SAEE - Cost Approach and Depreciation Questions and Answers Flashcards

A 15-year-old commercial building has an effective age of 10 years and a total economic life of 50 years. What is the accrued depreciation percentage?

Answer: 20%

Accrued depreciation = effective age / total economic life = 10 / 50 = 20%.

Which type of depreciation is caused by negative forces outside the property boundaries, such as a nearby industrial plant?

Answer: External obsolescence

External obsolescence (also called economic obsolescence) results from adverse conditions outside the property itself.

The cost to construct a building using current construction standards and materials, rather than exactly replicating the original, is called:

Answer: Replacement cost

Replacement cost uses current materials and design standards to achieve the same utility, while reproduction cost duplicates the original exactly.

An appraiser identifies a building with deferred maintenance costing $8,000 to cure. This is best classified as:

Answer: Curable physical deterioration

Deferred maintenance is curable physical deterioration because it is economically feasible to repair.

In the cost approach, the land value must be estimated separately because:

Answer: Land does not depreciate

Land is considered to have an infinite economic life and does not depreciate, so it is valued separately from improvements.

An outdated floor plan that reduces a home's utility but is too costly to correct is an example of:

Answer: Incurable functional obsolescence

When the cost to cure a functional deficiency exceeds the value it would add, the obsolescence is classified as incurable.

The square-foot method of estimating reproduction or replacement cost multiplies the gross living area by:

Answer: A cost per square foot derived from comparable new construction

The square-foot method applies a cost per square foot from market cost data or cost services to the subject's gross living area.