Property Valuation
The 'economic life' of a building is best defined as:
AThe calendar years since the building was constructed
BThe period during which the building generates more value than the cost of maintaining it✓ Correct
CThe depreciation period allowed by the IRS
DThe number of years until the building must be demolished
Explanation
Economic life is the period during which a building generates returns exceeding the cost of operating and maintaining it—the period it makes economic sense to keep the building rather than redevelop the land.
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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.
Capitalization Rate (Cap Rate)A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
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.
Math Concepts
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