Cost Approach and Depreciation Flashcards
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Read the first 7 Cost Approach and Depreciation flashcards as text
In the cost approach, which formula correctly states the value indication?
Answer: Land value + (cost new - depreciation)
Cost approach value equals land value plus the depreciated cost of improvements (cost new minus accrued depreciation).
Reproduction cost differs from replacement cost in that reproduction cost estimates the cost to build:
Answer: An exact replica using the same materials and design
Reproduction cost is the cost to create an exact duplicate, while replacement cost builds an equivalent-utility substitute with modern materials.
Which cost-estimating method applies a price per square foot or cubic foot derived from similar buildings?
Answer: Comparative-unit method
The comparative-unit method applies a known cost per unit of area or volume from comparable structures.
An appraiser uses the original construction cost and adjusts it with a published multiplier. This is the:
Answer: Index method
The index method updates a known historical cost using a current cost index ratio.
The cost approach is generally considered MOST reliable for:
Answer: Special-purpose or newly built properties
The cost approach is most reliable for new construction and special-purpose properties that lack comparable sales.
Which item is NOT typically included in direct (hard) costs?
Answer: Developer profit and financing
Developer profit and financing are indirect (soft) costs, not direct construction costs.
Entrepreneurial incentive in the cost approach represents:
Answer: The expected reward motivating a developer to undertake a project
Entrepreneurial incentive is the anticipated profit that motivates a developer to build.