SAEE SAEE - Cost Approach and Depreciation Questions and Answers 3 — Questions and Answers
Question 1: 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?
- 20% (Correct answer)
- 30%
- 15%
- 25%
Correct answer: 20%
Accrued depreciation = effective age / total economic life = 10 / 50 = 20%.
Question 2: Which type of depreciation is caused by negative forces outside the property boundaries, such as a nearby industrial plant?
- External obsolescence (Correct answer)
- Functional obsolescence
- Physical deterioration
- Incurable depreciation
Correct answer: External obsolescence
External obsolescence (also called economic obsolescence) results from adverse conditions outside the property itself.
Question 3: The cost to construct a building using current construction standards and materials, rather than exactly replicating the original, is called:
- Replacement cost (Correct answer)
- Reproduction cost
- Insurable value
- Depreciated cost
Correct answer: Replacement cost
Replacement cost uses current materials and design standards to achieve the same utility, while reproduction cost duplicates the original exactly.
Question 4: An appraiser identifies a building with deferred maintenance costing $8,000 to cure. This is best classified as:
- Curable physical deterioration (Correct answer)
- Incurable physical deterioration
- Functional obsolescence
- External obsolescence
Correct answer: Curable physical deterioration
Deferred maintenance is curable physical deterioration because it is economically feasible to repair.
Question 5: In the cost approach, the land value must be estimated separately because:
- Land does not depreciate (Correct answer)
- Land always appreciates in value
- Land is excluded from insurable value
- Land depreciates at a different rate
Correct 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.
Question 6: An outdated floor plan that reduces a home's utility but is too costly to correct is an example of:
- Incurable functional obsolescence (Correct answer)
- Curable functional obsolescence
- External obsolescence
- Incurable physical deterioration
Correct answer: Incurable functional obsolescence
When the cost to cure a functional deficiency exceeds the value it would add, the obsolescence is classified as incurable.
Question 7: The square-foot method of estimating reproduction or replacement cost multiplies the gross living area by:
- A cost per square foot derived from comparable new construction (Correct answer)
- The land value per square foot
- The assessed value per square foot
- The income per square foot
Correct 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.
SAEE SAEE - Cost Approach and Depreciation Questions and Answers 3
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?