Chapter 6
The subject is a 25 year old building that would cost $180,000 to build new today. It is in good condition and you estimate the effective age to be 20 years. Your estimate of total economic life is 60 years, based on your knowledge of similar properties. What is its present, depreciated value? $100,000 $120,000 $126,667 $140,000
$120,000 20 ÷ 60 = .333. $180,000 X .333 = $60,000 depreciation. $180,000 - $60,000 depreciation = $120,000.
A building has a cost new of $400,000. Deferred maintenance items have been identified at a cost of $9,000. Short-lived depreciation has been identified at $15,000; these short-lived items have a total cost of $45,000. The building has an effective age of 20 years and a total economic life of 50 years. What is the amount of depreciation attributable to the long-lived items? $79,200 $98,468 $114,665 $138,400
$138,400 $400,000 - $9,000 - $45,000 = $346,000 (cost of long-lived items). 20 / 50 = 40% depreciation. $346,000 x 40% = $138,400.
A property is found to suffer $20,000 in external obsolescence because of its proximity to an industrial plant. The subject's land represents 20% of its value. What is the dollar amount of external obsolescence attributable to the building improvements? $2,000 $14,444 $16,000 $24,000
$16,000 $20,000 x 80% = $16,000. The remaining $4,000 in external obsolescence is attributable to the land.
A hot water furnace in a building costs $22,000 to replace. It has an expected life of 30 years, and it is 24 years old. How much shortlived depreciation is attributable to this item? $4,400 $12,800 $17,600 $19,800
$17,600 24 / 30 = 80%. $22,000 x 80% = $17,600.
The subject is a 15 year old duplex that would cost $240,000 to build new today. It is in good condition and you estimate the effective age to be 10 years. Your estimate of total economic life is 50 years. Its land value is $60,000. What is its value by the cost approach? $80,000 $123,000 $212,000 $252,000
$252,000 10 ÷ 50 = .20. $240,000 X .80 = $192,000. $192,000 + $60,000 = $252,000.
The replacement cost new of the improvements is $295,500, the land value is $75,000 and the effective age is 17 years. The total economic life is estimated to be 60 years. The subject has deferred maintenance items that total $5,500. After these repairs, the effective age will be reduced to 15 years. What is the value of the property using a modified age-life method? $120,000 $260,000 $292,500 $319,500
$292,500
A built-in dishwasher and stove have replacement costs of $350 and $500, respectively. They are both 6 years old and have a remaining life of 9 years. What is the total of short-lived physical depreciation attributable to these appliances? $282 $340 $399 $406
$340 6 + 9 = 15. 6 ÷ 15 = .40. $350 + 500 = $850. $850 X .40 = $340.
A building has an effective age of 12 and a total economic life of 60 years. It cost $320,000 new and its site value is $95,000. What is the indicated value by cost approach? $159,000 $336,000 $351,000 $415,000
$351,000 12 / 60 = 20% depreciation. $320,000 x 20% = $64,000. $320,000 - $64,000 + $95,000 = $351,000
Assume a house would rent for $1,000 per month in a normal neighborhood. In this neighborhood, which is near a busy interstate highway, it can only rent for $950 per month. The appropriate GRM is 135. How much external obsolescence is caused by the highway? $4,200 $4,750 $5,550 $6,750
$6,750 $1,000 - $950 = $50. $50 X 135 = $6,750.
A roof on a building costs $18,000 to replace. It has an expected life of 25 years, and it is 10 years old. How much short-lived depreciation is attributable to this item? $7,200 $8,000 $4,500 $18,000
$7,200 10 / 25 = 40%. $18,000 x 40% = $7,200.
A building has an effective age of 18 and a total economic life of 60 years. It cost $520,000 new and its site value is $125,000. What is the indicated percentage of age-life depreciation? 15% 18% 25% 30%
30%
A 6 year old water heater with an expected life of 15 years will have experienced depreciation of ____%. 20 25 30 40
40 6 ÷ 15 = .40, or 40%.
A 10-year-old furnace with an expected life of 25 years will have experienced depreciation of: 25% 28.5% 40% Not enough information to determine
40% 10 divided by 25 is 0.40 or 40%.
A building has an effective age of 25 and a total economic life of 80 years. What is its remaining economic life? 31 55 45 not enough information to determine
55 80 - 25 = 55 remaining economic life
Which of these is an example of deferred maintenance? A hallway that is too narrow Outdated kitchen cabinets A bathroom with a tub but no shower A broken window
A broken window
Which of these factors is most likely to cause external obsolescence to a residential property? A roof that shows obvious signs of deterioration but is not yet leaking A gas station/convenience store located across the street A kitchen design that does not meet current market tastes and expectations All of these are examples of external obsolescence
A gas station/convenience store located across the street
__________ will lose value over time just because of age. Land Buildings Both land and buildings Land, buildings, and chattel items
Buildings
Which of these entities requires an appraiser to provide an estimate of remaining economic life? FHA Fannie Mae Freddie Mac All of the above
FHA
True or False: Effective age is the same as chronological age.
