Property Valuation (alternative)
An appraiser using the cost approach for a new Maryland home that is exactly like the subject just built next door would likely give:
AThe income approach the most weight
BThe cost approach significant weight because depreciation is minimal in a new home and cost closely equals value✓ Correct
CThe sales comparison approach the most weight regardless
DEqual weight to all three approaches
Explanation
For newly constructed properties, the cost approach is highly reliable because depreciation is minimal and construction costs closely represent market value. However, the sales comparison approach is also important.
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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.
Comparable Sales (Comps)Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
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.
Math Concepts
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