Property Valuation
When appraising a historic building in Morgantown, WV using the cost approach, the appraiser would:
AUse only the sales comparison method
BEstimate land value plus depreciated cost of improvements✓ Correct
CCalculate NOI and apply a cap rate
DAverage three appraisal methods equally
Explanation
The cost approach estimates value by adding the land value (as if vacant) to the depreciated replacement or reproduction cost of the improvements. For unique or historic buildings with few comparable sales, the cost approach can provide a useful value indication.
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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.
Net Operating Income (NOI)The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
Comparable Sales (Comps)Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
Math Concepts
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