Part 12

Question 1

1. Select verified sales of similar improved properties that appear to have incurred a comparable amount of depreciation as the subject property.
2. Adjust the sales for certain factors such as property rights conveyed, financing, and conditions of sale, if necessary.
3. Subtract the value of the land at the time of sale from the sale price of each comparable property to obtain the depreciated cost of the improvements.
4. Estimate the cost of the improvements for each comparable property at the time of sale.
5. Subtract the depreciated cost of each improvement from the cost of the improvements to arrive at an estimate of total depreciation in dollars. This is a lump-sum amount that includes all forms of depreciation.
6. Convert the dollar estimates of depreciation into percentages by dividing each estimate of total depreciation by the cost.
7. Divide the percentage of depreciation by the age of the building to convert the percentage to an annual rate.

These are the steps to what?

Answer 1

Steps to use for the extraction method

The extraction process separates component parts from the whole—in this case, the total amount of depreciation is separated from the sale price of a comparable improved property.

Question 2

1. Effective Age + Remaining Economic Life = Economic Life
2. Effective age / percent of depreciation = Economic Life
3. $ amount of depreciation / percent of depreciation = cost
4. Cost - $ amount of depreciation = depreciated cost (value)

These are the formulas for what?

Answer 2

the formulas for the economic age-life method of estimating depreciation.

Question 3

The period of time over which a structure or a component of a property may reasonably be expected to perform the function for which it was designed. Useful life is used in the breakdown method to estimate physical depreciation on short-lived and long-lived components.

Answer 3

Useful Life

Question 4

The estimated period during which improvements will continue to provide utility; an estimate of the number of years remaining in the useful life of the structure or structural components as of the effective date of the appraisal; used in the breakdown method of estimating depreciation.

Answer 4

Remaining useful life

Actual age rather than effective age is used in estimating remaining useful life. So, if a water heater has a life expectancy of 10 years, and its actual age is 4 years, the remaining useful life is 6 years.

Question 5

These are relatively minor items that are normally taken care of in the course of regular maintenance. These items as often referred to as deferred maintenance.

Answer 5

Curable physical deterioration

Depreciation types within the breakdown method

Examples include broken windows, broken steps, and peeling paint on window trim.

Question 6

A form of physical deterioration that cannot be practically or economically corrected as of the effective date of appraisal.

Answer 6

Incurable physical deterioration

Depreciation types within the breakdown method

Question 7

A building component with an expected remaining economic life that is shorter than the remaining economic life of the entire structure.

Answer 7

Short-lived item.

Depreciation types within the breakdown method

Examples include roof cover, boiler, carpeting, and appliances.

Question 8

A building component or site improvement expected to have the same useful life as the entire structure.

Answer 8

Long-lived item

Examples include rafters, framing studs, and foundation walls.

Question 9

The cost of replacing the outmoded or unacceptable component must be the same as or less than the anticipated increase in value. For example, a cost benefit analysis may suggest energy retrofitting the structure, potentially resulting in substantially lower maintenance costs that would outweigh minor upfront costs.

Answer 9

Curable functional obsolescence

Question 10

The cost of replacing the outmoded or unacceptable component is
more than the anticipated increase in value.

Answer 10

Incurable functional obsolescence

Question 11

Diminished utility of a structure due to negative influences outside the site and generally incurable. This obsolescence can be temporary or permanent.

Answer 11

External obsolescence

Question 12

1. Calculate all items of physical deterioration, including deferred maintenance if present, using the appropriate techniques and then add up all the estimates to arrive at total physical deterioration.
2. Calculate all items of functional obsolescence, again using appropriate techniques, and add these estimates together to arrive at total functional obsolescence.
3. Calculate external obsolescence. When external obsolescence cannot be allocated from a lump-sum estimate, it is calculated either through analysis of market data or by capitalization of income loss. Sometimes part of the loss in property value is due to a decline in land value.
4. Add together all physical deterioration (including the cost to cure deferred maintenance), functional obsolescence, and external obsolescence to arrive at an estimate of total depreciation.

These are the what?

Answer 12

Procedures for applying the breakdown method

Question 13

A property has a site value of $30,000. The reproduction cost of the building improvements is $102,350. The economic life is estimated at 50 years, and the remaining economic life is at 20 years. What is the value of the property?

This was a quiz question

Answer 13

$70,940

$102,350 x (30/50) = $61,410.
$102,350 - $61,410 = $40,940.
$40,940 + $30,000 = $70,940.

Question 14

What does the accuracy of the market extraction method of depreciation depend upon?

