Applied Methods and Techniques Flashcards

In the cost approach, which cost estimate reflects building an improvement of equal utility using current materials, design, and standards?

Answer: Replacement cost

Replacement cost prices a building of equivalent utility built with modern materials and design, not an exact replica.

A building has an effective age of 15 years and a total economic life of 60 years. Using the age-life method, what is the percentage of accrued depreciation?

Answer: 25%

Age-life depreciation equals effective age divided by total economic life: 15 ÷ 60 = 25%.

Which form of depreciation comes from factors outside the property, such as a nearby landfill, and is almost always incurable by the owner?

Answer: External obsolescence

External (economic) obsolescence comes from outside the property lines, so the owner usually can't cure it.

An assessor subtracts the depreciated cost of the improvements from an improved property's sale price to estimate land value. What is this method called?

Answer: Extraction (abstraction) method

Extraction estimates land value by subtracting the depreciated improvement value from the total sale price.

Which cost-estimating method is the most detailed, pricing every material, labor, and equipment item separately?

Answer: Quantity survey method

The quantity survey method itemizes every material and labor component, the way a contractor builds a bid.

A house has only one bathroom for five bedrooms, and adding a second bath would cost less than the value it adds. How is this deficiency classified?

Answer: Curable functional obsolescence

It is a design inadequacy (functional), and it is curable because the cost to fix it is less than the value gained.

Why is entrepreneurial incentive or profit included in a cost approach estimate?

Answer: It reflects the reward a developer expects for taking on the project's risk

Market value includes the reward a developer requires to take on a project, so the cost approach adds entrepreneurial incentive.