Property Valuation
What is 'scarcity' as a principle of value in Rhode Island real estate?
AScarcity means property is always valuable regardless of demand
BThe less supply of a desired property type, the higher the value—limited supply combined with demand creates value✓ Correct
CScarcity means property cannot be created
DScarcity applies only to waterfront properties
Explanation
The principle of scarcity states that value is partly created by limited supply. When the supply of a desirable property type is scarce relative to demand, prices rise.
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Key Terms to Know
Comparable Sales (Comps)
Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
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.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
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