SAEE SAEE - Cost Approach and Depreciation Questions and Answers 4 — Questions and Answers
Question 1: When using the modified age-life method, an appraiser separates which items from the base calculation?
- Curable items of deferred maintenance and functional obsolescence (Correct answer)
- External obsolescence only
- Land improvements only
- Incurable physical deterioration only
Correct 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.
Question 2: A factory closes near a residential neighborhood, causing nearby home values to fall 10%. This value loss is an example of:
- External obsolescence (Correct answer)
- Functional obsolescence
- Physical deterioration
- Curable depreciation
Correct answer: External obsolescence
A factory closure affecting nearby property values is an external (economic) influence outside the owner's control.
Question 3: Entrepreneurial profit in the cost approach represents:
- The developer's expected return for risk and expertise in creating the property (Correct answer)
- The profit from selling comparable sales
- The appraiser's fee
- The contractor's overhead
Correct 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.
Question 4: Which method of estimating depreciation is considered most reliable because it is based on market evidence?
- Market extraction method (Correct answer)
- Age-life method
- Modified age-life method
- Breakdown method
Correct answer: Market extraction method
The market extraction method derives depreciation directly from comparable sales, making it the most market-supported approach.
Question 5: A superadequacy in a building refers to:
- A feature that exceeds what the market demands and adds less value than it costs (Correct answer)
- A structural upgrade that fully cures physical deterioration
- An improvement that increases value beyond its cost
- A zoning variance that allows higher density
Correct 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.
Question 6: In the cost approach, the remaining economic life of an improvement is calculated as:
- Total economic life minus effective age (Correct answer)
- Actual age minus total economic life
- Chronological age minus effective age
- Total economic life minus chronological age
Correct 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.
Question 7: The unit-in-place method estimates construction costs by pricing:
- Individual building components installed and complete (Correct answer)
- The entire structure as a single unit per square foot
- Only the exterior shell of the building
- Land and building as a combined unit
Correct 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.
SAEE SAEE - Cost Approach and Depreciation Questions and Answers 4
When using the modified age-life method, an appraiser separates which items from the base calculation?