chapter 8 cost approach break down and market extraction methods Flashcards
Items of physical deterioration or functional obsolescence that are economically feasible to cure. Curing an item of depreciation is economically feasible if the cost to cure is equal to or less than the anticipated increase in the value of the property that would result after curing the depreciation.
curable depreciation
Physical deterioration can be divided into three categories:
Deferred maintenance
Short-lived components
Long-lived components
Items of wear and tear on a property that should be fixed now to protect the value or income- producing ability of the property, such as a broken window, a dead tree, a leak in the roof, or a faulty roof that must be completely replaced. These items are almost always curable.
deferred maintenance
A building component with an expected remaining economic life that is shorter than the remaining economic life of the entire structure.
short-lived item
Curable items are those items of physical deterioration or functional obsolescence that are \_\_\_\_\_\_\_\_\_\_\_ to cure. Physically possible Functionally possible Economically feasible Potentially feasible
Economically feasible
A 9 year old water heater has an expected life of 15 years. If the replacement cost of the water heater is $800, the amount of short-lived depreciation would be \_\_\_\_\_\_\_. $380 $400 $480 $620
$480
Roof covering, carpeting and water heaters are examples of \_\_\_\_\_\_\_\_\_\_\_\_\_ items. Physical, curable Deferred maintenance Short-lived Long-lived
short-lived
Deferred maintenance is considered to be \_\_\_\_\_\_\_\_\_\_; the short-lived and long-lived components are \_\_\_\_\_\_\_\_\_\_. Incurable, incurable Curable, obsolete Incurable, curable Curable, incurable
Curable, incurable
A building component or site improvement expected to have the same useful life as the entire structure.
long-lived items
The ability of a property or building to be useful and to perform the function for which it is intended according to current market tastes and standards; the efficiency of a building’s use in terms of architectural style, design and layout, traffic patterns, and the size and type of rooms.
functional utility
The house you are appraising has a total cost new of $214,552. It is 15 years old and has an estimated remaining economic life of 45 years. The cost to cure deferred maintenance items is $825. Short lived items of depreciation have been identified totaling $8,600. What is the amount of long-lived depreciation attributable to the building? $46,902.23 $51,281.75 $55,873.91 $58,717.32
$51,281.75
$214,552 - $825 - $8,600 = $205,127 long lived items cost.
Depreciation is 15 / 60 = 25%. $205,127 x .25 = $51,281.75.
\_\_\_\_\_\_\_\_\_\_ items are often referred to as part of the “bone structure” of the building. Short-lived Long-lived Deferred maintenance Incurable physical
long-lived
A poor layout in a home results in a loss in value of $8,000. This layout deficiency can be corrected at a cost of $9,500. Therefore this layout deficiency would be considered Physical deterioration, curable Physical deterioration, incurable Functional obsolescence, curable Functional obsolescence, incurable
Functional obsolescence, incurable
When applying age-life ratios we utilize the \_\_\_\_\_\_\_ lives of those components. Useful Actual Effective None of the above
useful
The ability of a property or building to be useful and to perform the function for which it is intended according to current market tastes and standards is the definition of \_\_\_\_\_. Functional obsolescence Functional utility Effective age Physical life
functional utility
Which would NOT be a long-lived item? Foundation Wall framing Heating and cooling ducts Roof cover
roof cover
When estimating the physical depreciation in a structure utilizing the breakdown method, we first address any \_\_\_\_\_\_\_\_\_\_\_\_ items. Short-lived Long-lived Incurable Deferred maintenance
deferred maintenance
The impairment of functional capacity of improvements according to market tastes and standards is the definition of \_\_\_\_\_\_\_. Functional obsolescence Functional utility Physical deterioration Economic obsolescence
Functional obsolescence
Functional obsolescence may be curable depending on whether the cost to cure will result in a value increment that is at least equal to the cost to cure.
True
False
false
Which statement is TRUE regarding external obsolescence?
It affects only the land.
It affects only the improvements.
It can affect both the land and improvements.
It is usually curable.
It can affect both the land and improvements.
A house would rent for $1,000 per month if it had air conditioning. Without air conditioning, it can only rent for $960. The appropriate GRM for that type property is 110. What is the amount of functional obsolescence? $1,000 $2,400 $4,400 $5,500
$4,400
$40 (rent loss) x 110 = $4,400.
External obsolescence is \_\_\_\_\_\_. Always temporary Always permanent Either temporary or permanent Generally curable
Either temporary or permanent
External obsolescence is generally incurable.
True
False
true
A single-family property recently sold for $555,500. The site value is $120,000. The cost new of the dwelling is $498,750. What is the amount of accrued depreciation to the dwelling? $59,950 $63,250 $69,750 Not enough information to answer
$63,250
$555,500 - $120,000 = $435,500 depreciated value. $498,750 - $435,500 = $63,250 depreciation.
One way to mathematically estimate and support total economic life is by the \_\_\_\_\_\_\_\_\_\_ method. Market extraction Breakdown Old-age method Quantity survey
market extraction
A house would rent for $1,100 per month if it had air conditioning. Without air conditioning, it can only rent for $1,050. The appropriate GRM for that type property is 95. What is the amount of functional obsolescence? $3,600 $4,000 $4,400 $4,750
$4,750
The impairment of functional capacity of improvements according to market tastes and standards is the definition of \_\_\_\_\_. Functional obsolescence Functional utility Physical deterioration Economic obsolescenceq
Functional obsolescence
Which statement is TRUE regarding external obsolescence?
It affects only the land.
It affects only the improvements.
It can affect both the land and improvements.
It is usually curable.
It can affect both the land and improvements.
Which would NOT be an example of deferred maintenance? Old furnace Broken window Peeling paint Missing roof shingles
old furnace
Which would NOT be a short-lived item? Water heater Roof framing Carpeting Roof cover
roof framing
A single-family property recently sold for $555,500. The site value is $120,000. The cost new of the dwelling is $498,750. What is the amount of accrued depreciation to the dwelling? $59,950 $63,250 $67,750 Not enough information to answer
$63,250
Physical deterioration that should be corrected immediately is called \_\_\_\_\_\_\_. Deferred maintenance Curable obsolescence Deferred obsolescence Physical short-lived
Deferred maintenance
The house you are appraising has a total replacement cost new of $214,552. It is 15 years old and has an estimated remaining economic life of 45 years. The cost to cure deferred maintenance items is $825. Short lived items have been identified totaling $34,400. What is the amount of long-lived depreciation attributable to the building? $46,902 44,832 $55,873 $58,717
44,832
$214,552 - $825 - $34,400 = $179,327 long lived items. Depreciation is 15 / 60 = 25%. $179,327 x .25 = $44,831.75.
Which is not a method for estimating external obsolescence?
Analysis of market data
Cost new minus deferred maintenance
Allocation of market-extracted depreciation
Capitalization of income loss
Cost new minus deferred maintenance
The subject is a building with 4 apartments without air conditioning, in a market where air conditioning is standard and expected by purchasers. If it had been installed when the building was built, it would have cost $8,000 but the cost of retrofitting now is $9,600. Installing A/C would allow the owner to raise rents and increase his gross monthly rent by a total of $80. The current gross rent multiplier (GRM) is 110. What type of depreciation is this? Functional obsolescence, curable Functional obsolescence, incurable Physical deterioration, curable External obsolescence, incurable
Functional obsolescence, incurable
