Cost Approach & Depreciation Analysis Flashcards
7 cards from real IACP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Cost Approach & Depreciation Analysis flashcards as text
The quantity survey method of cost estimating is considered the most accurate because it:
Answer: Itemizes all materials, labor, overhead, and profit for every component of construction
The quantity survey method provides the highest level of detail by listing and pricing every material and labor item, making it the most accurate but most time-consuming cost approach method.
When using the cost approach, an appraiser who estimates replacement cost rather than reproduction cost is accounting for:
Answer: Functional obsolescence already by substituting modern equivalent materials
Replacement cost uses modern materials and current standards, so some functional obsolescence (related to outdated construction techniques or materials) is inherently captured in the lower cost estimate.
A building has a chronological age of 20 years but has been well maintained and updated. Its effective age is estimated at 12 years. This difference indicates:
Answer: The owner's capital improvements and upkeep have extended the building's economic life
When effective age is less than chronological age, it indicates that maintenance, renovations, or updates have kept the building in condition better than expected for its actual age.
Which statement correctly describes 'incurable functional obsolescence' in the cost approach?
Answer: A deficiency where correction is either physically impossible or economically unwarranted
Incurable functional obsolescence refers to items that either cannot be corrected or where the cost to cure exceeds the resulting increase in value, making correction economically irrational.
In the cost approach, entrepreneurial profit (developer's profit) is:
Answer: The return a developer expects for taking the risk of creating a new property
Entrepreneurial profit is the market-derived reward a developer expects for taking the risk, expertise, and time involved in creating a new property from concept to completion.
The 'unit-in-place' method estimates construction costs by:
Answer: Pricing complete installed subsystems such as roofing, HVAC, or plumbing per unit
The unit-in-place method estimates cost by pricing complete installed building subsystems (e.g., cost per square foot of installed roofing) rather than individual materials or the whole building at once.
When calculating accrued depreciation using the breakdown method, an appraiser separately estimates:
Answer: Physical deterioration, functional obsolescence, and external obsolescence independently
The breakdown method requires the appraiser to independently identify and estimate each form of depreciation — physical deterioration, functional obsolescence, and external obsolescence — and then sum them.