Property Valuation
An appraiser uses the cost approach for a property and estimates reproduction cost new at $380,000, land value at $75,000, and total depreciation at $55,000. What is the estimated value?
A$250,000
B$325,000
C$400,000✓ Correct
D$455,000
Explanation
Cost Approach: Value = Land Value + (Reproduction Cost − Depreciation) = $75,000 + ($380,000 − $55,000) = $75,000 + $325,000 = $400,000.
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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.
AppraisalA 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
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