Property Valuation
The cost approach to value is most reliable for:
AOlder homes with many comparable sales
BNew construction and special-purpose properties✓ Correct
CVacant land without improvements
DProperties in declining neighborhoods
Explanation
The cost approach is most useful for new construction (little depreciation) and special-purpose properties (churches, schools) where comparable sales are limited. It estimates value as land value plus depreciated replacement cost of improvements.
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Key Terms to Know
Depreciation
A reduction in the value of an improvement (building) over time due to physical deterioration, functional obsolescence, or external factors.
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.
Math Concepts
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