Chapter 8 Quiz - Cost Approach to Value PDF

Chapter 8: Cost Approach to Value Chapter 8 Quiz 1. The cost of replacing an existing building with 6. The quantity survey method is mostly used a comparable substitute building, using modern by: construction methods and materials, is called:...

Chapter 8: Cost Approach to Value Chapter 8 Quiz 1. The cost of replacing an existing building with 6. The quantity survey method is mostly used a comparable substitute building, using modern by: construction methods and materials, is called:  $ LQYHVWRUVORRNLQJLQWREX\LQJDSURSHUW\ A. development cost  % FRQWUDFWRUVRUEXLOGHUVSXWWLQJWRJHWKHUD  % UHSODFHPHQWFRVW bid C. indirect cost C. appraisers of residential property  ' UHSURGXFWLRQFRVW  ' DVVHVVRUVGHWHUPLQLQJWKHDSSURSULDWHSURS- erty tax rates 2. Features that exceed necessary levels of quality DQGGHVLJQDUHNQRZQDV   'HSUHFLDWLRQLV A. superutilities A. the loss in value of an improvement due to  % RUQDPHQWV wear and tear or other causes C. deductions  % WKHSRUWLRQRIYDOXHWKDWLVQRWFRXQWHGIRU  ' VXSHUDGHTXDFLHV tax purposes C. the difference between the actual age and 3. Architect’s fees, permitting costs, and real the effective age of the improvements estate commissions are examples of:  ' WKHDPRXQWRIWLPHIURPWKHHIIHFWLYHGDWH of the appraisal until the anticipated end of A. indirect costs the property’s economic life  % KDUGFRVWV C. direct costs  ' GHSUHFLDWHGFRVWV 8. If curable, physical deterioration due to wear and tear, damage to the improvements, or con- VWUXFWLRQGHIHFWVLVDOVRNQRZQDV 4. In this method of estimating cost, the appraiser EUHDNVGRZQLPSURYHPHQWVLQWRFRPSRQHQWV A. external depreciation and adds the cost of the components together,  % GHIHUUHGPDLQWHQDQFH but without calculating labor, materials, C. functional obsolescence equipment, and overhead separately for each  ' HFRQRPLFREVROHVFHQFH component. A. Cost index trending 9. Incurable depreciation means that:  % 4XDQWLW\VXUYH\PHWKRG A. the cost of repair exceeds the value that C. Comparative-unit method would be added  ' 8QLWLQSODFHPHWKRG  % WKHORVVLQYDOXHFDXVHGE\WKHGHSUHFLDWLRQ can be written off   6PDOOHU EXLOGLQJV WHQG WR KDYH D KLJKHU C. the item is expected to need periodic re- construction cost per square foot than larger placement buildings because:  ' WKHGHWHULRUDWLRQFDQQRWEH¿[HG A. larger buildings are of better quality  % VPDOOHUEXLOGLQJVXVHPRUHH[SHQVLYHPD- terials C. the cost of expensive features such as the NLWFKHQ LV GLYLGHG RXW RYHU IHZHU WRWDO square feet  ' WKHFRPSOH[LW\RIEXLOGLQJGHVLJQLVJUHDWHU 7  Real Estate Appraisal Instructor Materials 10. Which type of depreciation most often results  7R FDOFXODWH WKH ¿QDO YDOXH HVWLPDWH DQ DS- IURPDGHVLJQWKDWZDVGHVLUDEOHDW¿UVWEXWKDV praiser should add what to the depreciated cost become outdated over time? of the improvements?  $ ERRNGHSUHFLDWLRQ  $ $OOPDUNHWLQJFRVWVWRVHOOWKHSURSHUW\  % SK\VLFDOGHWHULRUDWLRQ  % 7KHYDOXHRIWKHVLWHDQGVLWHLPSURYHPHQWV C. functional obsolescence  & 7KHERRNGHSUHFLDWLRQUDWH  ' H[WHUQDOREVROHVFHQFH  ' %RWK$DQG% 11. External obsolescence is caused by: A. design defects in the property  % VWUXFWXUDOGDPDJHWRWKHSURSHUW\  & QHJDWLYHLQÀXHQFHVIURPVXUURXQGLQJ properties  ' WKHHQGRIWKHSURSHUW\¶VHFRQRPLFOLIH 12. Which method of estimating depreciation relies on the assumption that improvements will lose value at a steady rate?  $ 0DUNHWH[WUDFWLRQPHWKRG  % &DSLWDOL]DWLRQPHWKRG  & %UHDNGRZQPHWKRG  ' (FRQRPLFDJHOLIHPHWKRG 13. The economic age-life method is most appro- priate for measuring depreciation that is: A. caused by external obsolescence  % FDXVHGE\SK\VLFDOGHWHULRUDWLRQ C. incurable  ' WKHUHVXOWRIGHVLJQGHIHFWV 14. The effective age of a property divided by its HFRQRPLFOLIHLVNQRZQDVWKH A. capitalization rate  % ERRNGHSUHFLDWLRQUDWH C. economic age-life ratio  ' REVROHVFHQFHUDWH 8  Chapter 8: Cost Approach to Value Answer Key  % 5HSODFHPHQWFRVWLVWKHFRVWRIUHSODF-  % &XUDEOHSK\VLFDOGHWHULRUDWLRQLVDOVR ing an existing building using modern NQRZQDVGHIHUUHGPDLQWHQDQFH construction methods and materials.  $ 'HSUHFLDWLRQLVFRQVLGHUHGLQFXUDEOHLI  ' 6XSHUDGHTXDFLHVDUHIHDWXUHVWKDWH[- the cost to repair the problem exceeds ceed necessary levels of quality and the increase in value that would result. design. They must be accounted for as It may or may not mean that the prob- part of reproduction cost estimates. OHPLVLPSRVVLEOHWR¿[ 3. A. Indirect costs, also called soft costs, & 'HVLJQVWKDWUHVXOWLQIXQFWLRQDORE- are costs associated with the construc- solescence may have been defective tion of improvements other than the IURPWKHVWDUWEXWLWLVPRUHOLNHO\WKDW labor, materials, and equipment in- the design was originally desirable and volved. has since become outdated.  ' 7KHXQLWLQSODFHPHWKRGUHTXLUHVWKH & 1HJDWLYHLQÀXHQFHVIURPVXUURXQGLQJ DSSUDLVHUWREUHDNWKHLPSURYHPHQWV properties, such as pollution or eye- down into components, multiply the sores, are a common cause of external size or quantity of each component by obsolescence. its unit cost, and add the total costs of all components together. ' 7KHHFRQRPLFDJHOLIHPHWKRGDOVR NQRZQDVWKHVWUDLJKWOLQHPHWKRG  & 6RPHRIWKHPRVWH[SHQVLYHSDUWVRI assumes that improvements will lose DKRXVHVXFKDVNLWFKHQVDUHSUHVHQW value at a steady rate over time. in all houses but generally only once. If both a smaller house and a larger % 3K\VLFDOGHWHULRUDWLRQFDQEHH[SHFWHG KRXVHKDYHDNLWFKHQWKHFRVWRIWKH to occur gradually and reliably for any NLWFKHQZLOOEHGLYLGHGRXWRYHUPRUH LPSURYHPHQWPDNLQJWKHHFRQRPLF total square feet in the larger house. age-life method appropriate.  % 7KHTXDQWLW\VXUYH\PHWKRGLVXVHG 14. C. To estimate depreciation, the economic primarily by contractors and build- age-life method multiplies an improve- ers. The different subcontractors will ment’s estimated cost by the economic provide estimates that the general con- age-life ratio, which is the effective tractor assembles into an estimate of age of the property divided by its eco- the total construction cost. nomic life.  $ 'HSUHFLDWLRQLVWKHORVVLQYDOXHRIDQ % 7RGHWHUPLQHWKH¿QDOYDOXHHVWLPDWH improvement due to wear and tear or the appraiser should add the depreciated other causes. cost of the improvements to the value of the site and site improvements. 9