Cost Approach Flashcards
7 cards from real CGA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Cost Approach flashcards as text
In cost approach terminology, 'indirect costs' are best described as:
Answer: Financing, professional fees, permits, and other non-construction expenses
Indirect costs include financing charges, architect/engineer fees, permits, insurance during construction, and other expenses not directly part of physical construction.
The 'observed condition (breakdown) method' of estimating depreciation is considered more reliable than the age-life method primarily because:
Answer: It separately identifies each cause and type of depreciation based on inspection
The breakdown method requires a detailed inspection to separately quantify each depreciation type, making it more precise but more complex than the straight-line age-life method.
For which type of property is the cost approach typically considered the most reliable primary valuation method?
Answer: Special-use properties like schools or churches with few market sales
The cost approach is most reliable for special-use properties (schools, hospitals, churches) where comparable sales and income data are scarce.
What adjustment is typically made to a published national cost index to account for local construction cost differences?
Answer: Local multiplier or location cost index adjustment
National cost estimates from cost manuals are adjusted using a local multiplier (location cost index) to reflect regional differences in labor and material costs.
When the cost to cure a functional deficiency exceeds the resulting value increase, the obsolescence is classified as:
Answer: Incurable functional obsolescence
Functional obsolescence is incurable when the market value increase from correcting the deficiency is less than the cost to make the correction.
An older manufacturing plant is located near a newly opened landfill. The resulting value loss is classified as:
Answer: External obsolescence — locational
Value loss from a nearby landfill is external (locational) obsolescence because the cause is outside the property and beyond the owner's control.
Which cost estimating method is most commonly used by residential appraisers due to its speed and availability of published data?
Answer: Comparative-unit (square-foot) method
The comparative-unit (square-foot) method applies a cost-per-square-foot figure to the gross building area, making it fast and practical for residential assignments.