Cost Approach and Depreciation Flashcards
7 cards from real SAEE 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 and Depreciation flashcards as text
When estimating site value for the cost approach, the preferred method is:
Answer: Sales comparison of vacant land
Comparing sales of similar vacant sites is the preferred and most reliable method for site valuation.
An over-improvement, such as a luxury pool in a modest neighborhood, typically creates:
Answer: Functional obsolescence (a superadequacy)
A superadequacy is functional obsolescence where an improvement exceeds market demand and cannot be fully recovered.
In the cost approach, why is land valued separately from improvements?
Answer: Land cannot be depreciated
Land is valued separately because it is not subject to depreciation, unlike improvements.
Which depreciation method is most useful when reliable comparable sales of similar improved properties exist?
Answer: Market extraction method
Market extraction depends on comparable improved sales to isolate the depreciation amount.
A weakness of the cost approach is that:
Answer: Estimating accrued depreciation can be highly subjective
Measuring accrued depreciation, especially obsolescence, is often subjective and a key limitation of the approach.
Functional obsolescence caused by a deficiency requiring an addition (e.g., adding a missing bathroom) is measured by:
Answer: The cost to cure, less any cost already in the structure
A curable functional deficiency is measured by the cost to add the item minus any cost already embedded.
The quantity survey method estimates cost by:
Answer: Itemizing all materials, labor, and fees in detail
The quantity survey method is the most detailed, itemizing every material, labor, and overhead cost.