Topic 4 - Cost Approach to Value

1) How is the land valued in the cost approach to value? [0156]

A. At highest and best use if the cost of demolition is less than 50% of the land cost

* B. At its highest and best use as if vacant

C. At present use if currently improved

D. At present use so long as it is not economical to demolish the building

2) What analysis identifies uses for land that are legally permissible, physically possible, and financially feasible? [0219]

A. Supply and demand

* B. Highest and best use

C. Marketability

D. Feasibility

3) Which is NOT a requirement of highest and best use? [0140]

* A. Socially acceptable

B. Legally permissible

C. Physically possible

D. Financially feasible

4) In which of the following scenarios would the cost approach be the most reliable? [0079]

* A. The improvements are new and the site is being used under its highest and best use

B. The subject property is vacant

C. There are numerous comparables sales in the vicinity and the market is currently very active

D. There is significant depreciation and the improvements are more than 10 years old

5) Two parcels are worth $100,000 and $150,000 respectively.  When assembled, they are worth $350,000.  This incremental value increase is an example of: [0947]

A. Capital gain

B. Assemblage

* C. Plottage

D. Highest and best use

6) If a feature of a house is not fully valued by the market, such as a gold entry foyer, the result is called: [0092]

* A. Superadequacy

B. Nonconforming use

C. Physical deterioration

D. Underimprovement

7) When is external obsolescence curable? [6219]

A. When the cost to cure is necessary to conform to the market

* B. Rarely if ever

C. When the resulting increase in property value exceeds the cost to cure

D. When the cost to cure is less than the contributory value of the improvement

8) What type of depreciation is likely when a single family residence is located near an industrial plant? [0112]

* A. Economic depreciation

B. Physical depreciation

C. Incurable functional depreciation

D. Functional depreciation

9) When using the cost approach to value, a decrease in value as a result of deferred maintenance is referred to as: [0101]

A. Economic obsolescence

* B. Physical deterioration

C. Functional obsolescence

D. Accelerated depreciation

10) Any use other than the highest and best use will result in: [0139]

A. An interim use

* B. Functional obsolescence

C. A non-conforming use

D. An alternate highest and best use

11) The age of an improvement as indicated by its physical condition and utility compared to its useful life vs. its chronological age, is its: [0047]

A. Given age

B. Actual age

* C. Effective age

D. Economic age

12) Accrued depreciation is the difference between the replacement cost of the building new and the: [0119]

A. Accumulated depreciation allowed for tax purposes

B. Current assessed value

C. Current insured value

* D. Current appraised value

13) What is the percentage of accrued depreciation for a 15-year-old building if the building has an effective age of 20 years and a remaining economic life of 30 years? [0094]

A. 60%

B. 20%

C. 30%

* D. 40%

14) A building that has 20% physical depreciation, 10 percent functional depreciation and 5 percent external depreciation suffers from a total accrued depreciation of: [2066]

* A. 31.6%

B. 27.1%

C. 5%

D. 35%

15) The period of time that improvements will continue to contribute to property value is known as the: [0053]

* A. Remaining economic life

B. Total useful life

C. Total physical life

D. Remaining physical life

16) The actual age of a property is 25 years and the effective age is 15 years.  If the remaining economic life is 65 years what is the percentage depreciation? [6214]

* A. 18.75%

B. 27.78%

C. 14.40%

D. 31.25%

17) What is the assumption of the straight-line method of estimating physical deterioration when estimating value using the cost approach to value? [0108]

A. Deterioration occurs at a compounded annual rate

B. The effective age of the improvements and the remaining economic life are the same

* C. Deterioration occurs at a constant average annual rate

D. The physical deterioration and functional obsolescence of the improvements are the same

18) Estimating land value by subtracting the building value from the total sale price is called: [2054F]

A. Market Approach

B. Adjustment

C. Subtraction

* D. Abstraction

19) Land that has been prepared for construction is usually referred to as a: [0155]

A. Plat

* B. Site

C. Subdivision

D. Lot

20) Outdated plumbing or a poor floor plan would be reported as: [0113]

A. Curable physical deterioration

B. Incurable physical obsolescence

* C. Functional obsolescence

D. Economic obsolescence

21) Which is NOT true about the chronological age of a building? [0054]

A. The chronological age is normally easier to establish than effective age

* B. The chronological age and economic life refer to the same period of time

C. The chronological age and actual age refer to the same period of time

D. The chronological age may be greater than or less than effective age

22) The age of a property based on the amount of wear and tear it has sustained is referred to as: [0049]

A. Physical age

B. Actual age

* C. Effective age

D. Chronological age

23) With regard to a building's effective age: [0052]

A. A building's effective age equals the number of years since construction was completed

B. A building's effective age is always equal to or less than its actual age

* C. A building's effective age may be greater than its actual age

D. Physical age is determined by the condition and utility of the building

24) Excess land is: [3113]

A. The subject property is considerably larger than typical lots in the neighborhood and the excess is not capable of separate use

* B. The subject property is considerably larger than typical lots in the neighborhood and the excess is capable of separate use

C. The subject property is considerably larger than typical lots in the neighborhood and the excess cannot be subdivided and marketed as an individual parcel

D. None of the above

25) Highest and best use should be considered: [6208]

