Property Valuation
In the cost approach, the estimated value of land is:
AAdded to the depreciated cost of improvements✓ Correct
BExcluded from the final value estimate
CDetermined by the income approach only
DCalculated using the gross rent multiplier
Explanation
In the cost approach: Value = Land Value + (Replacement or Reproduction Cost of Improvements − Accrued Depreciation). Land is always valued separately (usually using the sales comparison approach) and then added to the depreciated cost 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.
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.
AppraisalA professional estimate of a property's market value prepared by a licensed or certified appraiser.
Math Concepts
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