Certified Residential Appraiser Practice Exam

Which term is used for the costs of carrying an investment during construction?

1. Direct costs

2. Indirect costs

3. Development costs

4. Overhead costs

The correct answer is: Indirect costs

The term used for the costs of carrying an investment during construction is referred to as indirect costs. Indirect costs encompass expenses that are not directly tied to the construction activities but are necessary for the overall project to progress. These can include costs such as financing, insurance, and other administrative expenses that occur while the construction is taking place. Indirect costs play a crucial role in providing a complete picture of the total expenses related to a construction project. Understanding these costs helps appraisers, developers, and investors evaluate the financial viability and return on investment of a project. Direct costs, in contrast, typically refer to expenses that can be directly attributed to the physical construction of a structure, such as labor and materials. Development costs are a broader category that may encompass both direct and indirect costs involved in bringing a project from concept to completion. Overhead costs generally refer to ongoing business expenses that are not directly associated with a specific project but are necessary for running a business.