Property Valuation
What is 'entrepreneurial profit' in the cost approach to appraisal?
AThe profit a real estate agent earns on a sale
BThe amount above cost that a developer expects as a return for their effort, expertise, and risk✓ Correct
CThe difference between list price and sale price
DThe tax savings from depreciation deductions
Explanation
Entrepreneurial profit (incentive) represents the amount above total development costs that motivates a developer to undertake a project, reflecting the risk, expertise, and coordination required.
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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.
DepreciationA reduction in the value of an improvement (building) over time due to physical deterioration, functional obsolescence, or external factors.
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.
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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