Real Estate Appraisal Practice Exam

Which formula captures the basics of the quantity survey method?

1. Direct costs + Taxes = Total cost

2. Direct costs + Indirect costs + Entrepreneurial profit = Total reproduction cost new

3. Market value + Cost of improvements = Total estimated value

4. Property value - Depreciation = Current worth

The correct answer is: Direct costs + Indirect costs + Entrepreneurial profit = Total reproduction cost new

The quantity survey method is a detailed approach primarily used in construction and appraisal to estimate the total cost of a building project by accounting for all individual components involved. This method emphasizes a thorough breakdown of all costs associated with a project. The selected formula, which includes direct costs, indirect costs, and entrepreneurial profit, accurately reflects the comprehensive nature of the quantity survey method. Direct costs involve expenses directly tied to the construction activities, such as materials and labor. Indirect costs cover associated expenses that are not directly linked to construction, like permits and administrative costs. Lastly, entrepreneurial profit accounts for the returns expected by the developer or contractor for taking on the risks of the project. This multifaceted approach ensures that an appraisal using the quantity survey method results in a total reproduction cost that encompasses all necessary financial considerations, making it robust for accurate project evaluation. Other options, while relevant to different aspects of valuation and appraisal, do not encapsulate the full spectrum of costs considered in the quantity survey method as effectively.