SAEE Cost Approach and Depreciation 2

Question 1

In the cost approach, which formula correctly states the value indication?

Accepted Answer

Land value + (cost new - depreciation)

Answer

Cost approach value equals land value plus the depreciated cost of improvements (cost new minus accrued depreciation).

Question 2

Reproduction cost differs from replacement cost in that reproduction cost estimates the cost to build:

Accepted Answer

An exact replica using the same materials and design

Answer

Reproduction cost is the cost to create an exact duplicate, while replacement cost builds an equivalent-utility substitute with modern materials.

Question 3

Which cost-estimating method applies a price per square foot or cubic foot derived from similar buildings?

Accepted Answer

Comparative-unit method

Answer

The comparative-unit method applies a known cost per unit of area or volume from comparable structures.

Question 4

An appraiser uses the original construction cost and adjusts it with a published multiplier. This is the:

Accepted Answer

Index method

Answer

The index method updates a known historical cost using a current cost index ratio.

Question 5

The cost approach is generally considered MOST reliable for:

Accepted Answer

Special-purpose or newly built properties

Answer

The cost approach is most reliable for new construction and special-purpose properties that lack comparable sales.

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