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
When applying the cost approach, which type of depreciation arises from factors external to the property, such as proximity to a nuisance?
Answer: External obsolescence
External obsolescence stems from factors outside the property itself, like nearby industrial nuisances or neighborhood decline, and is generally incurable.
An appraiser is estimating the cost of a building using the quantity survey method. What does this method involve?
Answer: Estimating costs for each component, trade, and material separately
The quantity survey method is the most detailed and accurate cost estimating technique, breaking down every component, labor, and material cost individually.
Which statement best describes the 'unit-in-place' cost estimating method?
Answer: Costs are estimated per installed unit of each building component
The unit-in-place method estimates costs by applying a cost per installed unit (e.g., cost per square foot of roofing installed) for each building component.
A 20-year-old warehouse has an effective age of 10 years due to excellent maintenance. Its total economic life is estimated at 50 years. What is the accrued depreciation percentage?
Answer: 20%
Depreciation = Effective Age / Total Economic Life = 10/50 = 20%; effective age, not actual age, is used in this calculation.
In the cost approach, 'entrepreneurial profit' (also called entrepreneurial incentive) represents:
Answer: The return required to attract a developer to undertake a project
Entrepreneurial profit (incentive) is the return required to motivate a developer to undertake a project and accept the risks involved.
Which type of functional obsolescence is caused by a superadequacy in a building's improvements?
Answer: Incurable functional obsolescence from an excess
A superadequacy (e.g., over-improvement like an oversized heating system) causes incurable functional obsolescence because the cost to cure exceeds the value added.
Reproduction cost and replacement cost are both used in the cost approach. What is the key distinction?
Answer: Reproduction cost replicates the exact structure; replacement cost builds a modern equivalent
Reproduction cost is the cost to build an exact replica using original materials and methods, while replacement cost uses modern materials and techniques for an equally functional building.