California Real Estate Practice Exam

Past expenditures for residential improvements are called:

1. costs.

2. investments.

3. price.

4. value.

The correct answer is: costs.

The term typically used to describe past expenditures for residential improvements is "costs." This refers to the actual amount of money spent on constructing, renovating, or maintaining residential property. It reflects the historical expenses incurred, such as materials, labor, permits, and other associated fees related to property development or enhancement. Understanding this terminology is crucial in real estate as it helps define the financial foundation of a property. Recognizing costs helps differentiate between what has been spent on a property versus its potential market value or sale price, which are influenced by various factors beyond mere expenditures, including market trends and buyer perception. Conversely, investments refer to the expectation of returns or appreciation, price indicates what someone is willing to pay for a property at a given time, and value represents the perceived worth of the property based on various criteria, including location and condition. Thus, the specific context of past expenditures aligns with the definition of costs.