Real Estate Valuation: Cost Approach Quiz PDF

Real Estate Valuation: Cost Approach Answers 1. What is the cost of replacing an existing building with a comparable substitute using modern construction methods called? A. Reproduction cost B. Indirect cost C. Replacement cost D. Development cost Answer: Replacement cost (C) Replac...

Real Estate Valuation: Cost Approach Answers 1. What is the cost of replacing an existing building with a comparable substitute using modern construction methods called? A. Reproduction cost B. Indirect cost C. Replacement cost D. Development cost Answer: Replacement cost (C) Replacement cost refers to the cost of replacing an existing asset with a similar one. 2. Which term describes features that exceed necessary levels of quality and design? A. Superutilities B. Overimprovements C. Excess qualities D. Deductions Answer: Overimprovements (B) Overimprovements refer to features that go beyond what is necessary, often impacting value. 3. Architect’s fees, permitting costs, and real estate commissions are examples of which type of cost? A. Hard costs B. Indirect costs C. Direct costs D. Depreciated costs Answer: Indirect costs (B) These expenses are categorized as indirect costs associated with construction. 4. What is the term for physical deterioration that is deemed curable due to wear and tear? A. Functional obsolescence B. Deferred maintenance C. Physical deterioration D. Economic obsolescence Answer: Physical deterioration (C) Physical deterioration encompasses curable damages from wear and tear affecting property value. 5. Which group primarily uses the quantity survey method? A. Contractors or builders collaborating on bids B. Investors looking to buy a property C. Residential property appraisers D. Assessors determining property tax rates Answer: Contractors or builders collaborating on bids (A) The quantity survey method is used by contractors or builders to create detailed bids. 6. Which method of estimating depreciation assumes improvements lose value at a steady rate? A. Capitalization method B. Economic age-life method C. Breakdown method D. Market extraction method Answer: Economic age-life method (B) The economic age-life method assumes that improvements will depreciate at a consistent rate over time. 7. What is the economic age-life method most appropriate for measuring? A. Depreciation that is curable B. Depreciation caused by external obsolescence C. Depreciation from designer defects D. Depreciation due to physical deterioration Answer: Depreciation caused by external obsolescence (B) This method is particularly suited to measure depreciation resulting from external factors impacting the property's value. 8. The effective age of a property divided by its economic life is known as what? A. Book depreciation rate B. Economic age-life ratio C. Capitalization rate D. Obsolescence rate Answer: Economic age-life ratio (B) The ratio provides a measure of depreciation relative to the property's expected economic life. 9. What is the primary cause of depreciation addressed by the economic age-life method? A. Functional obsolescence B. Physical deterioration C. Economic obsolescence D. Design shortcomings Answer: Economic obsolescence (C) The economic age-life method primarily accounts for depreciation incurred due to broader economic factors. 10. What term describes the costs that do not directly relate to labor, materials, and equipment during construction? A. Direct costs B. Fixed costs C. Variable costs D. Indirect costs Answer: Indirect costs (D) Indirect costs, also referred to as soft costs, include like design fees and financing expenses. 11. Which of the following costs is likely to be considered an indirect cost in construction? A. Construction materials B. Design fees C. Equipment rental D. Labor expenses Answer: Design fees (B) Design fees fall under indirect costs, as they are not tied directly to physical construction inputs. 12. What type of depreciation may occur when the design of a property is outdated despite it being originally desirable? A. Physical deterioration B. Curable depreciation C. Economic obsolescence D. Functional obsolescence Answer: Functional obsolescence (D) Functional obsolescence refers to depreciation resulting from changes in preferences or technology leading to a loss of usability. 13. What is the main characteristic of the comparative- unit method? A. It calculates labor and material costs separately. B. It is exclusively used for large buildings. C. It involves detailed cost analysis for each component. D. It sums the costs of components without separate calculation. Answer: It sums the costs of components without separate calculation. (D) The comparative-unit method sums the costs of components together without calculating each component's labor and material costs. 14. Incurable depreciation refers to which situation? A. The repairs needed can easily be fixed. B. The cost of repair is less than the property value. C. The property is expected to appreciate significantly. D. The cost of repair exceeds the value that would be added. Answer: The cost of repair exceeds the value that would be added. (D) Incurable depreciation occurs when the cost of repairs exceeds the value that those repairs would add to the property. 15. Which type of depreciation is most likely due to a design becoming outdated? A. Economic obsolescence B. Physical depreciation C. External obsolescence D. Functional obsolescence Answer: Functional obsolescence (D) Functional obsolescence occurs when a design becomes outdated over time, reducing the property's value. 16. What generally causes external obsolescence? A. Wear and tear of the property. B. Changes in neighborhood quality. C. Physical deterioration. D. High maintenance costs. Answer: Changes in neighborhood quality. (B) External obsolescence is often caused by changes in the neighborhood or external factors affecting property value. 17. Which statement best describes functional obsolescence? A. It involves general wear and tear. B. It is caused by external market factors. C. It arises from design features that are no longer desirable. D. It occurs due to inadequate maintenance. Answer: It arises from design features that are no longer desirable. (C) Functional obsolescence arises from design features that are no longer desirable or effective. 18. What does external obsolescence typically reduce? A. The physical condition of the property. B. The marketability of the property. C. The estimated repair costs. D. The property's interior features. Answer: The marketability of the property. (B) External obsolescence typically reduces the marketability of the property due to external factors. 19. What is a common misconception about smaller buildings related to costs? A. They typically use higher quality materials. B. They have lower construction costs per square foot. C. They incur lower external costs due to their size. D. They are less expensive to maintain. Answer: They have lower construction costs per square foot. (B) A common misconception is that smaller buildings have lower construction costs per square foot compared to larger buildings. 20. What is the primary reason for using a cost index trending method? A. To analyze historical market trends. B. To estimate the effective age of a property. C. To project future property values. D. To assess the current cost of improvements. Answer: To assess the current cost of improvements. (D) A cost index trending method is primarily used to assess the current cost of improvements for properties.