GCMP2 General Comprehensive
Module 2 Cost Approach HBU and
Feasibility Exam
Question 1. Which principle is fundamental to the cost approach in real
estate valuation?
A) Principle of anticipation
B) Principle of substitution
C) Principle of progression
D) Principle of regression
Answer: B
Explanation: The principle of substitution states that a buyer will not
pay more for a property than it would cost to purchase a similar
substitute, forming the basis for the cost approach.
Question 2. What method estimates the cost of a structure by
multiplying the square footage by a cost per square foot?
A) Quantity survey method
B) Unit-in-place method
C) Square-foot method
D) Segregated cost method
Answer: C
, GCMP2 General Comprehensive
Module 2 Cost Approach HBU and
Feasibility Exam
Explanation: The square-foot method is a common, quick way to
estimate replacement or reproduction cost by using a per-square-foot
cost.
Question 3. Which type of depreciation results from wear and tear of
the property?
A) Functional obsolescence
B) Physical deterioration
C) External obsolescence
D) Economic obsolescence
Answer: B
Explanation: Physical deterioration is the loss in value due to physical
wear and tear over time.
Question 4. The cost to construct an exact duplicate of a building using
the same materials and standards is called:
A) Replacement cost
B) Reproduction cost
, GCMP2 General Comprehensive
Module 2 Cost Approach HBU and
Feasibility Exam
C) Market value
D) Salvage value
Answer: B
Explanation: Reproduction cost reflects the cost of duplicating the
original structure exactly.
Question 5. Which form of depreciation is caused by factors outside the
property lines?
A) Physical deterioration
B) Functional obsolescence
C) External obsolescence
D) Incurable depreciation
Answer: C
Explanation: External obsolescence is due to external influences such as
neighborhood decline or adverse zoning changes.
Question 6. What is the first step in the cost approach to value?
A) Subtracting depreciation
, GCMP2 General Comprehensive
Module 2 Cost Approach HBU and
Feasibility Exam
B) Estimating land value
C) Estimating the cost new of improvements
D) Estimating market rent
Answer: B
Explanation: The cost approach begins with estimating the value of the
land as if vacant.
Question 7. Which of the following is NOT a test for highest and best
use?
A) Legally permissible
B) Financially infeasible
C) Physically possible
D) Maximally productive
Answer: B
Explanation: Financial feasibility requires the use to be feasible, not
infeasible.
Question 8. What does the unit-in-place method involve?
Module 2 Cost Approach HBU and
Feasibility Exam
Question 1. Which principle is fundamental to the cost approach in real
estate valuation?
A) Principle of anticipation
B) Principle of substitution
C) Principle of progression
D) Principle of regression
Answer: B
Explanation: The principle of substitution states that a buyer will not
pay more for a property than it would cost to purchase a similar
substitute, forming the basis for the cost approach.
Question 2. What method estimates the cost of a structure by
multiplying the square footage by a cost per square foot?
A) Quantity survey method
B) Unit-in-place method
C) Square-foot method
D) Segregated cost method
Answer: C
, GCMP2 General Comprehensive
Module 2 Cost Approach HBU and
Feasibility Exam
Explanation: The square-foot method is a common, quick way to
estimate replacement or reproduction cost by using a per-square-foot
cost.
Question 3. Which type of depreciation results from wear and tear of
the property?
A) Functional obsolescence
B) Physical deterioration
C) External obsolescence
D) Economic obsolescence
Answer: B
Explanation: Physical deterioration is the loss in value due to physical
wear and tear over time.
Question 4. The cost to construct an exact duplicate of a building using
the same materials and standards is called:
A) Replacement cost
B) Reproduction cost
, GCMP2 General Comprehensive
Module 2 Cost Approach HBU and
Feasibility Exam
C) Market value
D) Salvage value
Answer: B
Explanation: Reproduction cost reflects the cost of duplicating the
original structure exactly.
Question 5. Which form of depreciation is caused by factors outside the
property lines?
A) Physical deterioration
B) Functional obsolescence
C) External obsolescence
D) Incurable depreciation
Answer: C
Explanation: External obsolescence is due to external influences such as
neighborhood decline or adverse zoning changes.
Question 6. What is the first step in the cost approach to value?
A) Subtracting depreciation
, GCMP2 General Comprehensive
Module 2 Cost Approach HBU and
Feasibility Exam
B) Estimating land value
C) Estimating the cost new of improvements
D) Estimating market rent
Answer: B
Explanation: The cost approach begins with estimating the value of the
land as if vacant.
Question 7. Which of the following is NOT a test for highest and best
use?
A) Legally permissible
B) Financially infeasible
C) Physically possible
D) Maximally productive
Answer: B
Explanation: Financial feasibility requires the use to be feasible, not
infeasible.
Question 8. What does the unit-in-place method involve?
