Chapter 13 - Cost Approach

Which of the following items would the appraiser consider to be physical deterioration-incurable? a. an old foundation. b. paint touch-up c. leaking faucets. d. leaking windows.

a. an old foundation.

A super adequacy is: a. anything built into the house that does not add value at least equal to the cost. b. loss in value caused by deficiency. c. loss of value caused by neighborhood factors. d. a new superhighway near the house.

a. anything built into the house that does not add value at least equal to the cost.

Under the cost approach, the site is usually valued: a. as if unimproved and ready for use at its highest and best use. b. on a conditional use basis. c. without regard to zoning or building costs. d. without any consideration for location.

a. as if unimproved and ready for use at its highest and best use.

Under which method for estimating accrued depreciation is physcial deterioration-curable is found? a. breakdown b. age-life c. abstraction d. market.

a. breakdown.

Depreciation is defined as the difference between the: a. cost of the improvement on the date of the appraisal and the value of the improvement. b. size of the improvement and the cost of the improvement. c. internal and external obsolescence. d. physical and functional loss in value.

a. cost of the improvement on the date of the appraisal and the value of the improvement.

Which of the following is true? a. depreciation/reproduction cost = effective age/typical economic life. b. effective age/reproduction cost = typical economic life/ depreciation. c. typical economic life / effective age = percent of depreciation. d. percent of depreciation / effective age = typical economic life.

a. depreciation/reproduction cost = effective age/typical economic life.

Which of the following is not a step in the cost approach? a. estimate appreciation. b. estimate site value. c. estimate reproduction cost of improvements. d. estimate depreciation from all causes.

a. estimate appreciation.

The unit-in-place method of estimating costs takes into account: a. estimating the cost of labor and materials for each component of the building. b. direct cost per square foot of the building. c. comparison of cost with another building recently sold. d. including units of land as part of the cost of construction.

a. estimating the cost of labor and materials for each component of the building.

The quantity survey method requires: a. preparation of a detailed inventory of all materials and equipment used to build the house. b. dividing depreciation into physical deterioration, functional obsolescence, and external obsolescence. c. use of the market data to obtain an indication of amount of depreciation of the property. d. all of the above.

a. preparation of a detailed inventory of all materials and equipment used to build the house.

Which method of estimating building costs is most similar to a contractor's method of developing a bid to construct a building? a. quantity survey b. unit-in-place c. breakdown d. capitalization

a. quantity survey

The method by which the construction cost per square foot of the subject property is multiplied by number of square feet in the subject property is the: a. square foot method. b. cabinets-in-place method. c. quantity survey method. d. breakdown method.

a. square foot method.

In the unit-in-place method of estimating reproduction cost, the estimates are made in terms of: a. standard costs for each building component as installed. b. indexed cost per square foot. c. actual cost per room. d. estimated cost per floor.

a. standard costs for each building component as installed.

A 20 unit apartment building can be purchased for $1,000,000. After renovation, the value of the property would be $1,200,000. What would be the maximum expenditure per unit for renovation to avoid a super adequacy? a. $5,000 b. $10,000 c. $15,000 d. $20,000

b. $10,000

A house cost $83,500 to build in 1980. The cost index was 396.2 at that time. The index today is 679.4. What is the indicated cost of the house today? a. $142,785 b. $143,185 c. $174, 745 d. $186,372

b. $143,185

In appraising, the cost approach deals with: a. future rights. b. conversion of cost-to-construct figures to market value figures. c. the amount of money actually paid. d. the market value.

b. conversion of cost-to-construct figures to market value figures.

What has come to an end when the site alone is worth as much as the value of the site plus the value of the improvements? a. effective age of improvements. b. economic life of improvements. c. physical life of improvements. d. chronological age of improvements.

b. economic life of improvements.

Using the age-life method of estimation depreciation, which of the following is the correct formula to estimate the percent of depreciation of the reproduction cost? a. economic life/typical economic life. b. effective age/typical economic life. c. typical economic life/ effective age. d. economic life/actual age

b. effective age/typical economic life.

The first step in the square foot method of estimating reproduction cost is to: a. estimate the value of the site. b. find the dimensions of the subject building. c. establish the cost system. d. find comparable buildings.

b. find the dimensions of the subject building.

A property being appraised has a house with 5 large bedrooms, one small bathroom, and a room for a second bathroom. A properly designed house would have at least 2 bathrooms. To take into account the number of bathrooms, the appraiser should deduct for which of the following? a. physical deterioration. b. functional obsolescence. c. external obsolescence. d. locational obsolescence.

b. functional obsolescence.

The cost of creating improvements having the same or equivalent utility using current standards of materials and labor prices is the: a. reproduction cost. b. replacement cost. c. depreciated cost. d. direct cost.

b. replacement cost.

