Property Valuation
In Alabama, which approach to value is most appropriate for a single-family home in a residential neighborhood?
ACost approach
BIncome approach
CSales comparison approach✓ Correct
DGross rent multiplier approach
Explanation
The sales comparison approach is most appropriate for single-family homes because there are typically many comparable sales available. The cost approach is best for new construction and special-use properties; the income approach is best for income-producing properties.
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Key Terms to Know
Gross Rent Multiplier (GRM)
A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
Comparable Sales (Comps)Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
Capitalization Rate (Cap Rate)A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
Net Operating Income (NOI)The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
Math Concepts
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