Property Valuation
Accrued depreciation in the cost approach is the sum of:
AThe building's replacement cost minus its economic life
BPhysical deterioration, functional obsolescence, and external obsolescence✓ Correct
CAnnual depreciation over the building's useful life
DCost to replace the roof and HVAC system
Explanation
Accrued depreciation encompasses all three types of diminished value: physical deterioration (wear and tear), functional obsolescence (design deficiencies), and external obsolescence (outside factors).
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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.
Math Concepts
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