Property ValuationIntermediateAlabama Exam

Depreciation in an appraisal context refers to:

AThe IRS tax deduction for income property

BAny loss in value from any causeCorrect

COnly physical wear and tear on the building

DThe reduction in land value over time

Why Any loss in value from any cause Is Correct

Answer B: Any loss in value from any cause

In appraisal, depreciation refers to any loss in value from any cause — physical deterioration, functional obsolescence, or external (economic) obsolescence.

Exam Tip: Property Valuation

Valuation questions focus on the three approaches to value: sales comparison, cost, and income. Know which approach is best for which property type. The income approach uses cap rate and NOI — memorize these formulas.

Key Property Valuation Terms in This Question

Appraisal

A professional estimate of a property's market value prepared by a licensed or certified appraiser.

Depreciation

A reduction in the value of an improvement (building) over time due to physical deterioration, functional obsolescence, or external factors.

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Key Terms to Know

Depreciation

A reduction in the value of an improvement (building) over time due to physical deterioration, functional obsolescence, or external factors.

Appraisal

A professional estimate of a property's market value prepared by a licensed or certified appraiser.

Capitalization Rate (Cap Rate)

A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.

Gross Rent Multiplier (GRM)

A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.

Math Concepts

Depreciation Profit & Loss

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Property Valuation Guide

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