What approach assumes that the value of improved property is indicated by the value of the site, plus the cost of improvements, minus depreciation?
a. Cost approach
b. Income approach
c. Gross multiplier
d. All of the above
Answer (2)
The question describes a valuation method: land value + improvement costs - depreciation.
The cost approach matches this description.
The income approach and gross multiplier do not fit the description.
Therefore, the answer is the cost approach: a .
Explanation
Understanding the Problem The question describes a valuation method where the value of a property is calculated by adding the value of the land to the cost of any improvements made, and then subtracting any depreciation. We need to identify which of the given options matches this description.
Analyzing the Options Let's examine each option:
Cost approach: This approach estimates the value of a property by determining the cost of building a new, similar property, then subtracting depreciation. This aligns with the description in the question.
Income approach: This approach values a property based on the income it generates. It's not directly related to the cost of improvements or depreciation.
Gross multiplier: This is a simplified valuation method that multiplies a property's gross income by a multiplier to estimate its value. It doesn't consider the cost of improvements or depreciation.
Identifying the Correct Approach Based on the analysis, the cost approach aligns perfectly with the description provided in the question.
Conclusion Therefore, the correct answer is the cost approach.
Examples
Imagine you're trying to figure out how much a house is worth. The cost approach is like saying, 'How much would it cost to build this house brand new today? Then, how much has it worn down over time?' You add the value of the land it's on to the cost of building a new house, and then subtract any wear and tear (depreciation). This gives you a good idea of the house's current value. This method is often used for unique properties or when there aren't many similar properties to compare it to.
The cost approach accurately describes the valuation method where the property's value is calculated by adding the land value to improvement costs and subtracting depreciation. Therefore, the correct answer is option a. Cost approach.
;
