RES exam question on Real Estate Market: A valuer using the Depreciated Replacement Cost method for a specialised building…
A valuer using the Depreciated Replacement Cost method for a specialised building reviews what the method involves. Consider: (i) the estimated replacement cost of the improvements is a component (ii) the capitalisation of market rental income is a core DRC component. (iii) physical, functional and economic depreciation is deducted from that cost (iv) the land value at the valuation date is added; Which statements are CORRECT?
- A(i), (ii) and (iii) only
- B(i), (iii) and (iv) only
- C(ii), (iii) and (iv) only
- D(i), (ii) and (iv) only
Show answer & explanation
Answer
B. (i), (iii) and (iv) only
Explanation
DRC = land value + depreciated replacement cost of the improvements.
Why the other options are wrong
- (i), (iii) and (iv) are its components; (ii) is wrong — capitalising rental income is the investment method, not DRC — so only (i), (iii) and (iv) hold.
Study the concept behind this question: Property Valuation: The 5 Methods (with worked examples)
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