The economic life of an improved property has come to an end when: a. improvements cease to represent the highest and best use. b. the improvements no longer contribute value to the property. c. internal and external obsolescence has occurred. d. physical and functional loss in value has occurred.

b. the improvements no longer contribute value to the property.

The cost approach in appraising is often the most reliable approach when: a. the building is old and its use is not the best use. b. the property is improved with a special purpose building. c. the cost of rebuilding cannot be accurately estimated. d. the building has a steady flow of income.

b. the property is improved with a special purpose building.

Under the abstraction method of estimating depreciation, which of the following statements is true? a. economic obsolescence less physical deterioration equals functional obsolescence. b. total accrued depreciation less physical deterioration and functional obsolescence equals economic obsolescence. c. total accrued depreciation plus physical and functional depreciation equal economic obsolescence. d. physical curable deterioration plus functional incurable obsolescence equals economic obsolescence.

b. total accrued depreciation less physical deterioration and functional obsolescence equals economic obsolescence.

Based on the data in the following example, what is the approximate average annual rate of depreciation? Apartment house sale price $450,000 Estimate site value $50,000 Estimated reproduction cost $500,000 Effective age 20 years a. 1.5% per year b. 2.0% per year c. 1.0% per year d. 10% per year

c. 1.0% per year.

Almost all super adequacies: a. are caused by superhighways. b. can be cured. c. are incurable. d. are rarely found in houses under $100,000

c. are incurable.

Under the abstraction method of estimating depreciation, how does the appraiser arrive at the average annual amount of depreciation indicated by the comparable properties sold? a. multiply total depreciation by economic life. b. divide average annual amount of depreciation by physical life. c. divide total depreciation by effective age. d. multiply chronological age by total depreciation.

c. divide total depreciation by effective age.

What might cause immediate external obsolescence? a. age of the building. b. floorplan. c. nearby hazardous waste site. d. size of the improvements.

c. nearby hazardous waste site.

Items of maintenance that a prudent owner would take care of to prevent a loss in value are categorized under the breakdown method of depreciation as: a. functional obsolescence-curable b. functional obsolescence-incurable c. physical deterioration - curable d. physical deterioration-incurable

c. physical deterioration - curable

The period of time which a building would be expected to remain physically in existence is its: a. effective age. b. economic life. c. physical life. d. chronological age.

c. physical life.

Which of the following methods of estimating reproduction cost is most accurate? a. cubic foot method. b. unit-in-place method c. quantity survey. d. abstraction method.

c. quantity survey.

Entrepreneurial profit should represent the builder's: a. maximum profit. b. minimum profit. c. typical profit. d. excess profit.

c. typical profit.

Which of the following is a form of super adequacy? a. a kitchen that is old and needs replacing. b. an inadequate floor plan impairing functionality. c. a home without a sufficient number of bathrooms. d. a bedroom that is oversized and costs more than the added value.

d. a bedroom that is oversized and costs more than the added value.

Building cost estimates should include: a. materials b. equipment costs c. labor costs d. all of the above.

d. all of the above.

Which of the following resources would an appraiser use as a source of cost data? a. cost from MLS system. b. cost services. c. cost of living index. d. all of the above.

d. all of the above.

Which technique is used to measure depreciation? a. the breakdown method. b. the age-life method c. the abstraction method. d. all of the above.

d. all of the above.

Which of the following methods is not a usual method for estimating replacement cost of the improvements of an apartment complex? a. square foot method. b. quantity survey. c. unit-in-place method. d. cubic foot method.

d. cubic foot method.

Which type of depreciation is used to account for a loss in value due to factors outside the property boundaries? a. functional obsolescence curable. b. Internal obsolescence. c. physical obsolescence incurable. d. external obsolescence.

d. external obsolescence.

If a building is of average condition and design, conforms to the neighborhood, and does not suffer unusual economic influences: a. its reproduction cost and replacement cost will be equal. b. its cost will equal its value. c. it will not suffer from any depreciation. d. its effective age and chronological age will be similar.

d. its effective age and chronological age will be similar.

The age-life method of depreciation is based upon all of the following characteristics except: a. observation b. research c. judgement d. labor

d. labor

Which is usually the longest in the life span of an apartment building? a. chronological age b. effective age. c. economic life. d. physical life.

d. physical life.

Which of the following is usually classified as External Obsolescence? a. damage exterior siding. b. old roof. c. lack of lawn sprinkler system. d. poor schools.

d. poor schools.

Which of the following items is not considered to be a direct cost: a. labor b. contractor profit c. materials d. taxes

d. taxes

Which of the following costs is considered to be a direct cost under the cost approach? a. legal fees. b. engineer's fees. c. building permit costs. d. temporary fencing cost.

d. temporary fencing cost.