Property Valuation
What is 'entrepreneurial profit' in the cost approach appraisal?
AThe profit that a property owner earns from operating a business on the property
BThe reasonable return on the developer's risk and time for coordinating construction — often added to the depreciated cost of construction in the cost approach for new or special-purpose properties✓ Correct
CThe profit an appraiser earns from completing multiple appraisals
DCapital gains from selling a newly constructed property
Explanation
Entrepreneurial profit (or entrepreneurial incentive) is the reasonable return that a developer/builder expects for their risk, time, and expertise in developing a new property. It is sometimes added in the cost approach: Value = Land Value + Construction Cost + Entrepreneurial Profit − Depreciation. It reflects that a property might sell for more than hard construction costs when the developer's reward is included.
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