Fundamental of Real Property Appraisal - Cost Estimation and Depreciation

Question 1

The cost approach is premised primarily on the principle of ___________, which states an informed buyer will not pay more to build a property than the cost of a similar property with equal utilities

Answer 1

substitution

Question 2

Cost that occurs on the construction site are considered ______costs.

Answer 2

direct

Question 3

The first step in the cost approach is to

Answer 3

estimate the land (site) value as if vacant and available for development to its highest and best use.

Question 4

Building A contains 10,000 square feet and is 100’ x 100’. Building B contains 10,000 square feet is 20’ x 200’.

Will it cost more to build Building A or Building B?

Answer 4

Building B, because as it has more linear feet compared to Building A.

Question 5

Architectural fee, insurance, and title expenses are considered _________ _________ and are sometimes called soft costs.

Answer 5

indirect cost

Question 6

____________ _____ is the cost of producing an exact replica of a building or improvement.

Answer 6

Reproduction cost

Question 7

__________ ____ is the cost of producing a building or improvement using modern methods and materials with the same utility.

Answer 7

Replacement cost

Question 8

Building A was constructed 20 years ago at a cost of $400,000. The index 20 years ago was 200. The current index is 350.

Reproduction cost new for Building A would be ____________.

Answer 8

$700,000

Question 9

Cost components such as the floor, roof, or roofing are considered _____________ costs and are expressed as cost per square foot.

Answer 9

horizontal

Question 10

The easiest, fastest, and most widely used method of estimating cost is the _____________.

Answer 10

comparative unit (square foot)

Question 11

Which is a desirable feature of a cost manual?

Answer 11

Applicable to most structure types
Based on actual cost
Suitable for computerization

Question 12

The difference between the market value of an improvement and its cost at the time of appraisal is termed ______________

Answer 12

depreciation

Question 13

The five methods of measuring depreciation are

Answer 13

Sales comparison method
Capitalization of income method
Economic age-life method
Modified economic age-life method
Observed condition (breakdown) method

Question 14

Property B sold for $180,000 with an estimated land value of $80,000. The RCN for improvement is $200,000

Depreciation is ____ percent.

Answer 14

50

Question 15

Curable physical deterioration is measured by _____________.

Answer 15

cost to cure

Question 16

__________ obsolescence is a loss in value resulting from a decrease in utility and desirability caused by factors outside the property’s boundaries

Answer 16

Functional

Question 17

___________ obsolescence is a loss in value resulting from a decrease in utility and desirability caused by factors outside the property’s boundaries

Answer 17

External

Question 18

Incurable physical deterioration is measured by the _____________

Answer 18

age-life method

Question 19

If a depreciation table started at 0 percent and went to 40 percent, a percent good table would start at ___________ and go to _____________.

Answer 19

100 percent, 60 percent

Question 20

Which method of estimating depreciation is the most detailed? Its use is required in the writing of demonstration appraisal reports.

Answer 20

Observed condition (breakdown) method

Question 21

An item classified as a short-lived item has a cost new of $5,000. Its actual age is 5 years, and its total useful life is 20 years.

The dollar amount of depreciation would be _______

Answer 21

$1, 250

Question 22

A two story residence has only on bath, which is located on the second floor. If a second bath had been included on the first floor when the residence was originally constructed, RCN would be $11,500. The cost to install (cure) the second bath today would be #13,500.

The amount of functional obsolescence would be ________.

Answer 22

$2,000

Question 23

A residence is located on a street that has become a very busy thoroughfare. It rents for $800 per month. Residences not located on the busy street rent for $850 per month. The GRM for area is 150, and land to building ration is 1:4.

The indicated amount of external obsolescence is ________.

Answer 23

$3,000

Question 24

A residence has an RNC of $200,000. Items classified as curable physical deterioration have an RCN of $10,000 and a cost to cure of $12,000. Incurable physical deterioration (short lived items) have an RCN of $40,000 and a depreciation amount of $18,000. The actual age for the residence is 6 years, and the total useful life is 60 years.

The total amount of physical deterioration for the residence would be ___________.

Answer 24

$45,000

Question 25

If the cost to cure a functional deficiency within a residence exceeds the increase in value added to the property, it is called ________functional obsolescence.

Answer 25

incurable