Real Estate Valuation Cost Approach Quiz

A valuation method that estimates property worth based on the cost of rebuilding or replacing it, adjusted for depreciation.

Depreciation that occurs due to wear and tear caused by age, weather, and lack of upkeep.

Depreciation that considers how useful or desirable a property is.

The estimated current value of a property after subtracting depreciation from its replacement cost.

This approach focuses on the cost of constructing the property and depreciation.

The Cost Approach is most commonly used in the valuation of new buildings, plants, machinery, and properties with unique purposes.

The cost approach equation: Land value + cost of construction - depreciation = total property value.

The cost approach is widely used for assessing the cost of insurance, rent restrictions, and property taxes.

The decrease in the value of a property due to factors like wear and tear, age, and obsolescence. It reflects the gradual decline in a building's worth from its original condition.

The process of determining the current cost of constructing a new building with similar functionality and specifications as the existing one. This is done by considering factors like site preparation, utilities, building improvements, and tenant improvements.

Estimating the value of a property based on the cost of building a new equivalent property, minus depreciation. This is a common valuation approach.

The loss in value of a property due to its decreased functionality and usefulness, often caused by changing trends or technological advancements.

The estimated cost of preparing the land for construction, including leveling, paving, landscaping, and other site improvements.

The value of the land itself, separate from any buildings or structures. This is often determined by comparing similar sales in the area.

The estimated value of a property arrived at by considering the replacement cost, depreciation, and the land value.

The process of assessing the condition of a property and determining the extent of wear and tear or deterioration that has occurred. This helps estimate the depreciation component of the valuation.

A valuation method used for properties with potential for future development or redevelopment. It analyzes the expected value of the property after improvements are made.

The expected capital value of a property or the sale price of the finished development after improvements have been made.

A valuation method primarily used for properties generating income through usage, like hotels, cinemas, or gas stations. It considers the relationship between profit generated from the asset and the overall property value.

A valuation method where the value of a property is estimated based on comparable properties that have recently sold in the same or similar markets. This approach relies on analyzing recent sales data and adjusting for significant differences between the subject property and comparables.

The profit remaining after deducting the cost of goods sold from total earnings.

The profit remaining after deducting all operating expenses from gross profit.

A valuation approach that measures the value of a property based on its future income potential.

The rate of return an investor expects to receive on their investment.

The formula to calculate the expected income from an investment.

A valuation method that focuses on the present value of future income streams generated by a property.

The formula used to calculate the capital value of a property based on its expected income and required rate of return.

The residual approach determines land value by subtracting development costs, desired profit, and projected sales revenue from the Gross Development Value (GDV).

The residual approach helps assess the financial feasibility and risk associated with development projects by comparing the estimated land value with the market value.

The profit approach values a property based on its ability to generate income and its potential resale value.

The profit approach is commonly used for income-producing properties like rental properties and commercial buildings.

The profit approach considers factors like rental income, operating expenses, and resale value to calculate the property's worth.

The investment approach values properties based on their ability to generate income as investments, considering market capitalization rates and investor expectations.

Comparing similar investment properties helps determine market trends and establish appropriate capitalization rates, which are essential for valuing investment properties.

The investment approach helps investors assess the risk and potential return by analyzing factors like market conditions, capitalization rates, and the property's income-generating potential.