Part 8

Question 1

1. Estimate the value of the site as though vacant and available to be put to its highest and best use.
2. Estimate the direct and indirect costs of the improvements.
3. Estimate the entrepreneurial incentive.
4. Add Steps 2 and 3 together to obtain the total current cost.
5. Estimate the depreciation from three sources
   * a. Physical deterioration
   * b. Functional obsolescence
   * c. External obsolescence
6. Deduct the depreciation from total current cost to derive an estimate of the depreciated cost of improvements.
7. Add the contributory (as is) value of any site improvements.
8. Add the site value to the total depreciated costs.

This is an overview of what?

Answer 1

A quick overview of the eight-step process for the cost approach

Question 2

______ is an exact replica of the current improvement

Answer 2

Reproduction Cost

Question 3

____ is equivalent in utility to the current improvements.

Answer 3

Replacement cost

Question 4

These are hard cost expenditures for the labor and materials used in the construction of improvements.

Answer 4

Direct (hard) costs

Question 5

These are soft cost expenditures (or allowances) that are necessary components but are not typically part of the construction contract.

Include building permits, appraisal fees, Insurance, etc

Answer 5

Indirect (soft) costs

Question 6

A market-derived figure that represents the amount an entrepreneur expects or wants to receive as compensation for providing coordination and expertise and assuming the risks associated with the development of a project.

Answer 6

Entrepreneurial incentive

Question 7

A market-derived [historical] figure that represents the amount an entrepreneur received for his or her contribution to a past project to compensate for his or her time, effort, knowledge, and risk—and can be used to estimate entrepreneurial incentive.

Answer 7

Entrepreneurial profit

Question 8

1. Comparative-unit method
2. Unit-in-place method
3. Quantity survey method

These are the three what?

Answer 8

The three cost estimating methods used by appraisers.

Question 9

The most commonly used cost-estimating method. When an appraiser estimates replacement cost by using a cost-estimating service; looks up the cost per square foot; and makes adjustments for location, size, time, and quality, that appraiser is using the __________ __________ __________ of cost estimating.

Answer 9

Comparative-unit method

1/3 cost estimating methods

Question 10

The total building cost is estimated by adding together the unit costs for the various building components as installed (e.g., the roof, walls, foundation, excavation, electrical system, etc.). Standardized costs are used for structural components. The costs may be applied on the basis of square feet of floor area or linear feet of wall length at a certain height.

Answer 10

Unit-in-place method

2/3 cost estimating methods

Question 11

In this method, the quantity and quality of all materials used and all categories of required labor are estimated and unit cost figures are applied to arrive at a total cost estimate for labor and materials. Costs for cubic yards of concrete, board feet of lumber, pounds of nails, feet of re-enforcing bar, and hours of labor are examples of the costs used in this method. It is the most comprehensive, time-consuming, and detailed method of measurement. It frequently requires the services of an experienced cost estimator and is rarely used in routine appraisal assignments.

Answer 11

Quantity survey method

3/3 cost estimating methods

Question 12

To convert a known historical cost into a current cost estimate, the appraiser can apply a percentage change based on an index service such as the Bureau of Labor Statistics (BLS) or use a comparative cost multiplier supplied from a cost service provider such as Marshall & Swift—CoreLogic.

Answer 12

Cost-index trending

Cost-index trending is not a true cost-estimating method such as those previously mentioned, but it can be a useful tool when properly applied by an appraiser.

Question 13

After an intense natural disaster creates the need for massive rebuilding, the cost of building materials increases. Which economic principle does this illustrate?

This was a quiz question

Answer 13

supply and demand

Shifts in supply and demand cause costs to increase and decrease while also altering the need for a supply of different types of buildings. Changes in the amount of new construction may affect the value of existing buildings.

Question 14

If an appraiser estimates the current cost of individual units of construction and adds them up, what method is the appraiser using?

This was a quiz question

Answer 14

unit-in-place

The appraiser is using the unit-in-place method, which segregates the building into units of construction (e.g. exterior wall, foundation, insulation, etc.)

