted cost new by the desired unit of area or volume to arrive at the cost per unit
Adjust the unit cost for market conditions, if necessary
Apply the unit costs to the subject property
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 incentive Entrepreneurial expectations Entrepreneurial profit Builder’s overhead and profit
Entrepreneurial profit
Entrepreneurial incentive comes from \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_. The lender The market The prospectus None of the above
the market
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? $401,558 $418,197 $427,882 $455,093
$418,197
294.3 / 202.8 = 1.45. $288,412 x 1.45 = $418,197.
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? $250,000 $265,000 $275,000 $300,000
$250,000
335,000 - $70,000 - $15,000 = $250,000 contributory value of the building
The usual measure of area for residential appraisers is cost per cubic foot.
True
False
false
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 \_\_\_\_\_\_\_\_%. 35 37 42 58
35
227.1 / 168.6 = 1.35, which means that construction costs have increased by 35%
Cost services include direct and indirect costs in their cost figures, but NOT entrepreneurial profits or incentives.
True
False
false
Of the three traditional methods, the simplest, quickest, least complicated and least accurate method of estimating costs is the \_\_\_\_\_\_\_\_\_\_\_\_ method. Unit-in-place Quantity survey Comparative unit Subdivision development
comparative unit
Entrepreneurial incentive/profit can be calculated on which of the following bases?
Direct costs only
Direct and indirect costs plus site value
Direct and indirect costs
All of the above
all of the above
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)? $160,592 $168,401 $158,145 $164,511
$164,511
Using the Marshall & Swift Residential Cost Handbook will result in an estimate of \_\_\_\_\_\_\_\_\_\_\_\_ cost. Reproduction Utility Replacement Depreciated
replacement
Which of these would be considered soft costs? Site security during construction Accounting and legal fees Material storage facilities These are all soft costs
accounting and legal fees
The most popular cost service among residential appraisers is \_\_\_\_\_\_\_\_\_. W.D. Ford Marshall & Swift CoStar R.S. Means
Marshall & Swift
Direct costs would include all of the following EXCEPT \_\_\_\_\_\_. Building permits Labor Materials Advertising
advertising
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? $85.46 $95.92 $97.08 $98.92
$95.92
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 \_\_\_\_\_\_\_\_%. 35 37 42 58
35
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? $88.22 $89.33 $92.44 $95.18
$95.18
Reproduction cost estimates the cost to construct a building embodying all the \_\_\_\_\_\_\_\_\_\_\_\_ of the subject building. deficiencies superadequacies obsolescences all of the above
all of the above
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
modern materials, previous standards and layout
second hand materials, current standards and layout
none
modern materials, current standards and layout
Appraisal fees would be included in the \_\_\_\_\_\_\_\_\_ costs. Indirect Direct Customary and reasonable Entrepreneurial
indirect