A. Ignored unless required by the client

B. On commercial property only

C. When the improvements are in poor condition

* D. On every assignment

26) Combining two or more parcels into a single parcel with one ownership or use with the result that the value of the new site is worth more than the sum of the values of the individual sites is: [2099]

A. Plottage

B. Highest and best use

* C. Assemblage

D. Excess land

27) The term economic obsolescence is synonymous with: [0111]

A. Superadequacy

B. Economic functionality

* C. External obsolescence

D. Physical deterioration

28) What type of obsolescence would occur if a commercial building has a poor office layout? [0110]

* A. Functional obsolescence

B. Locational obsolescence

C. Physical obsolescence

D. Economic obsolescence

29) Numerous methods and techniques are used to estimate replacement or reproduction cost. The method that measures the total square footage or cubic footage of a building and then multiplies this total by a current cost per square foot or cubic foot factor is the: [0078]

A. Quantity survey method

B. Unit-in-place method

* C. Comparative unit method

D. Price index method

30) Replacement cost new and reproduction cost new are: [6221]

A. Never the same

B. Always the same

* C. The same when construction is new

D. The same when applied to custom built houses

31) Accrued depreciation is defined as the difference between the reproduction or replacement cost of an improvement, such as a building, and its value as of the: [0122]

A. Date of original construction

* B. Date of the appraisal

C. Date financing is approved

D. Date of the most recent comparable sale

32) If the highest and best use is other than the current use, the current use is called: [0148]

A. The current highest and best use

B. A legal non-conforming use

C. A variance

* D. The interim use

33) Effective age is calculated as follows: [6213]

A. Actual age plus remaining economic life

B. Total economic life plus remaining economic life

C. Remaining economic life minus total economic life

* D. Total economic life minus remaining economic life

34) Which would NOT result in functional obsolescence? [2075]

A. Super adequate improvements

B. Eccentric and unorthodox design

C. Inadequate electrical system

* D. Proximity to noxious odors or nuisances

35) The difference between the replacement cost of an improvement and the current value is: [0097]

A. Accelerated depreciation

* B. Accrued depreciation

C. Cost of improvements

D. Physical deterioration

36) The effective age of a house divided by the total economic life describes the formula for estimating depreciation by the: [6217]

* A. Economic age/life method

B. Economic fixed method

C. Economic life/age method

D. Functional curable method

37) When would the lack of central air-conditioning likely constitute a functional deficiency? [0125]

A. The cost of replacement is high

B. The dwelling is less than five years old

* C. Comparable properties have central air-conditioning

D. The dwelling has never been occupied

38) What is land that is unnecessary to support the primary improvements? [0135]

A. Residual land

B. Assemblage land

* C. Excess land

D. Plottage land

39) Which of the following is necessary in the cost approach to value? [0165]

* A. Estimate the accrued depreciation

B. Calculate the price of the construction materials used when the structure was built

C. Estimate the net operating income of the property

D. Determine the value of the land using the assessed value and tax rate

40) What is the percentage of accrued depreciation for a 12-year-building that has a total economic life of 50 years and a remaining economic life of 40 years? [0045]

* A. 20%

B. 50%

C. 12%

D. 24%

41) The method of measuring accrued depreciation by analyzing each cause of depreciation separately and then adding the separate estimates together to estimate total depreciation is called the: [0128]

* A. Breakdown method

B. Modified economic age-life method

C. Comparative unit method

D. Economic age-life method

42) A historical society asks an appraiser to value a duplicate of an early 19th century house using the cost approach.  What cost method would the appraiser use? [6216]

A. Restoration cost

* B. Reproduction cost

C. Replacement cost

D. Unit in place method

43) Land divided into lots suitable for home-building is a: [0157]

A. Township

B. Quadrangle

C. Section

* D. Subdivision

44) If several uses are economically feasible, only one can be: [0150]

A. Physically possible

B. Socially acceptable

* C. Maximally productive

D. Legally permissible

45) Private and public limitations are important influences on real estate value.  In what part of the report would these limitations most likely be discussed? [0147]

A. Reconciliation and final value estimate

B. Definition of market value

* C. Analysis of highest and best use

D. Definition of the problem

46) In which approaches to value is market data used as part of the approach? [0161]

A. Sales comparison approach

B. Cost approach

C. Income approach

* D. All of the above

47) Which of the following is used when computing depreciation by the age/life method? [0093]

A. Actual age and remaining economic life

B. Actual age and remaining physical life

C. Effective age and actual age

* D. Effective age and remaining economic life

48) Which of the following is a reasonable measure of physical curable deterioration? [0109]

* A. The cost of restoring the item to new or reasonably new condition

B. The cost of the item as if new plus functional obsolescence

C. The cost of the item as if new less functional obsolescence

D. The cost of the item as if new less the cost of any superadequacy

49) Surplus land is: [3114]

* A. The subject property is considerably larger than typical lots in the neighborhood and the excess is not capable of separate use

B. The subject property is considerably larger than typical lots in the neighborhood and the excess is capable of separate use

C. The subject property is considerably larger than typical lots in the neighborhood and the excess can be subdivided and marketed as an individual parcel

D. None of these choices is accurate

50) If the effective age of a building is 30 years and the estimated remaining economic life is 20 years, depreciation according to the Age-Life method is: [2058]

* A. 60%

B. 30%

C. 150%

D. None of the above