SAEE - Cost Approach and Depreciation Questions and Answers Flashcards

When using the modified age-life method, an appraiser separates which items from the base calculation?

Answer: Curable items of deferred maintenance and functional obsolescence

The modified age-life method removes curable items first, calculates the age-life ratio on the remaining cost, then adds back the curable depreciation.

A factory closes near a residential neighborhood, causing nearby home values to fall 10%. This value loss is an example of:

Answer: External obsolescence

A factory closure affecting nearby property values is an external (economic) influence outside the owner's control.

Entrepreneurial profit in the cost approach represents:

Answer: The developer's expected return for risk and expertise in creating the property

Entrepreneurial profit is the market-derived reward a developer expects for taking on the risk and effort of a development project.

Which method of estimating depreciation is considered most reliable because it is based on market evidence?

Answer: Market extraction method

The market extraction method derives depreciation directly from comparable sales, making it the most market-supported approach.

A superadequacy in a building refers to:

Answer: A feature that exceeds what the market demands and adds less value than it costs

A superadequacy is an over-improvement — a feature costing more to include than the value it contributes to the property.

In the cost approach, the remaining economic life of an improvement is calculated as:

Answer: Total economic life minus effective age

Remaining economic life = total economic life − effective age, reflecting how many more years the improvement will contribute value.

The unit-in-place method estimates construction costs by pricing:

Answer: Individual building components installed and complete

The unit-in-place method prices each installed component (e.g., roofing per square, HVAC per unit) including labor and materials.