Property Valuation
What is the 'cost approach' to appraisal and when is it most reliable in Pennsylvania?
AThe approach that values property based solely on historical purchase price plus improvements
BAn approach estimating value as land value plus depreciated cost of improvements, most reliable for new construction, special-use properties, and insurance purposes✓ Correct
CThe approach comparing similar properties' sale prices to determine value
DA method calculating value based on potential income the property could generate
Explanation
The cost approach estimates value as land value + replacement cost of improvements − accrued depreciation. It is most reliable for: new construction (minimal depreciation), special-use properties with no comparable sales (schools, churches, government buildings), insurance valuation, and properties where the improvement represents the highest-and-best use.
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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.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
Comparable Sales (Comps)Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
Math Concepts
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