Property Valuation
If a property has both an older home and a vacant lot and the appraiser concludes the highest and best use is to demolish the home and build condominiums, this analysis supports a:
AValue based on the current improved use
BDemolition value analysis in the cost approach
CHigher land value that may exceed the value as improved✓ Correct
DIncome approach based on the existing rental of the home
Explanation
When the land value as vacant (for its highest and best use) exceeds the value as improved, it indicates the improvements have negative contributory value and demolition may be economically justified. This is known as superadequacy of land value over improved value.
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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.
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.
Pre-ApprovalA lender's conditional commitment to loan a specific amount to a borrower, based on verified income, credit, and assets.
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