IACP Cost Approach & Depreciation Analysis 3

Question 1

A superadequacy in a property is best described as:

Accepted Answer

An over-improvement whose cost exceeds the value it contributes to the property

Answer

A feature that is lacking compared to competitive properties in the market

Answer

Physical deterioration that has been fully corrected through renovation

Answer

An external factor that increases the property's market value above normal levels

Question 2

Which of the following is the correct formula for the cost approach to value?

Accepted Answer

Land Value + Reproduction/Replacement Cost New – Accrued Depreciation

Answer

Gross Building Area × Cost Per Square Foot + Land Value

Answer

Net Operating Income ÷ Capitalization Rate + Land Value

Answer

Sales Price of Comparable – Adjustments + Depreciation

Question 3

Observed condition depreciation (also called the observed condition method) requires the appraiser to:

Accepted Answer

Physically inspect and rate each component of the building to estimate depreciation directly

Answer

Use published tables to apply a percentage based on the building's age and quality class

Answer

Derive depreciation from paired sales of similar properties in the market

Answer

Apply the effective age divided by total economic life to the cost new

Question 4

Market extraction is used in the cost approach primarily to:

Accepted Answer

Derive depreciation estimates from analysis of comparable improved property sales

Answer

Estimate land value by analyzing recent sales of vacant comparable sites

Answer

Calculate replacement cost new using local contractor bid data

Answer

Measure external obsolescence by comparing rents in different submarkets

Question 5

Which of the following would be classified as external (economic) obsolescence affecting a residential property?

Accepted Answer

A new industrial facility constructed adjacent to the neighborhood

Answer

An outdated floor plan with bedrooms accessible only through another bedroom

Answer

Significant deferred maintenance on the roof and exterior paint

Answer

An oversized three-car garage on a property where buyers only need two

Question 6

The remaining economic life of an improvement is best defined as:

Accepted Answer

The number of years until the structure will no longer contribute positively to property value

Answer

The chronological age of the structure subtracted from its original construction date

Answer

The period remaining before scheduled major capital renovations are needed

Answer

The total physical life of the structure based on its construction quality

Question 7

When is the cost approach generally considered the most reliable valuation method?

Accepted Answer

When the improvements are new or when the property type is rarely sold (e.g., schools, churches)

Answer

When the subject property is a stable, income-producing apartment complex

Answer

When comparable sales data is abundant and homogeneous in the neighborhood

Answer

When the property generates market rents that can be easily capitalized