Property Valuation
The cost approach to value is most reliable for appraising:
AOlder residential homes in established neighborhoods
BIncome-producing commercial properties
CNew construction or special-use properties with few comparables✓ Correct
DVacation rental condominiums
Explanation
The cost approach is most reliable for new construction (where depreciation is minimal) and special-use properties (churches, schools, government buildings) where comparable sales are difficult to find.
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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.
Comparable Sales (Comps)Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
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.
Math Concepts
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