California Real Estate Practice Exam

Cost estimating methods currently used by builders, architects, and appraisers are:

1. capitalization of residual income.

2. capitalized cost of replacement.

3. quantity survey, unit in place, comparative square, or cubic foot.

4. unit, unit in place, quantity survey.

The correct answer is: capitalization of residual income.

The correct answer is more accurately related to the various cost estimating methods commonly employed in the construction and real estate appraisal fields. Among those methods, the quantity survey, unit in place, comparative square, or cubic foot are widely recognized techniques that provide developers and appraisers with reliable estimates of construction costs. The quantity survey method involves a detailed assessment of all materials and labor needed to complete a project, ensuring thoroughness in cost estimation. The unit in place method estimates cost based on the price to complete each unit in place, while the comparative square foot or cubic foot methods provide general estimations based on area or volume, respectively. These methods enable professionals to adapt their approaches to the specific nature of the construction project or existing real estate being assessed. While capitalization of residual income and capitalized cost of replacement are important concepts in valuation and investment analysis, they do not pertain directly to the fundamental methods of cost estimation. Therefore, focusing on techniques like quantity survey and unit in place provides a clearer understanding of how builders, architects, and appraisers quantify construction expenses.