Property Valuation
The principle of 'contribution' in appraisal states that:
AEach part of a property contributes to its value equally
BThe value of a component is measured by how much it contributes to the total property value✓ Correct
CImprovements always increase property value by their full cost
DLocation contributes more than all other factors combined
Explanation
The principle of contribution states that the value of any component of a property is measured by its contribution to the whole — not its cost. A $30,000 addition may only contribute $20,000 to the property's total value if it does not appeal to the market.
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Key Terms to Know
Appraisal
A professional estimate of a property's market value prepared by a licensed or certified appraiser.
Comparable Sales (Comps)Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
DepreciationA reduction in the value of an improvement (building) over time due to physical deterioration, functional obsolescence, or external factors.
Capitalization Rate (Cap Rate)A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
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