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    What is the definition of remaining economic life?What is the difference between economic life and useful life?What is the total economic life?What is the difference between economic life and physical life?

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A 10-year-old house will always have
physical deterioration
functional obsolescence
external obsolescence
all of these

physical deterioration

Which of these is NOT a cause of functional obsolescence?
layout problems
inadequacies
superadequacies
deferred maintenance

deferred maintenance

Physical
deterioration is best described as
factors outside a property that diminish its value
always incurable
outmoded items
wear and tear

wear and tear

True or False: External obsolescence can be shared between building and land.

True

In most situations, which of these would be considered an example of a
superadequacy?
gold-plated faucets
R-90 insulation in walls and ceilings
foundation walls that are 4 feet thick
all of these

all of these

True or False: Functional obsolescence may be present in a brand-new structure.

True

Depreciation is defined as a loss in property value from
factors inside the property
only
any cause
factors outside the property only
ordinary wear and tear

any cause

The difference between the cost of an improvement and its market value on the effective date of the appraisal is
depreciation
obsolescence
effective age
opportunity cost

depreciation

Which type of depreciation is generally
considered to be incurable?
physical deterioration
functional obsolescence
external obsolescence
all of these

external obsolescence

“The period over which improvements to real estate contribute to real property value” is the definition of
effective age
economic life
useful life
physical life

economic life

A
building has an effective age of 18 and a total economic life of 60 years. It cost $520,000 new and its site value is $125,000. What is the indicated percentage of age-life depreciation?
15%
18%
25%
30%

30%

__________ will lose value over time just because of age.
Land
Buildings
Both land and buildings
Land, buildings, and chattel items

Buildings

True or False: Effective age is the same as chronological age.

False

A building has an effective age of 12 and a total economic life of 60 years. It cost $320,000 new and its site value is $95,000. What is the indicated value by cost approach?
$159,000
$336,000
$351,000
$415,000

$351,000

12 / 60 = 20% depreciation. $320,000 x
20% = $64,000. $320,000 – $64,000 + $95,000 = $351,000

The number of years that have elapsed since a building was constructed is its
effective age
actual age
remaining economic life
economic age

actual age

True or False: A building may be obsolete and valueless even though it is still standing and is physically sound.

True

A new building is expected to remain standing for 80 years. This period is the building’s ____________ life.
useful
maximum
physical
effective

physical

A building has an effective age of 25 and a total economic life of 80 years. What is its remaining economic life?
31
55
45
not enough information to determine

55

80
– 25 = 55 remaining economic life

True or False: Physical deterioration can be divided into three categories: deferred maintenance; short-lived components; and long-lived components.

True

A building has a cost new of $400,000. Deferred maintenance items have been identified a cost of $9,000. Short-lived depreciation has been identified $15,000; these
short-lived items have a total cost of $45,000. The building has an effective age of 20 years and a total economic life of 50 years. What is the amount of depreciation attributable to the long-lived items?
$79,200
$98,468
$114,665
$138,400

$138,400

$400,000 – $9,000 – $45,000 = $346,000 (cost of long-lived items). 20 / 50 = 40% depreciation. $346,000 x 40% = $138,400.

A hot water furnace in a
building costs $22,000 to replace. It has an expected life of 30 years, and it is 24 years old. How much shortlived depreciation is attributable to this item?
$4,400
$12,800
$17,600
$19,800

$17,600

24 / 30 = 80%. $22,000 x 80% = $17,600.

A home suffers functional obsolescence of $10,000 because it lacks a second bathroom, which could be installed a cost of $9,500. This type of obsolescence
is considered
curable
incurable
economic
physical

curable

Which type of physical deterioration is considered to be curable?
deferred maintenance only
long-lived components only
short-lived components only
no physical deterioration is curable

deferred maintenance only

What term is defined as “Items of wear
and tear on a property that should be fixed now to protect the value or income- producing ability of the property”?
functional obsolescence
short-lived depreciation
long-lived depreciation
deferred maintenance

deferred maintenance

When estimating depreciation, which of these items is likely to be considered a long-lived item?
furnace
roof covering
girders
water heater

girders

A roof on a building costs $18,000 to replace. It has an expected life of 25 years, and it is 10 years old. How much short-lived depreciation is attributable to this item?
$7,200
$8,000
$4,500
$18,000

$7,200

10 / 25 = 40%. $18,000 x 40% = $7,200.

An outdated kitchen can be remodeled a cost of $15,500. After remodeling,
the value of the home will increase by $14,000. This item of depreciation is considered
curable
incurable
feasible
essential

incurable

A property is found to suffer $20,000 in external obsolescence because of its proximity to an industrial plant. The subject’s land represents 20% of its value. What is the dollar amount of external obsolescence attributable to the building
improvements?
$2,000
$14,444
$16,000
$24,000

$16,000

$20,000 x 80% = $16,000. The remaining $4,000 in external obsolescence is attributable to the land.

Which of these is NOT a cause of functional obsolescence?
superadequacies
wear and tear
layout problems
outmoded items

wear and tear

External
obsolescence can be
marketwide
based on an outdated finish item
the result of a layout deficiency
the result of a construction defect

marketwide

The amount of depreciation attributed to deferred maintenance is measured by
the cost to build a new structure
the cost to cure the deferred maintenance item
the cost of long-lived items divided by the ratio of effective age to total economic
life
chronological age divided by total economic life

the cost to cure the deferred maintenance item

The subject is a 15 year old duplex that would cost $240,000 to build new today. It is in good condition and you estimate the effective age to be 10 years. Your estimate of total economic life is 50 years. Its land value is $60,000. What is its value by the cost
approach?
$80,000
$123,000
$212,000
$252,000

$252,000

10 ÷ 50 = .20. $240,000 X .80 = $192,000. $192,000 + $60,000 = $252,000.

