What is 'diminishing returns' (decreasing returns) as applied to Delaware real estate improvements?
Why The principle that at some point, adding more improvements to a property will yield successively smaller increases in value until additional investment adds no value Is Correct
Answer B: The principle that at some point, adding more improvements to a property will yield successively smaller increases in value until additional investment adds no value
Exam Tip: Property Valuation
Valuation questions focus on the three approaches to value: sales comparison, cost, and income. Know which approach is best for which property type. The income approach uses cap rate and NOI — memorize these formulas.
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Key Terms to Know
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.
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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