Property Valuation
The principle of contribution holds that:
AThe value of any component is measured by its contribution to the total value of the property✓ Correct
BAll components of a property must contribute equally to value
CImprovements always add their cost to the property value
DLand value is always greater than improvement value
Explanation
The principle of contribution states that the value of any improvement (or component) is measured by how much it adds to the total market value of the property — not by what it cost to build.
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Key Terms to Know
Appraisal
A professional estimate of a property's market value prepared by a licensed or certified appraiser.
Comparable Sales (Comps)Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
DepreciationA 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.
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