Property Valuation
An Iowa appraiser finds that adding a second bathroom to a home increases its value by $8,000 but costs $15,000 to construct. This is an example of:
AOver-improvement (super-adequacy)✓ Correct
BPositive contribution
CExternal obsolescence
DFunctional utility
Explanation
Over-improvement (super-adequacy) occurs when a feature costs more to install than the value it contributes to the property. Adding a bathroom for $15,000 that only adds $8,000 in value is an over-improvement.
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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.
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.
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