Property ValuationIntermediateAlabama Exam

The principle of contribution states that the value of any component of a property is:

AEqual to its replacement cost

BWhat its presence adds to (or its absence subtracts from) the total property valueCorrect

CDetermined by its original purchase price

DBased on the assessed value assigned by the county, subject to the usual exceptions

Why What its presence adds to (or its absence subtracts from) the total property value Is Correct

Answer B: What its presence adds to (or its absence subtracts from) the total property value

The principle of contribution measures the value of a specific component by its contribution to the overall property value — not by its cost to install.

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.

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Key Terms to Know

Option Contract

A contract giving the buyer the right, but not the obligation, to purchase a property at a specified price within a specified time period.

Loan-to-Value Ratio (LTV)

The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.

Pre-Approval

A lender's conditional commitment to loan a specific amount to a borrower, based on verified income, credit, and assets.

Appraisal

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

Math Concepts

Property Tax Assessment

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Property Valuation Guide

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