SAEE - Cost Approach and Depreciation Questions and Answers Flashcards

When using the cost approach, which method calculates depreciation by assigning a specific percentage to each building component based on its observed condition?

Answer: Breakdown method

The breakdown method isolates each component of depreciation individually by examining the observed condition of specific building elements.

A commercial building has an effective age of 15 years and a total economic life of 60 years. Using the age-life method, what is the total depreciation percentage?

Answer: 25%

Depreciation equals effective age divided by total economic life: 15/60 = 25%.

Which type of depreciation is typically considered incurable because the property owner cannot control it?

Answer: External obsolescence

External obsolescence results from factors outside the property boundaries, such as economic or locational influences, which the owner cannot remedy.

In the cost approach, what does 'superadequacy' represent as a form of depreciation?

Answer: A building feature that exceeds market standards and does not contribute proportional value

Superadequacy is a type of functional obsolescence where a building component exceeds what the market demands, and the excess cost is not fully recovered in value.

Which cost estimation method uses known costs of similar recently constructed buildings adjusted for differences?

Answer: Comparative unit method

The comparative unit method derives cost estimates by comparing the subject to similar buildings with known construction costs, adjusted for differences.

An appraiser identifies $20,000 in curable physical deterioration, $15,000 in incurable physical deterioration, and $10,000 in external obsolescence. What is the total depreciation?

Answer: $45,000

Total depreciation is the sum of all forms: $20,000 + $15,000 + $10,000 = $45,000.