False
Normal wear and tear on a building is classified as __________. Physical deterioration Functional obsolescence External obsolescence Deferred maintenance
Physical deterioration
The three general types of depreciation are: Physical, short-lived, and long-lived Curable, incurable and breakdown Physical, functional, and external Functional, curable, and incurable
Physical, functional, and external
True or False: A building may be obsolete and valueless even though it is still standing and is physically sound.
True
True or False: External obsolescence can be shared between building and land.
True
True or False: Functional obsolescence may be present in a brand-new structure.
True
True or False: Physical deterioration can be divided into three categories: deferred maintenance; short-lived components; and long-lived components.
True
The number of years that have elapsed since a building was constructed is its effective age actual age remaining economic life economic age
actual age
In most situations, which of these would be considered an example of a superadequacy? gold-plated faucets R-90 insulation in walls and ceilings foundation walls that are 4 feet thick all of these
all of these
Depreciation is defined as a loss in property value from factors inside the property only any cause factors outside the property only ordinary wear and tear
any cause
Economic feasibility is indicated if the __________ is ______________ the ______________ of the property. cost, greater than, value price, equal to or less than, cost cost to cure, equal to or less than, anticipated increase in value cost to cure, more than, actual increase in value
cost to cure, equal to or less than, anticipated increase in value
A home suffers functional obsolescence of $10,000 because it lacks a second bathroom, which could be installed at a cost of $9,500. This type of obsolescence is considered curable incurable economic physical
curable
What term is defined as "Items of wear and tear on a property that should be fixed now to protect the value or income- producing ability of the property"? functional obsolescence short-lived depreciation long-lived depreciation deferred maintenance
deferred maintenance
Which of these is NOT a cause of functional obsolescence? layout problems inadequacies superadequacies deferred maintenance
deferred maintenance
Which type of physical deterioration is considered to be curable? deferred maintenance only long-lived components only short-lived components only no physical deterioration is curable
deferred maintenance only
The difference between the cost of an improvement and its market value on the effective date of the appraisal is depreciation obsolescence effective age opportunity cost
depreciation
"The period over which improvements to real estate contribute to property value" is the definition of _______________ life. economic physical useful actual
economic
"The period over which improvements to real estate contribute to real property value" is the definition of effective age economic life useful life physical life
economic life
Which type of age is based on the amount of observed deterioration and obsolescence the improvement has sustained? actual historic chronological effective
effective
A short-lived item is a building component with an ______________ life that is shorter than the _______________ life of the entire structure. economic life, long-lived expected remaining economic, remaining economic anticipated life, remaining economic anticipated life, physical
expected remaining economic, remaining economic
Of the three general types of depreciation, which type occurs off the site? curable short-lived physical external
external
Which type of depreciation is generally considered to be incurable? physical deterioration functional obsolescence external obsolescence all of these
external obsolescence
"The impairment of functional capacity of improvements according to market tastes and standards" is the definition of depreciation physical deterioration functional obsolescence external obsolescence
functional obsolescence
"The ability of a property or building to be useful and perform the function for which it was intended according to current market tastes and standards" is the definition of __________________. functional obsolescence functional utility functional inutility useful life
functional utility
When estimating depreciation, which of these items is likely to be considered a long-lived item? furnace roof covering girders water heater
girders
An outdated kitchen can be remodeled at a cost of $15,500. After remodeling, the value of the home will increase by $14,000. This item of depreciation is considered curable incurable feasible essential
incurable
Which would NOT cause external obsolescence? leaking septic in the back yard statewide recession building moratorium high crime rate
leaking septic in the back yard
External obsolescence can be marketwide based on an outdated finish item the result of a layout deficiency the result of a construction defect
marketwide
Which would NOT be a deferred maintenance item? broken window pane older roof showing some wear peeling paint on window trim leaking faucet
older roof showing some wear
A new building is expected to remain standing for 80 years. This period is the building's ____________ life. useful maximum physical effective
physical
A 10-year-old house will always have physical deterioration functional obsolescence external obsolescence all of these
physical deterioration
The amount of depreciation attributed to deferred maintenance is measured by the cost to build a new structure the cost to cure the deferred maintenance item the cost of long-lived items divided by the ratio of effective age to total economic life chronological age divided by total economic life
the cost to cure the deferred maintenance item
"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" is the definition of __________ life. incurable physical useful actual
useful
Which is NOT an example of a long-lived item? water heater framing foundation underground pipes
water heater
Physical deterioration is best described as factors outside a property that diminish its value always incurable outmoded items wear and tear
wear and tear
Which of these is NOT a cause of functional obsolescence? superadequacies wear and tear layout problems outmoded items
wear and tear
