Property Valuation
What is 'depreciation' in the cost approach to appraisal?
AThe annual decrease in property tax assessment
BAny loss in value from any cause, including physical deterioration, functional obsolescence, and economic (external) obsolescence✓ Correct
CThe decline in a property's sale price over time
DA tax deduction available to rental property owners
Explanation
In the cost approach, depreciation is any loss in value from any cause. The three types are: physical deterioration (wear and tear), functional obsolescence (design/feature deficiencies), and economic/external obsolescence (external negative influences). Total depreciation is subtracted from replacement cost.
Related California Property Valuation Questions
- In the income approach, what is the 'capitalization rate' (cap rate)?
- The principle of conformity states that:
- An appraiser is reconciling three value indicators from the three approaches: Cost approach = $485,000; Sales comparison approach = $475,000; Income approach = $460,000. The subject is an owner-occupied single-family home. Which approach should receive the most weight?
- An appraiser is using the cost approach to value a 10-year-old building. The replacement cost new is $400,000 and the building has experienced 25% total depreciation. The land is valued at $120,000. What is the indicated value?
- When does the income approach provide the MOST reliable value indication?
- Which type of depreciation results from factors outside the property, such as proximity to a freeway or an industrial plant?
- Which of the following factors does NOT directly affect a property's market value?
- Under the principle of conformity, property values are maximized when:
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