Property Valuation
In the cost approach, after determining the replacement cost new, the appraiser deducts:
AThe land value
BAll forms of depreciation (physical, functional, and external)✓ Correct
CThe mortgage balance
DThe property tax obligation
Explanation
The cost approach deducts total accrued depreciation (physical deterioration + functional obsolescence + external obsolescence) from the replacement cost new to determine the depreciated value of improvements.
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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.
AppraisalA professional estimate of a property's market value prepared by a licensed or certified appraiser.
Short SaleA sale of real property where the sale proceeds are less than the outstanding mortgage balance, requiring lender approval.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Math Concepts
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