Question 15

An appraiser measuring a residential structure would most likely use

This was a quiz question

Answer 15

gross living area.

Gross living area (GLA) is commonly used to describe the size of residential properties. As defined, GLA is habitable, finished, above grade space, measured from the outside of the residence.

Question 16

Chandra is appraising a residential property. The house was built in 1981 and is in average condition. The appraiser is using a cost service provider to develop the cost approach. What type of cost will she be using in this appraisal?

This was a quiz question

Answer 16

replacement cost

Chandra will be using replacement cost. Most cost services usually provide replacement cost data, not reproduction cost data. Also, since the home is not historic or specialized, it likely does not warrant developing a reproduction cost.

Question 17

An estimate of reproduction cost includes which of the following?

This was a quiz question

Answer 17

the estimated cost of all items as of the effective date of appraisal with materials as they were installed

Reproduction cost includes the cost to build a replica using the same construction materials and techniques, but at costs on the effective date of value, not the date of construction.

Question 18

A buyer will not pay more for a property than the cost to construct one of equal desirability and utility without undue delay. What principle does this illustrate?

This was a quiz question

Answer 18

substitution

Substitution affirms that no prudent buyer would pay more for a property than the cost to construct one of equal desirability and utility without undue delay.

Question 19

If an appraiser estimates the current cost of individual units of construction and adds them up, what method is the appraiser using?

This was a quiz question

Answer 19

unit-in-place

The appraiser is using the unit-in-place method, which segregates the building into units of construction (e.g. exterior wall, foundation, insulation, etc.)

Question 20

Which of the following statements best describes entrepreneurial incentive?

This was a quiz question

Answer 20

the amount of money entrepreneurs expect to receive as a reward for their efforts

Entrepreneurial incentive must be present in order to entice a developer to construct the improvements. It is illogical to assume that a developer would anticipate expending a certain amount of time, energy, expertise, and money to construct a property, only to sell it for the same amount of money that had been expended. Profit must be present as the incentive for the developer.

Question 21

When performing a cost analysis, where can an appraiser obtain information about the entrepreneurial incentive?

This was a quiz question

Answer 21

derive it from the local market

Entrepreneurial incentive is generally not included in the rates provided by professional cost service providers. Commercial property appraisers derive the entrepreneurial incentive from the local market and add it to the cost. The incentive will vary based on the type of property and the risk associated with the project development. Residential property appraisers may find that entrepreneurial incentive is more difficult to identify or measure in the market. This topic will be addressed in advanced courses.

Question 22

When measuring a commercial office structure, an appraiser identifies the amount of space on which the rent is based. Which measurement is the appraiser using?

This was a quiz question

Answer 22

net rentable area

The appraiser is using net rentable area, which is the amount of space on which the rent is based, calculated according to local practice.

Question 23

The second step of the cost approach is to estimate direct (hard) and indirect (soft) costs as of

This was a quiz question

Answer 23

the effective date of the appraisal.

Question 24

Which of the following best describes gross living area (GLA) in single-unit residences?

This was a quiz question

Answer 24

GLA is the above-grade, finished, habitable, residential space measured from the outside.

As defined, GLA is habitable, finished (heated and/or air-conditioned), above-grade space, measured from the outside of the residence.

Question 25

When an appraiser estimates cost using a cost manual, which method is being used?

This was a quiz question

Answer 25

comparative unit

Question 26

Which of the following best describes direct costs?

This was a quiz question

Answer 26

expenditures for the labor and material used in the construction of the improvements

Direct costs are typically part of the construction contract and include material and labor.

Question 27

To which kind of cost should an appraiser attribute labor and materials to?

This was a quiz question

Answer 27

direct cost

Direct costs are typically part of the construction contract and include material and labor.

Question 28

The total construction cost of a structure requires consideration of which of the following?

This was a quiz question

Answer 28

direct and indirect costs along with entrepreneurial incentive

Direct and indirect costs are not enough. Entrepreneurial incentive must be present in order to entice a developer to construct the improvements.

Question 29

In terms of cost, what type of cost are appraisal fees?

This was a quiz question

Answer 29

indirect costs only