Property Valuation
Which principle states that the value of an improvement is only worth the amount it adds to the total property value?
APrinciple of substitution
BPrinciple of contribution✓ Correct
CPrinciple of conformity
DPrinciple of progression
Explanation
The principle of contribution states that the value of any component of a property is measured by how much it contributes to the total property value, not by the cost to install it.
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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.
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.
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.
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