This was a quiz question

Answer 14

the availability of both comparable improved property and vacant site sales

Vacant land sales are critical to ensuring that the improvement value extracted from the comparable sales are reasonably accurate.

Question 15

If a window has an effective age of 10 years and a remaining economic life of 25 years, what would the percentage of depreciation be (rounded)?

This was a quiz question

Answer 15

30%

Module 12 page Economic Age-Life Method of Depreciation

10 yrs Effective Age + 25 yrs remaining economic life = 35 yrs economic life | 10 yrs Effective age / 35 yrs economic life = 29% rounded = 30%

Question 16

Which of the following should an appraiser consider when appraising a property that is located adjacent to an operating sewer plant?

This was a quiz question

Answer 16

all of these answers

a landfill may not be affected by this location, a single-family residence may suffer from this location, and a heavy industrial property may not be affected by this location

Question 17

Which of the following can define the term “useful life”?

This was a quiz question

Answer 17

the period of time that the components of the improvement may reasonably be expected to perform the functions for which they were designed

The term useful life is applied to components of a building, contrasted with the term economic life, which is applied to the total improvement.

Question 18

Which of the following is a good example of “economically feasible”?

This was a quiz question

Answer 18

The value added must be equal to or greater than cost to cure.

Question 19

A property has a roof that is 8 years old. It costs $12,000 to replace. Roofs in this market typically last 15 years. What is the amount of value left in this item?

This was a quiz question

Answer 19

$5,640

Module 12 page Breakdown Method of Depreciation

8 yrs / 15 yrs = 0.53 or 53% | 100% - 53% = 47% or 0.47 | 0.47 x $12,000 = $5,640

Question 20

Which of the following could be a good example of superadequacy?

This was a quiz question

Answer 20

a house with ten tons of air conditioning when only five tons is required

Module 12 page Functional Obsolescence

Question 21

Which of the following is true regarding functional obsolescence?

This was a quiz question

Answer 21

incurable when the cost to cure is greater than the anticipated increase in value

Question 22

A heavy manufacturing building is located under the flight path of a local airport. Takeoffs and landings produce a great deal of noise and vibration. In appraising this property, which of the following should an appraiser consider?

This was a quiz question

Answer 22

All of these answers are true.

Module 12 page External Obsolescence

A single-family residence may suffer from this location. |A heavy industrial property may not be affected by this location. | A landfill may not be affected by this location.

Question 23

What are the three primary methods used to estimate depreciation?

This was a quiz question

Answer 23

market extraction, economic age-life, and breakdown

Although there are more methods, these are the three primary methods used to estimate depreciation

Question 24

A property has an overhead garage door that is 13 years old. It costs $1,900 to replace. Because the inclement weather comes out of the northwest, these doors typically last 15 years if they face the west and 25 years if they face east. This door faces east. What is the amount of value left in this item?

This was a quiz question

Answer 24

$912

13 yrs / 25 yrs = 0.52 or 52% | 100% - 52% = 48% or 0.48 | 0.48 x $1,900 = $912

Question 25

What does the economic age-life method assume?

This was a quiz question

Answer 25

The rate of depreciation is even throughout the life of the property.

Question 26

Which of the following can be a good example of superadequacy?

This was a quiz question

Answer 26

a two-bedroom house with four bathrooms

Having bathrooms is a good thing, but this house has too much of a good thing. Thus, it is a super-adequacy.

Question 27

A five-year-old property sold for $100,000 (sale price) and has a site value of $20,000. If the replacement cost of the improvements was estimated at $125,000, what is the indicated annual depreciation rate (straight-line, annual percentage)?

This was a quiz question

Answer 27

7.2% per year

Module 12 page Market Extraction Method - Example

$100k (sale price) - $20K (site value) = $80K (depreciated cost of the improvements) | $125K - $80K = $45K (estimate of total depreciation in dollars) | $45K / $125K = 0.36 or 36% (percentage of depreciation) | 36% / 5 yrs = 7.2% per yr

Question 28

Remaining economic life is 40 years, and total economic life is 60 years. Site value of $550,000. If the replacement cost of the improvements was estimated at $1,800,000, what is the indicated value of the property?

This was a quiz question

Answer 28

$1,750,000

60 (economic life) - 40 (remaining life) = 20 (effective age)
20 (effective age) / 60 (economic life) = 0.3333 (depreciation)
$1,800,000 cost x 0.3333 = $600,000 (depreciation rounded)
$1,800,000 - $600,000 = $1,200,000 + $550,000 = $1,750,000 (value)

Question 29

Which of the following can incur depreciation?

This was a quiz question

Answer 29

improvements alone

Module 12 page Depreciation and Highest and Best Use