Property Valuation
The effective age of a building refers to:
AThe year the building was constructed
BThe age reflected by the building's condition and utility, which may differ from its actual age✓ Correct
CThe remaining economic life of the building
DThe age required to qualify for historic tax credits
Explanation
Effective age is based on the building's condition and utility rather than its actual chronological age. A well-maintained older building may have a lower effective age than its actual age; a poorly maintained newer building may have a higher effective age.
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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.
Net Operating Income (NOI)The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
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