Property Valuation
The 'effective age' of a building used in the cost approach refers to:
AThe calendar age since the building was constructed
BThe age suggested by the building's condition and utility, regardless of actual age✓ Correct
CThe age at which the building was last renovated
DThe remaining economic life of the building
Explanation
Effective age is based on the building's condition and functional utility—not its chronological age. A well-maintained building may have an effective age younger than its actual age; a poorly maintained one may be older.
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Key Terms to Know
Comparable Sales (Comps)
Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
DepreciationA 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.
Capitalization Rate (Cap Rate)A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
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