Question 1

A gross income multiplier is used to estimate loss in value by the cost-to-cure method.

Accepted Answer

The gross income multiplier is a method used to estimate the value of income-producing properties, not the loss in value. The cost-to-cure method is typically used to estimate the cost of repairs or improvements needed to increase the value of a property.

Question 2

A misplaced improvement suffers from functional obsolescence.

Accepted Answer

A misplaced improvement is one that does not add value or utility to the property due to its location, design, or functionality. As a result, it suffers from functional obsolescence, which means its usefulness has diminished over time. Therefore, option A is correct.

Question 3

A 50-year-old building with a total life expectancy of 100 years should be depreciated at 50%, regardless of its effective age.

Accepted Answer

Depreciation is based on the effective age and condition of the building, not just its chronological age relative to its total expected lifespan. Factors such as renovations, maintenance, and changes in use can affect the effective age and thus the depreciation rate.

Question 4

Depreciation is usually classified as incurable if it is not economically feasible to correct the condition(s) causing the loss in value.

Accepted Answer

If the cost to correct the condition(s) causing the loss in value exceeds the increase in value, then the depreciation is considered incurable.

Question 5

The capitalized income method can be used to estimate either the amount of accrued depreciation from all causes, or that from a single cause.

Accepted Answer

The capitalized income method can be used to estimate the total amount of accrued depreciation or to isolate depreciation from a single cause by analyzing the income-producing capability of a property, thus allowing for both comprehensive and specific depreciation assessments.

Question 6

When you base your depreciation estimate on the "effective age" of the building rather than the actual age, you are relying on an estimate of the market's view of the property.

Accepted Answer

When estimating depreciation based on effective age, one considers how the market perceives the building's condition and functional utility, rather than its actual age. This approach assumes that the value of a property depends on its usefulness and how it compares to newer properties in the market. Therefore, the estimate considers factors such as maintenance, upgrades, and obsolescence that affect its effective age rather than the actual number of years since it was built.

Question 7

Economic obsolescence is caused by factors outside the property.

Accepted Answer

Economic obsolescence is caused by external factors such as changes in the neighborhood, zoning laws, or market conditions. It is not caused by the physical condition or age of the property itself.

Question 8

Allowable deduction from book value is one of the four basic appraisal methods for measuring accrued depreciation.

Accepted Answer

The four basic appraisal methods for measuring accrued depreciation are the market extraction method, the cost approach, the income capitalization approach, and the sales comparison approach. Allowable deduction from book value is not one of these methods; instead, it relates to accounting practices rather than appraisal methods for measuring depreciation.

Question 9

The sales data or market method is the most direct way to estimate loss in value.

Accepted Answer

The sales data or market method involves analyzing recent sales of similar assets in the market to estimate the current value of an asset. This method is considered the most direct way to estimate loss in value as it reflects the actual market value of the asset.

Question 10

Accrued depreciation can be defined in appraisal terms as the total loss in value from all causes.

Accepted Answer

Accrued depreciation in appraisal terms refers to the total loss in value of a property from any cause, including physical wear and tear, functional obsolescence, and external factors.

Quiz 12: Estimating Loss in Value: Accrued Depreciation