SAEE SAEE - Cost Approach and Depreciation Questions and Answers 2 — Questions and Answers
Question 1: When using the cost approach, which method calculates depreciation by assigning a specific percentage to each building component based on its observed condition?
- Breakdown method (Correct answer)
- Age-life method
- Market extraction method
- Modified economic age-life method
Correct answer: Breakdown method
The breakdown method isolates each component of depreciation individually by examining the observed condition of specific building elements.
Question 2: A commercial building has an effective age of 15 years and a total economic life of 60 years. Using the age-life method, what is the total depreciation percentage?
- 25% (Correct answer)
- 30%
- 20%
- 15%
Correct answer: 25%
Depreciation equals effective age divided by total economic life: 15/60 = 25%.
Question 3: Which type of depreciation is typically considered incurable because the property owner cannot control it?
- External obsolescence (Correct answer)
- Functional obsolescence
- Physical deterioration
- Deferred maintenance
Correct answer: External obsolescence
External obsolescence results from factors outside the property boundaries, such as economic or locational influences, which the owner cannot remedy.
Question 4: In the cost approach, what does 'superadequacy' represent as a form of depreciation?
- A building feature that exceeds market standards and does not contribute proportional value (Correct answer)
- A structural defect requiring immediate repair
- Land value that exceeds the improvement value
- A zoning restriction limiting highest and best use
Correct answer: A building feature that exceeds market standards and does not contribute proportional value
Superadequacy is a type of functional obsolescence where a building component exceeds what the market demands, and the excess cost is not fully recovered in value.
Question 5: Which cost estimation method uses known costs of similar recently constructed buildings adjusted for differences?
- Comparative unit method (Correct answer)
- Quantity survey method
- Unit-in-place method
- Index method
Correct answer: Comparative unit method
The comparative unit method derives cost estimates by comparing the subject to similar buildings with known construction costs, adjusted for differences.
Question 6: An appraiser identifies $20,000 in curable physical deterioration, $15,000 in incurable physical deterioration, and $10,000 in external obsolescence. What is the total depreciation?
- $45,000 (Correct answer)
- $35,000
- $30,000
- $25,000
Correct answer: $45,000
Total depreciation is the sum of all forms: $20,000 + $15,000 + $10,000 = $45,000.
SAEE SAEE - Cost Approach and Depreciation Questions and Answers 2
When using the cost approach, which method calculates depreciation by assigning a specific percentage to each building component based on its observed condition?