Property Valuation
The cost approach to appraisal estimates value by:
AComparing recent sales of similar properties
BEstimating land value plus reproduction or replacement cost of improvements minus depreciation✓ Correct
CCapitalizing the property's net operating income
DMultiplying gross rents by the GRM
Explanation
The cost approach estimates value as land value plus the cost to reproduce or replace existing improvements, less all forms of depreciation (physical, functional, and external). It is most reliable for new or unique properties.
People Also Study
Related Indiana Questions
- An Indiana building's replacement cost new is $650,000 and the land is worth $100,000. The building has 25% accrued depreciation. What is the value by the cost approach?Real Estate Math
- The cost approach to value estimates property value by:Property Valuation
- The land residual technique in Indiana income property appraisal estimates land value by:Property Valuation
- An Indiana appraisal shows the building value is $340,000 with a 40-year economic life. If the building is 10 years old, what is the physical depreciation using age-life method?Real Estate Math
- Which appraisal approach is typically used for special-purpose properties like churches or schools?Property Valuation
- Depreciation in the cost approach is defined as:Property Valuation
- An Indiana home's market value is $300,000, the land is worth $60,000, and the building has a 30-year remaining economic life. Using straight-line depreciation, what is the annual building depreciation for tax purposes (residential = 27.5 years)?Finance
- An Indiana appraisal finds that the subject's bedroom count is one less than a comparable. The bedroom adjustment is $5,000. If the comparable sold for $248,000, what is the adjusted value?Real Estate Math
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.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
Comparable Sales (Comps)Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
Study This Topic
Practice More Indiana Real Estate Questions
1,500+ questions covering all exam topics. Start free — no signup required.
Take the Free Indiana Quiz →