Chapter 16 Section 4

Question 1

cost-depreciation approach

Answer 1

-used to estimate the current cost of reproducing or replacing a building, minus an estimate for depreciation, plus the value of the land

Question 2

replacement cost

Answer 2

-the estimated cost at current prices to construct a comparable building with equal utility to the subject building by using modern materials, design, an features
-some construction methods and materials may no longer be available, therefore, substitution may be necessary

Question 3

reproduction cost

Answer 3

-the estimated cost to construct at current prices an exact duplicate or replica of the building that is being appraised by using the same materials, design, and layout as the subject property

Question 4

step 1: estimate the value of the site as if vacant

Answer 4

-the estimated value of the land must be determined as if it were vacant since land does not depreciate

Question 5

step 2: estimate the cost to replace or reproduce

Answer 5

-estimate the cost to replace or reproduce the main improvement by using one of the following three methods
-quantity survey method
-unit in place method
-unit of comparison method

Question 6

quantity survey method

Answer 6

-a detailed inventory and precise cost for each item required to construct the main improvement is compiled int he quantity survey method

Question 7

unit in place method

Answer 7

-the cost of each component of the property is estimated by using nationally published cost manuals
-shortcut for the quantity survey method

Question 8

unit of comparison method

Answer 8

-a cost per square foot or per cubic foot of an entire building
-the figure is multiplied by the number of square feet or cubic feet in a subject building to estimate the cost of the subject
-a recently constructed building of a known cost per square foot or per cubic foot which is called a benchmark building can be used as a unit of comparison

Question 9

step 3: estimate the accrued depreciation in the main improvement

Answer 9

-three categories of depreciation:
-physical deterioration
-functional obsolescence
-external obsolescence

Question 10

accrued depreciation

Answer 10

-the total loss in the value the improvement may have incurred over its lifetime, measured against the cost of new

Question 11

physical deterioration

Answer 11

-any loss in value due to normal wear and tear from use, negligence, or aging of the building
-physical deterioration can be either curable or incurable
-whether something is curable or incurable is based on economic feasibility

Question 12

functional obsolescence

Answer 12

-can be caused by either a deficiency or an over-improvement
-functional obsolescence due to a deficiency is a loss in value due to the failure of a property to meet current consumer preferences due to changes in building design or standards
-an over-improvement is an investment made to a property that does not make the best use of the property or is excessive in comparison with the improvement of similar properties

Question 13

external obsolescence

Answer 13

-a loss in value caused by factors beyond the boundaries of the subject property
-considered to be incurable on the part of the owner since the problem is beyond the property’s boundaries

Question 14

economic age-life method

Answer 14

-the appraiser estimates the total economic life of a building, which is the number of years it will contribute value above the value of the land
-the appraiser then estimates the percentage of the total life lost or used up by depreciation

Question 15

effective age

Answer 15

-the age a property appears to be, due to extensive updates, or excessive wear and tear

Question 16

actual age

Answer 16

-the true age of the property

Question 17

step 4: calculate the depreciated cost

Answer 17

-subtract the accrued depreciation from the reproduction cost of the main improvement to derive its depreciated cost

Question 18

step 5: estimate depreciated site improvements

Answer 18

-estimate the cost to construct any site improvements, such as driveways, landscaping, fences, and so on, and subtract any depreciation in these items

Question 19

step 6: add the vacant site value

Answer 19

-add the vacant site value, the depreciated cost of the main improvement, and the depreciated site improvements