Property Valuation
In Alaska, the principle of substitution states that:
AA property is worth more when it is scarce
BA buyer will pay no more for a property than the cost of an equally desirable substitute✓ Correct
CValue is created by the anticipation of future benefits
DProperties in the same neighborhood tend toward the same value
Explanation
The principle of substitution underlies the sales comparison and cost approaches: a rational buyer will pay no more for a property than the cost of acquiring an equally desirable substitute in the marketplace.
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Key Terms to Know
Comparable Sales (Comps)
Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
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.
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