What distinguishes long-lived from short-lived items in a depreciation breakdown?
Correct Answer
B) Long-lived items are expected to last the structure's whole life
Why this is correct: The key distinction is economic life expectancy. Long-lived items (e.g., foundation, framing) are expected to last for the entire economic life of the structure. Short-lived items (e.g., roof, HVAC, flooring) have a significantly shorter useful life and will need replacement during the building's life. Why the other choices are wrong: Cost is not the primary determinant; some short-lived items can be expensive. Location (inside/outside) does not define the category; some short-lived items are inside (carpet). All physical components deteriorate; long-lived items depreciate over the building's long life. Exam tip: Think of long-lived items as the 'bones' of the building and short-lived items as the 'wear parts' that get replaced multiple times.
Why This Is the Correct Answer
Why this is correct: The key distinction is economic life expectancy. Long-lived items (e.g., foundation, framing) are expected to last for the entire economic life of the structure. Short-lived items (e.g., roof, HVAC, flooring) have a significantly shorter useful life and will need replacement during the building's life. Why the other choices are wrong: Cost is not the primary determinant; some short-lived items can be expensive. Location (inside/outside) does not define the category; some short-lived items are inside (carpet). All physical components deteriorate; long-lived items depreciate over the building's long life. Exam tip: Think of long-lived items as the 'bones' of the building and short-lived items as the 'wear parts' that get replaced multiple times.
More Cost Approach Questions
In a cost approach for a proposed building, the appropriate cost basis is generally:
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Market extraction of depreciation is limited by the fact that it:
Functional obsolescence caused by a deficiency is measured as curable when:
Curable physical deterioration is measured at cost to cure because:
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A house has three bedrooms sharing one bathroom, and adding a second bath is economically justified. This is:
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An appraiser writes that a 40-year-old house has an effective age of 10 but describes original wiring, original kitchen and a 25-year-old roof. The report's problem is:
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Previous Question
Paired sales show homes adjacent to a new commercial development sell for $28,000 less. The subject's land represents 30% of total value. The improvements' share of the external obsolescence is:
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A certified general appraiser is developing a cost approach for a 25-year-old office building located in a neighborhood where new zoning prohibits future office development and mandates residential conversion. The appraiser estimates the site’s highest and best use is now residential, and determines the land value — based on vacant residential land sales — is $850,000. The building’s replacement cost new is $2,100,000, with accumulated physical depreciation of $315,000 and functional obsolescence of $140,000. External obsolescence is present due to the zoning change. How should the appraiser treat external obsolescence in this scenario?