SRA Cost Approach & Depreciation Analysis 3

Question 1

In residential appraisal practice, when is the cost approach typically given the greatest weight?

Accepted Answer

For new or nearly new construction and special-use properties where comparable sales are limited

Answer

When an abundance of reliable comparable sales data is available

Answer

For properties exhibiting significant physical deterioration

Answer

When strong rental income data is available to support an income approach

Question 2

What is the purpose of 'entrepreneurial profit' (entrepreneurial incentive) in the cost approach?

Accepted Answer

To reflect the profit necessary to motivate a developer to assume the risk of a development project

Answer

To account for the developer's advertising and marketing expenditures

Answer

To adjust estimated costs for current market conditions at the appraisal date

Answer

To provide a contingency reserve for unexpected construction cost overruns

Question 3

When estimating costs in the cost approach for a residential property with a swimming pool, driveway, and landscaping, how does an appraiser typically handle these site improvements?

Accepted Answer

Estimate them separately and add them to the main building cost

Answer

Include them within the main building's square footage cost estimate

Answer

Ignore them since site amenities rarely contribute measurable market value

Answer

Value them exclusively using the income approach for income-producing features

Question 4

A functional deficiency is considered 'curable' in appraisal when:

Accepted Answer

The cost to cure the deficiency is equal to or less than the resulting increase in property value

Answer

The deficiency can be physically remedied regardless of the cost involved

Answer

The local building department has approved a permit for the correction

Answer

The property owner has expressed willingness to make the required repair

Question 5

Which of the following best illustrates external (economic) obsolescence affecting a residential property?

Accepted Answer

A new industrial facility constructed immediately adjacent to a single-family neighborhood

Answer

An outdated kitchen floor plan that does not meet current buyer design preferences

Answer

Significant deferred maintenance on the roof requiring immediate replacement

Answer

An oversized detached garage that exceeds typical size for the subject's market area

Question 6

In residential appraisal, 'accrued depreciation' is most accurately defined as:

Accepted Answer

The total loss in value from all causes as measured between the cost new and current market value as of the appraisal date

Answer

The annual rate of decrease in the property's assessed tax value

Answer

The accumulated interest charges on the property's outstanding mortgage balance

Answer

The reduction in estimated replacement cost due to changes in construction material prices

Question 7

Which resource do residential appraisers in the United States most commonly reference to estimate building construction costs in the cost approach?

Accepted Answer

Marshall & Swift/CoreLogic cost data or similar recognized cost estimation services

Answer

The Appraisal of Real Estate textbook published by the Appraisal Institute

Answer

Federal Housing Administration underwriting and property guidelines

Answer

The Fannie Mae Selling Guide and lender appraisal requirements