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

The cost approach is most reliable and typically given the greatest weight for new or recently built construction and unique properties where market sales comparables are scarce.

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

Entrepreneurial profit represents the compensation required to motivate a developer to take on a project's risk; it is the reward above and beyond direct and indirect costs.

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

Site improvements such as pools, driveways, landscaping, and fences are costed separately from the main dwelling and added to the total improvement cost before subtracting accrued depreciation.

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

Curability in appraisal is an economic test: a deficiency is curable when correcting it costs no more than the value it adds, making the repair economically rational.

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

External obsolescence stems from influences outside the property boundaries, such as a newly constructed industrial facility that adversely affects the desirability of the surrounding residential neighborhood.

SRA - Senior Residential Appraiser Practice Test

SRA - Senior Residential Appraiser Practice Test

SRA Cost Approach & Depreciation Analysis 3