COST APPROACH EXAM QUESTIONS WITH ANSWERS

COST APPROACH EXAM QUESTIONS WITH ANSWERS
the COST APPROACH involves_____ and is based on the______
-Involves estimation of reproduction or replacement cost of a property less accrued depreciation.

- Based on the proposition that the informed purchaser would pay no more than the cost of
producing a substitute property with the same utility as the subject property.


Reliability is affected by:
(2 things). and is especially applicable to:
1) reproduction or replacement cost data.
2) estimate of accrued depreciation.

-Single family residences
-Special use properties
-Special purpose properties
OR
Where when the structural improvements represent a major value contribution.


Step 1. in the COST APPROACH
1) Estimate land value as though vacant and available to be put to its highest and best use.


Step 2. in the COST APPROACH
2) estimate reproduction or replacement cost of structures as of the effective date of the appraisal.


Step 3. in the COST APPROACH
3) estimate accrued depreciation


Step 4. in the COST APPROACH
4) deduct depreciation from reproduction or replacement cost.


Step 5. in the COST APPROACH
5) add depreciated reproduction or replacement cost to the value of the land


BOOK DEPRECIATION=
An accounting term that refers to the amount of capital recapture written off on an owner's books.
Book depreciation is not market derived.


ECONOMIC LIFE=
The period of time over which improvements to real estate contribute to property value.


REMAINING LIFE=
The estimated period during which improvements continue to contribute to property value.


EFFECTIVE AGE=
The age indicated by the condition of a structure.