Property Valuation
When using the cost approach to valuation in Pennsylvania, how is 'accrued depreciation' defined?
AThe annual depreciation deduction taken on income property for federal tax purposes
BThe total loss in value from all causes — physical deterioration, functional obsolescence, and external obsolescence✓ Correct
CThe decrease in replacement cost due to inflation adjustments
DThe carrying costs on unsold developer inventory
Explanation
In the cost approach, accrued depreciation is the total loss in value from the property's highest possible value (new, no depreciation) due to all causes: physical deterioration (wear and tear), functional obsolescence (outdated design), and external/economic obsolescence (outside factors). The cost approach formula is: Value = Land Value + Cost of Improvements − Accrued Depreciation.
People Also Study
Related Pennsylvania Questions
- An appraiser estimates the reproduction cost of a 1920s Philadelphia row home at $350,000 and calculates 40% total depreciation. What is the depreciated value of the improvements?Property Valuation
- Depreciation in the cost approach on a 20-year-old building with a 50-year economic life using straight-line method is:Real Estate Math
- A 20-year-old building cost $300,000 to construct and has a 50-year estimated economic life. Using straight-line depreciation, what is the total depreciation accrued?Real Estate Math
- When using the cost approach to value a Pennsylvania property, the formula is:Property Valuation
- External (economic) obsolescence is different from functional obsolescence because it:Property Valuation
- A Pennsylvania appraiser uses a 'capitalized income loss' adjustment for functional obsolescence when:Property Valuation
- A Pennsylvania income property has an annual NOI of $48,000. If the market cap rate for similar properties is 6%, what is the estimated value using the income approach?Real Estate Math
- Using the IRV formula, if a Pennsylvania property's annual NOI is $54,000 and the market cap rate is 7.2%, what is the estimated property value?Real Estate Math
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.
Capitalization Rate (Cap Rate)A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
Net Operating Income (NOI)The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
Math Concepts
Study This Topic
Practice More Pennsylvania Real Estate Questions
1,500+ questions covering all exam topics. Start free — no signup required.
Take the Free Pennsylvania Quiz →