When replacement cost (not reproduction cost) is the basis, which functional obsolescence largely disappears from the estimate?
Correct Answer
B) The cost of superadequacies, which a replacement would not include
Why this is correct: Replacement cost estimates the cost to build a structure of equivalent utility using modern materials and design. Superadequacies (overbuilt features) are not included in this new design, so their excess cost is never incurred and need not be deducted. Why the other choices are wrong: "Deficiencies that the market would ordinarily expect to be cured" is wrong because a replacement building might still have deficiencies if not redesigned to market standards. "All functional obsolescence of every kind" is wrong because deficiencies and layout problems may still exist. "Obsolescence from an outdated floor plan" is wrong because the replacement might replicate an outdated plan unless redesigned. Exam tip: Replacement cost = modern equivalent utility. Superadequacies vanish because you wouldn't build them in.
Why This Is the Correct Answer
Why this is correct: Replacement cost estimates the cost to build a structure of equivalent utility using modern materials and design. Superadequacies (overbuilt features) are not included in this new design, so their excess cost is never incurred and need not be deducted. Why the other choices are wrong: "Deficiencies that the market would ordinarily expect to be cured" is wrong because a replacement building might still have deficiencies if not redesigned to market standards. "All functional obsolescence of every kind" is wrong because deficiencies and layout problems may still exist. "Obsolescence from an outdated floor plan" is wrong because the replacement might replicate an outdated plan unless redesigned. Exam tip: Replacement cost = modern equivalent utility. Superadequacies vanish because you wouldn't build them in.
More Cost Approach Questions
In a cost approach for a proposed building, the appropriate cost basis is generally:
A warehouse cost $210,000 to build when the cost index stood at 105. The index is now 210. Its indicated current cost is:
The age-life method expresses depreciation as:
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:
A 2,050 sq ft dwelling is priced at $178 per square foot with a $34,000 detached garage and $21,500 of site improvements. Cost new is:
A house has three bedrooms sharing one bathroom, and adding a second bath is economically justified. This is:
Direct costs in a construction budget include:
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
An appraiser observes that a 30-year-old apartment building has severe deferred maintenance, including widespread roof membrane failure, corroded plumbing risers, and obsolete electrical panels. However, its location is exceptionally strong, and its unit mix matches current demand. The appraiser estimates total economic life at 55 years but assigns an effective age of 44 years. Later, she discovers that nearly identical buildings in the same submarket have been acquired by investors who rehabilitated them and achieved stabilized cap rates within 12 months—suggesting strong remaining utility. What is the appraiser’s obligation under USPAP regarding her effective age conclusion?
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A building's physical life is estimated at 90 years but its economic life at 55. Which figure drives depreciation analysis, and why?