Property Valuation Techniques Flashcards

In the cost approach, functional obsolescence is considered curable when:

Answer: The cost to cure is equal to or less than the value added by the cure

A defect is economically curable when fixing it adds at least as much value as it costs.

A home near a newly built highway interchange loses value from traffic noise. What type of depreciation is this?

Answer: External (economic) obsolescence

Loss from factors outside the property boundaries is external obsolescence and is generally incurable by the owner.

Which cost estimate uses modern materials and design to build a structure with the same utility as the subject?

Answer: Replacement cost

Replacement cost builds equal utility with current materials and standards, while reproduction cost builds an exact replica.

A 30-year-old house has been extensively renovated and shows the condition and utility of a 15-year-old house. Its 15-year figure is called its:

Answer: Effective age

Effective age reflects the property's condition and utility compared with similar properties, not its actual years since construction.

Using the age-life method, a building with an effective age of 12 years and a total economic life of 60 years has what percentage of depreciation?

Answer: 20%

Depreciation equals effective age divided by total economic life, so 12 ÷ 60 = 20%.

In the cost approach, the profit a developer expects for taking on the risk of a project is called:

Answer: Entrepreneurial incentive

Entrepreneurial incentive is the expected reward for the developer's coordination and risk and belongs in total cost new.

In the cost approach, how is the land value usually estimated?

Answer: As though vacant and available for its highest and best use

The cost approach adds depreciated improvement cost to land valued as if vacant at its highest and best use.