Property Valuation
Depreciation in real estate appraisal is defined as:
AThe annual decrease in property tax assessed value
BAny loss in value from any cause relative to the cost of a new replacement✓ Correct
CThe physical wearing out of a building from use over time exclusively
DThe reduction in mortgage balance through amortization payments
Explanation
In appraisal, depreciation is any loss in value from any cause — including physical deterioration, functional obsolescence, and external obsolescence — measured relative to the cost of constructing a new replacement.
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- An Arizona appraiser using the cost approach estimates the value of a home as follows: land value = $80,000; replacement cost new of improvements = $220,000; accumulated depreciation = $30,000. What is the estimated value?Property Valuation
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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.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Short SaleA sale of real property where the sale proceeds are less than the outstanding mortgage balance, requiring lender approval.
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