Which set may contribute to total accrued appraisal depreciation?
Correct Answer
D) Supported physical deterioration, functional obsolescence and external obsolescence.
Accrued appraisal depreciation can include all supported physical, functional and external loss, curable or incurable. An assessed value alone is not the same as extracted improvement contribution, and cause classifications should not duplicate the same loss. Each property need not suffer every cause.
Why This Is the Correct Answer
Option D is correct because the three generally recognized sources of depreciation are physical deterioration, functional obsolescence and external obsolescence, and any supported loss from these sources may contribute to total accrued depreciation. A given property need not suffer all three.
Why the Other Options Are Wrong
Option A: Physical deterioration, without functional or external loss.
Option A limits accrued depreciation to physical deterioration and excludes functional and external loss. Those other sources also contribute when supported.
Option B: Curable items, leaving out incurable physical and functional loss.
Option B includes only curable items and leaves out incurable physical and functional loss. Incurable losses are part of accrued depreciation when supported.
Option C: The difference between cost new and any tax assessment without further analysis.
Option C uses the difference between cost new and a tax assessment without further analysis. An assessed value is not the same as an extracted improvement contribution, so that gap does not measure depreciation.
Physical, functional, external
Three sources: the building wears out, the design falls behind, or outside forces hurt value.
How to use: Use this to check whether an answer includes all recognized depreciation sources.
Exam Tip
Pick the answer that includes all supported sources of loss rather than one limited to a single type or to curable items.
Common Mistakes to Avoid
- -Counting only physical deterioration
- -Ignoring incurable items
- -Using assessed value as a measure of depreciation
Concept Deep Dive
Analysis
This question tests the three recognized sources of depreciation. Accrued depreciation can include supported physical deterioration, functional obsolescence and external obsolescence, whether curable or incurable, as long as no loss is counted twice.
Background Knowledge
Appraisal depreciation is the difference between cost new and the contributory value of the improvements. Its three sources are physical deterioration, functional obsolescence and external obsolescence, each of which may be curable or incurable except external, which is generally incurable by the owner.
Real-World Application
An older home has a worn roof, a dated floor plan and a location next to a busy road. The appraiser considers all three sources of depreciation and avoids counting the same loss twice.
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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