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Questions and Answers
What is the cost of replacing an existing building with a comparable substitute using modern construction methods called?
What is the cost of replacing an existing building with a comparable substitute using modern construction methods called?
- Reproduction cost
- Indirect cost
- Replacement cost (correct)
- Development cost
Which term describes features that exceed necessary levels of quality and design?
Which term describes features that exceed necessary levels of quality and design?
- Superutilities
- Overimprovements (correct)
- Excess qualities
- Deductions
Architect’s fees, permitting costs, and real estate commissions are examples of which type of cost?
Architect’s fees, permitting costs, and real estate commissions are examples of which type of cost?
- Hard costs
- Indirect costs (correct)
- Direct costs
- Depreciated costs
What is the term for physical deterioration that is deemed curable due to wear and tear?
What is the term for physical deterioration that is deemed curable due to wear and tear?
Which group primarily uses the quantity survey method?
Which group primarily uses the quantity survey method?
Which method of estimating depreciation assumes improvements lose value at a steady rate?
Which method of estimating depreciation assumes improvements lose value at a steady rate?
What is the economic age-life method most appropriate for measuring?
What is the economic age-life method most appropriate for measuring?
The effective age of a property divided by its economic life is known as what?
The effective age of a property divided by its economic life is known as what?
What is the primary cause of depreciation addressed by the economic age-life method?
What is the primary cause of depreciation addressed by the economic age-life method?
What term describes the costs that do not directly relate to labor, materials, and equipment during construction?
What term describes the costs that do not directly relate to labor, materials, and equipment during construction?
Which of the following costs is likely to be considered an indirect cost in construction?
Which of the following costs is likely to be considered an indirect cost in construction?
What type of depreciation may occur when the design of a property is outdated despite it being originally desirable?
What type of depreciation may occur when the design of a property is outdated despite it being originally desirable?
What is the main characteristic of the comparative-unit method?
What is the main characteristic of the comparative-unit method?
Incurable depreciation refers to which situation?
Incurable depreciation refers to which situation?
Which type of depreciation is most likely due to a design becoming outdated?
Which type of depreciation is most likely due to a design becoming outdated?
What generally causes external obsolescence?
What generally causes external obsolescence?
Which statement best describes functional obsolescence?
Which statement best describes functional obsolescence?
What does external obsolescence typically reduce?
What does external obsolescence typically reduce?
What is a common misconception about smaller buildings related to costs?
What is a common misconception about smaller buildings related to costs?
What is the primary reason for using a cost index trending method?
What is the primary reason for using a cost index trending method?
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Study Notes
Cost Approach to Value
- The cost of replacing an existing building with a comparable substitute building, using modern construction methods and materials, is called reproduction cost.
- Superutilities are features that exceed necessary levels of quality and design, and need to be accounted for in reproduction cost estimates.
- Examples of indirect costs are architect's fees, permitting costs, and real estate commissions.
- The quantity survey method is used by contractors and builders to estimate construction costs. Each component of the building is measured and its cost is multiplied by unit cost.
- Curable functional obsolescence results when the cost of repair exceeds the increase in value from making the repair.
- Incurable functional obsolescence can be caused by a design defect that was originally desirable but is no longer outdated. It can also be caused by external factors such as environmental hazards.
- External obsolescence is caused by factors outside the property boundaries, such as environmental hazards or negative changes in the surrounding neighborhood.
- The straight-line depreciation method assumes that improvements lose a constant amount of value each year.
- The economic age-life method divides the effective age by the economic life of the property.
- When calculating the depreciated cost of improvements, the appraiser adds the value of the land and site improvements to reach the final estimate of value.
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