Property Valuation
Depreciation in the cost approach refers to:
AThe decline in market rent over time
BAny loss in value from any cause, subtracted from the reproduction/replacement cost✓ Correct
CThe annual tax deduction allowed on investment property
DThe difference between the listing price and the sale price
Explanation
Depreciation in appraisal is the loss in value from physical deterioration, functional obsolescence, or external (economic) obsolescence. It is deducted from the cost of improvements to arrive at their depreciated value.
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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.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
Comparable Sales (Comps)Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
Math Concepts
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