“The period over which improvements to real estate contribute to property value” is the definition of _______________ life.
economic
physical
useful
actual

economic

Assume a
house would rent for $1,000 per month in a normal neighborhood. In this neighborhood, which is near a busy interstate highway, it can only rent for $950 per month. The appropriate GRM is 135. How much external obsolescence is caused by the highway?
$4,200
$4,750
$5,550
$6,750

$6,750

$1,000 – $950 = $50. $50 X 135 = $6,750.

Which is NOT an example of a long-lived item?
water
heater
framing
foundation
underground pipes

water heater

The replacement cost new of the improvements is $295,500, the land value is $75,000 and the effective age is 17 years. The total economic life is estimated to be 60 years. The subject has deferred maintenance items that total $5,500. After these repairs, the effective age will be reduced to 15 years. What is the value of the property using a
modified age-life method?
$120,000
$260,000
$292,500
$319,500

$292,500

Which of these is an example of deferred maintenance?
A hallway that is too narrow
Outdated kitchen cabinets
A bathroom with a tub but no shower
A broken window

A broken window

Which would NOT cause external obsolescence?
leaking
septic in the back yard
statewide recession
building moratorium
high crime rate

leaking septic in the back yard

A 10-year-old furnace with an expected life of 25 years will have experienced depreciation of:
25%
28.5%
40%
Not enough information to determine

40%

10 divided by 25 is 0.40 or 40%.

“The
impairment of functional capacity of improvements according to market tastes and standards” is the definition of
depreciation
physical deterioration
functional obsolescence
external obsolescence

functional obsolescence

Which would NOT be a deferred maintenance item?
broken window pane
older roof showing some wear
peeling paint on window trim
leaking faucet

older
roof showing some wear

Normal wear and tear on a building is classified as __________.
Physical deterioration
Functional obsolescence
External obsolescence
Deferred maintenance

Physical deterioration

Which of these entities requires an appraiser to provide an estimate of remaining economic life?
FHA
Fannie Mae
Freddie Mac
All of the
above

FHA

Which type of age is based on the amount of observed deterioration and obsolescence the improvement has sustained?
actual
historic
chronological
effective

effective

A 6 year old water heater with an expected life of 15 years will have experienced depreciation of ____%.
20
25
30
40

40

6 ÷ 15 = .40, or 40%.

The subject is a 25 year old building that would cost $180,000 to build new today. It is in good condition and you estimate the effective age to be 20 years. Your estimate of total economic life is 60 years, based on your knowledge of similar properties. What is its present, depreciated value?
$100,000
$120,000
$126,667
$140,000

$120,000

20 ÷ 60
= .333. $180,000 X .333 = $60,000 depreciation. $180,000 – $60,000 depreciation = $120,000.

Of the three general types of depreciation, which type occurs off the site?
curable
short-lived
physical
external

external

Which of these factors is most likely to cause external obsolescence to a residential property?
A roof that shows obvious signs of
deterioration but is not yet leaking
A gas station/convenience store located across the street
A kitchen design that does not meet current market tastes and expectations
All of these are examples of external obsolescence

A gas station/convenience store located across the street

The three general types of depreciation are:
Physical, short-lived, and long-lived
Curable, incurable and
breakdown
Physical, functional, and external
Functional, curable, and incurable

Physical, functional, and external

“The period of time over which a structure or a component of a property may reasonably be expected to perform the function for which it was designed” is the definition of __________ life.
incurable
physical
useful
actual

useful

“The ability of a property or building to be useful and perform the function for which it was intended according to current market tastes and standards” is the definition of __________________.
functional obsolescence
functional utility
functional inutility
useful life

functional utility

Economic feasibility is indicated if the __________ is ______________ the
______________ of the property.
cost, greater than, value
price, equal to or less than, cost
cost to cure, equal to or less than, anticipated increase in value
cost to cure, more than, actual increase in value

cost to cure, equal to or less than, anticipated increase in value

A short-lived item is a building component with an ______________ life that is shorter than the _______________ life of the
entire structure.
economic life, long-lived
expected remaining economic, remaining economic
anticipated life, remaining economic
anticipated life, physical

expected remaining economic, remaining economic

A built-in dishwasher and stove have replacement costs of $350 and $500, respectively. They are both 6 years old and have a remaining life of 9 years. What is the total of short-lived physical
depreciation attributable to these appliances?
$282
$340
$399
$406

$340

6 + 9 = 15. 6 ÷ 15 = .40. $350 + 500 = $850. $850 X .40 = $340.

What is the definition of remaining economic life?

Remaining economic life (REL) is the estimated time period for which the improvements (the house/building) continue to contribute to the value of the property. It describes the amount of time a home will remain on a site, until it is to be demolished for redevelopment.

What is the difference between economic life and useful life?

Economic life refers to the length of time an asset is expected to be useful to the owner. It is also called useful life or depreciable life. The measure of an asset’s usefulness is how profitable it is to keep – in other words, how long an asset generates more income than it costs to maintain and operate.

What is the total economic life?

What is Economic Life? Economic life is the expected period of time during which an asset remains useful to the average owner. When an asset is no longer useful to its owner, then it is said to be past its economic life. The economic life of an asset could be different than its actual physical life.

What is the difference between economic life and physical life?

While the physical life of an asset means the period for which the asset can provide service to the company whereas the economic life of an asset implies the period for which the asset can provide profitable service to the company.
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