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
A building has an actual age of 15 years but has been extensively renovated, giving it an effective age of 5 years. Which age should be used in the age-life depreciation calculation?
Answer: Effective age of 5 years
The age-life method uses effective age (not actual age) because it reflects the condition and utility of the improvement as perceived by the market.
In the cost approach, 'remaining economic life' is calculated as:
Answer: Total economic life minus effective age
Remaining economic life = Total Economic Life − Effective Age; it represents how many more years the improvement is expected to contribute value.
An appraiser notes a residence has only one bathroom, which is functionally inadequate for a four-bedroom home in the market. Adding a second bath costs $12,000 and adds $15,000 in value. This obsolescence is:
Answer: Curable functional obsolescence from a deficiency
Because the cost to cure ($12,000) is less than the resulting value increase ($15,000), the functional deficiency is economically curable.
The 'extraction method' of land valuation is most useful when:
Answer: No vacant land sales exist and improvement costs can be estimated and subtracted
The extraction method derives land value by subtracting the depreciated cost of improvements from the total sale price of comparable improved properties.
Which of the following is NOT typically included as a direct (hard) cost in the cost approach?
Answer: Architect and engineering design fees
Architect and engineering fees are indirect (soft) costs; direct costs are physical construction costs including materials and labor for the structure itself.
A newly built property with no depreciation would have its cost approach value most closely equal to:
Answer: The sum of site value plus cost of improvements (new)
For a brand-new, fully depreciation-free property, the cost approach value equals land value plus the full cost of improvements with no deduction.
When applying the cost approach to a proposed construction project, an appraiser must estimate value 'as if complete.' Which condition applies to the effective date of appraisal?
Answer: The effective date can be the current date with a hypothetical condition that construction is complete
Appraisers use a hypothetical condition (that the improvements are complete as of the current effective date) when appraising proposed construction, as permitted by USPAP.