REVIEW QUESTIONS: Cost Approach

1. The cost of improvements identical utility to those of the subject property is called the
subjects
a. Reproduction cost c. Sales price
b. Replacement cost d. Market value

2. An average industrial warehouse-type structure has a total floor area of 2,000 sqm
and was built 5 years ago at P12,500.00 per square meters. Current cost to build such
structure is P 14,000/sqm. Its economic life is 40 years. What is the estimated cost of the
structure using the square-foot method?
a. P21,875,000.00 c. P24,500,000.00
b. P 25,000,000.00 d. P28,000,000.00

3. Which of the following land valuation approaches considers the depreciated value of
the improvement?
a. The comparative approach
b. The abstractive approach
c. The land development approach
d. None of the above

4. What is the difference between replacement cost new and reproduction cost new
a. Reproduction cost new is an exact replica; replacement cost new is not
b. Replacement cost new is an exact replica; reproduction cost is not
c. Reproduction cost new is the cost to produce the same utility
d. There is no difference

5. Which of the following types of depreciation is always, for all practical purpose,
incurable?
a. Economic obsolescence
b. Functional obsolescence
c. Physical deterioration
d. None of the above; all types of depreciation are, practically speaking,
curable

6. There is an important technical difference between the terms reproduction cost and
replacement cost. Replacement cost refers to:
a. The cost of construction an exact replica building
b. The cost of construction a building that would have similar utility to the
subject property
c. The cost of reproduction the subject building
d. None of the above

7. The capitalization of a rental loss is used to measure which of the following types of
depreciation
a. Incurable functional and economic obsolescence
b. Curable functional and economic obsolescence
c. Curable physical deterioration
d. None of the above

8. The cost of improvements identical in design and material to those of the subject
property is called the subjects
a. reproduction cost c. Sales price
b. Replacement cost d. Market value

9. IN using the cost approach to appraising, the estimated construction cost of

improvements usually will be based on
a. Their original cost c. Book value
b. The cost of new improvement at d. The nation cost average of
current prices all components

12. If the commercial structure is a rectangle with sides of 65 meters and 35 meters and
the current local cost to built a similar structure id P25,000 per sq.m., what is the
estimated construction cost of the structure using the square meter method?
a. P56,875,000.00 c. P55,487,500.00
b. P 2,500,000.00 d. P55,450,000.00
13. Based on the information below, compute for the ff:

The unit construction costs of the residential house are as follows:

Floor Area RCN
Living/Dinning 20 sqm P18,000.00 per sq.m.
Bedroom 18 sqm P17,000.00 per sq.m.
Kitchen 14 sqm P 16,000.00 per sq.m.
Toilet and Bath 12 sqm P 20,000.00 per sq.m.
Carport 12. 50 sqm P 10,000.00 per sq.m.
Terrace - P 8,000.00 per sq.m.
Walkways and Driveways - P120,000.00 (lump sum)
Fences and Gate - P280,000.00 (lump sum)
Land Value - P5,000,000.00

a. Compute for the construction cost of the residential house

b. Compute the Fair Market Value of the property if the depreciation
of the house and other land improvements is 20%.
Answer:
a. Assume a floor area on the terrace and multiply it with its RCN
b. Depreciate total RCN by 20% then add value of land

14. The index method of estimating construction cost is based on

(a) the original cost of improvement
(b) the cost of new improvement at current prices
(c) book value
(d) the national cost average of all components

15. There is theory that all structures have a total useful life that can be predicted. The
method estimating accrued depreciation based on this theory
(a) the capitalized income or rental method
(b) the sales data or market method (abstraction method)
(c) the straight-line or age-life method
(d) the cost-to-cure or observed condition method

16. The method of construction cost or reproduction cost estimating.

(a) Volume Method (c) Quantity Survey Method
(b) Area Method (d) All of the above

17. The age indicated by the condition and utility of the structure is called:
(a) Actual age (c) Condition of sale
(b) Economic life (d) Date of sale

18. The difference between reproduction cost new and current market value.
(a) accrued depreciation (c) sound value
(b) physical obsolescence (d) trend index

19. Accrued depreciation is classified into three types or categories. Which of the
following should not be included?
a. Functional obsolescence d. Physical obsolescence
b. Economic obsolescence e. Social obsolescence

20. Of the three approaches in valuing a parcel of real estate, which of them values the
land separately from the improvement.
a. Income approach d. Cost approach
b. Market approach e. None of the above
c. Comparative approach

21. There are four methods for measuring accrued depreciation. Which of the following
would probably be used in estimating the value loss from deferred maintenance?
a. The sales data or market method
b. The straight-line or age-life method
c. The cost-to-cure or observed condition method
d. The capitalized income or rental method
e. None of the above
22. Which of the following is an advantage of a two-storey house over a single-storey
house?
a. Stairs d. Less danger in case of fire
b. Lower construction cost per square meter e. None of the above
c. Easier to paint and maintain error

23. A residential house is 12 years old but has been well taken cared of by the owner, It
remains in good condition as a typical 8-year old property. Residences in this area
typically last for 60 years, and even that life span maybe extended with extensive
renovation.

1. The effective age of the residence is:

a. 100 years d. 8 years
b. 60 years e. None of the above
c. 12 years

2. The chronological age of the residence is:

a. 100 years d. 8 years
b. 60 years e. None of the above
c. 12 years

3. The remaining economic life of the residence is:

a. 100 years d. 48 years
b. 60 years e. None of the above
c. 52 years

4. Normal life expectancy of the residence is:

a. 100 years d. 8 years
b. 60 years e. None of the above
c. 12 years

24. Accrued depreciation can be defined in appraisal terms as:

a. Deduction from value d. Both parts (b) and (c) are correct
b. Total loss in value from all causes e. None of the above
c. Diminished utility

25. This method may indicate whether or not the structure is an over or under-
improvement and whether or not it has come into being with some aspects of built-in
depreciation:
a.
b. Sound value d. Building residual technique
c. Reproduction cost new e. None of the above
d. Property residual technique

26. An estimate of the accrued depreciation is an important part of the cost approach
to value which of the following economic principles is the foundation on which
estimating accrued depreciation is based?

a. Anticipation
b. Balance
c. Contribution
d. Substitution