Property Valuation
The principle of BALANCE in appraisal holds that:
AAll properties in an area should be the same size
BMaximum value is achieved when the agents of production are in proper proportion✓ Correct
CIncome and expenses must be equal
DLand and improvements should be equal in value
Explanation
The principle of balance holds that the most productive combination of land uses (labor, capital, coordination, land) achieves the greatest value. Over-improvement or under-improvement reduces value.
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Key Terms to Know
Appraisal
A professional estimate of a property's market value prepared by a licensed or certified appraiser.
Comparable Sales (Comps)Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
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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