Property Valuation
What is 'effective age' versus 'actual age' in real estate appraisal?
AEffective age is the legal age of the building; actual age is how old it looks
BActual age is the chronological age of the building; effective age reflects the building's condition and remaining useful life based on maintenance and updates, which may be greater or less than its actual age✓ Correct
CBoth terms refer to the same thing — the number of years since the building was constructed
DEffective age is used only for commercial buildings; actual age is used for residential
Explanation
Actual age is the chronological number of years since the building was built. Effective age is the appraiser's estimate of the building's age based on its condition, maintenance history, and updates.
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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.
Capitalization Rate (Cap Rate)A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
Comparable Sales (Comps)Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market 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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