Property Valuation
A 2,000 square foot home is being appraised. The appraiser estimates cost new at $180/sq ft, physical deterioration of $40,000, functional obsolescence of $15,000, and land value at $75,000. What is the cost approach value?
A$320,000
B$345,000
C$380,000✓ Correct
D$420,000
Explanation
Cost new = 2,000 × $180 = $360,000. Total depreciation = $40,000 + $15,000 = $55,000.
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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.
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.
Capitalization Rate (Cap Rate)A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
Math Concepts
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