Here breakdown means a depreciation analysis, while unit-in-place means installed-assembly cost estimating. Which distinction is correct?
Correct Answer
D) Unit-in-place estimates cost new; breakdown measures each loss.
In the terminology expressly used here, installed assemblies estimate cost new while depreciation breakdown separately analyzes loss components. Quantity survey may also be called a cost breakdown elsewhere, so labels must be qualified by purpose. Avoid equating cost estimation with accrued-depreciation measurement.
Why This Is the Correct Answer
Option D is correct because unit-in-place applies installed costs of construction units to estimate cost new, while the breakdown method measures physical, functional and external depreciation individually and adds them to reach total depreciation. They serve different steps of the cost approach.
Why the Other Options Are Wrong
Option A: Both labels describe the same task in the cost approach.
Option A says both labels describe the same task, but unit-in-place estimates cost new while breakdown measures depreciation. One builds up cost; the other measures loss.
Option B: Unit-in-place is used exclusively to measure external obsolescence.
Option B says unit-in-place is used exclusively to measure external obsolescence, but unit-in-place is a cost-estimating method, not a depreciation measure. External obsolescence is one of the items measured in a breakdown analysis.
Option C: A depreciation breakdown leaves out physical deterioration.
Option C says a depreciation breakdown leaves out physical deterioration, but the breakdown method measures physical, functional and external depreciation individually. Physical deterioration is one of its core components.
Build cost, then break down loss
Unit-in-place builds up cost new from installed units; breakdown breaks total loss into its physical, functional and external pieces.
How to use: Use this to sort cost-estimating methods from depreciation methods on exam questions.
Exam Tip
Ask which step of the cost approach a method serves: estimating cost new or measuring depreciation.
Common Mistakes to Avoid
- -Treating unit-in-place as a depreciation method
- -Thinking the breakdown method omits physical deterioration
- -Assuming two different method labels describe the same task
Concept Deep Dive
Analysis
This question tests the difference between a cost-estimating method and a depreciation-measuring method. As defined in the stem, unit-in-place estimates cost new from installed assemblies, while the breakdown method measures each type of depreciation separately. Recognizing which part of the cost approach each label belongs to is the key.
Background Knowledge
Cost new can be estimated by comparative unit (square foot), unit-in-place, or quantity survey methods. Accrued depreciation can be measured by age-life, market extraction, or breakdown methods, where breakdown separately estimates physical, functional and external items. Because 'breakdown' is sometimes used for cost breakdowns elsewhere, labels should be read by purpose.
Real-World Application
An appraiser estimates cost new for a house by pricing foundations, walls, roof and mechanical systems as installed units. The appraiser then uses the breakdown method to estimate curable and incurable physical items, a functional layout problem, and an external market loss separately.
More Cost Approach Questions
Why can equivalent-utility replacement cost be useful for an obsolete improvement?
An appraiser estimates the current replacement cost new of the improvements at $890,000, accrued depreciation from all causes at $170,000, and land value at $325,000. All necessary cost components and depreciation are included in those amounts. What is the indicated property value?
Improvement cost new is $595,000. Separately supported improvement depreciation deductions of $48,000, $27,000 are expressly nonoverlapping and not already excluded from cost new. Add supported site value of $155,000, already reflecting any site losses. What total indicated value results?
What best supports a claimed loss from a bathroom-layout deficiency?
Improvement cost new is $1,850,000. Separately supported improvement depreciation deductions of $310,000, $620,000 are expressly nonoverlapping and not already excluded from cost new. No site is included. What depreciated improvement amount results?
Which scenario most strongly supports giving the cost approach substantial weight?
A cost total $650,000 explicitly includes $40,000 of non-realty FF&E outside the appraised real-property interest. Exclude it. Supported realty-only total depreciation is $55,000. Add site $200,000, with no overlap. What real-property cost indication results?
A 2,200-sf dwelling costs $200 per square foot, and a separate 400-sf garage costs $75 per square foot. These costs are complete and do not overlap. Both have an effective age of 15 years and a total life of 50 years, with straight-line depreciation and no salvage value. No site value or other loss is involved. What is the combined depreciated cost of the dwelling and garage?
A new feature in the improvements has a current cost of $45,000 and a market contribution of $18,000. The entire difference is due to superadequacy, with no physical or external loss and no overlap. What is the loss from the superadequacy?
An external influence causes an annual net income loss of $9,600. The capitalization rate for the loss is 8%, and no other economic factors change. What is the indicated loss in value of the whole property, before allocation between site and improvements?
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