Property Valuation
Depreciation in the cost approach refers to:
AThe annual tax deduction taken on investment property
BAny loss in value from any cause✓ Correct
CThe difference between list price and sales price
DThe amount of mortgage paid down
Explanation
In appraisal, depreciation means any loss in value from any cause—physical deterioration, functional obsolescence, or external (economic) obsolescence. It reduces the replacement cost to arrive at value.
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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.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
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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