Property Valuation
A Utah appraiser inspects a home and notes that the roof is 20 years old with a 25-year life expectancy. The physical deterioration of the roof is:
AIncurable—the appraiser ignores it
BCurable or incurable depending on whether repair cost is justified by the resulting value increase✓ Correct
CAutomatic grounds to reject the appraisal
DExternal obsolescence
Explanation
Physical deterioration may be curable (cost to repair is less than or equal to the value added) or incurable (cost to repair exceeds the value gain). A 20-year-old roof nearing end of life may be curable (replace it) or incurable if not warranted.
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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.
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.
Math Concepts
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