CHI Financial Analysis & Reporting 2 — Questions and Answers
Question 1: When estimating repair costs in a home inspection report, which approach most accurately reflects true replacement value?
- Original purchase price of the component
- Current market cost of materials plus labor (Correct answer)
- Assessed value divided by remaining useful life
- Insurance premium multiplied by coverage factor
Correct answer: Current market cost of materials plus labor
Replacement value is best estimated using current market prices for materials combined with prevailing local labor rates.
Question 2: A home inspector notes deferred maintenance totaling $18,500. How should this figure be presented in the inspection report?
- As the home's adjusted market value
- As an itemized cost estimate for each identified deficiency (Correct answer)
- As a single lump-sum deduction from listing price
- As an insurance claim value
Correct answer: As an itemized cost estimate for each identified deficiency
Best practice is to itemize each deficiency with its associated estimated cost so buyers can evaluate individual repair priorities.
Question 3: Which financial metric is most useful for a buyer evaluating whether to request seller concessions based on inspection findings?
- Gross rent multiplier
- Capitalization rate
- Estimated cost-to-cure for identified defects (Correct answer)
- Debt-service coverage ratio
Correct answer: Estimated cost-to-cure for identified defects
The cost-to-cure figure represents the estimated expense to correct inspection deficiencies and directly informs concession negotiations.
Question 4: Functional obsolescence in a home inspection context refers to:
- Physical deterioration from age and wear
- A loss in value due to outdated design or features that no longer meet current standards (Correct answer)
- Decline in value caused by nearby negative land uses
- Decrease in assessed value after tax appeal
Correct answer: A loss in value due to outdated design or features that no longer meet current standards
Functional obsolescence is a loss in value resulting from features that are outmoded or no longer desirable, such as an outdated floor plan or insufficient electrical capacity.
Question 5: When a roof has 5 years of remaining useful life out of a 25-year lifespan, what percentage of its economic life has been consumed?
- 20%
- 80% (Correct answer)
- 75%
- 25%
Correct answer: 80%
With 20 of 25 years elapsed (25 − 5 = 20), the roof has consumed 80% of its economic life.
Question 6: Which of the following items typically carries the highest replacement cost and should receive priority financial disclosure in a report?
- Bathroom caulking
- HVAC system (Correct answer)
- Attic insulation top-up
- Weather stripping
Correct answer: HVAC system
HVAC system replacement is among the most expensive single repairs, often ranging from $5,000 to $12,000+, warranting clear financial disclosure.
Question 7: In a home inspection report, what does 'cost segregation' typically refer to when discussing financial findings?
- Separating cosmetic defects from structural defects by repair cost (Correct answer)
- Dividing the inspection fee between buyer and seller
- Allocating costs between personal property and real property for tax purposes
- Grouping repair costs by trade contractor type
Correct answer: Separating cosmetic defects from structural defects by repair cost
In the inspection context, cost segregation commonly means categorizing deficiencies by severity (cosmetic vs. structural) and associated repair cost so buyers can prioritize decisions.
CHI Financial Analysis & Reporting 2
When estimating repair costs in a home inspection report, which approach most accurately reflects true replacement value?