SRA Cost Approach & Depreciation Analysis

Question 1

What are the three types of accrued depreciation recognized in the cost approach to value?

Accepted Answer

Physical deterioration, functional obsolescence, external obsolescence

Answer

The cost approach recognizes three types of accrued depreciation: physical deterioration, functional obsolescence, and external (economic) obsolescence.

Question 2

What is the key distinction between reproduction cost and replacement cost in the cost approach?

Accepted Answer

Reproduction cost is the cost to build an exact replica; replacement cost uses modern materials and methods for equivalent utility

Answer

Reproduction cost is the cost to construct an exact replica of the existing structure, while replacement cost estimates the cost to build a functionally equivalent structure using current materials and methods.

Question 3

Which depreciation estimation method calculates accrued depreciation as the ratio of effective age to total economic life?

Accepted Answer

Age-life method

Answer

The age-life method estimates accrued depreciation by dividing the improvement's effective age by its total economic life and applying that ratio to the cost new.

Question 4

How is 'functional obsolescence' defined in residential appraisal practice?

Accepted Answer

A loss in value caused by deficiencies or superadequacies in the property's design or features relative to market standards

Answer

Functional obsolescence is a loss in value caused by deficiencies or superadequacies in the property's design, layout, or features compared to what the current market demands.

Question 5

External obsolescence in the cost approach is best characterized as:

Accepted Answer

Generally incurable and caused by factors located outside the property boundaries

Answer

External (economic) obsolescence is generally incurable because it results from negative influences outside the property, such as neighborhood decline, proximity to nuisances, or adverse economic conditions.

SRA - Senior Residential Appraiser Practice Test

SRA - Senior Residential Appraiser Practice Test

SRA Cost Approach & Depreciation Analysis