Which of the following is true about the actual cash value of a property?

Which of the following is true about the actual cash value of a property?

• A. It is always equal to the purchase price.
• B. It includes only the costs of repairs.
• C. It can decrease over time due to depreciation.
• D. It is determined by an appraisal only.

Answer: (C)

The actual cash value (ACV) of a property refers to the value of a property after accounting for depreciation. This means that, while the market value of a property can change based on a variety of factors, ACV specifically reflects the current value of an asset by subtracting depreciation from its replacement cost. As properties age and wear out, their ACV typically decreases over time, making this statement accurate. This recognition of depreciation is crucial for insurance purposes, where ACV is often used to determine the payout on claims—a factor that considers not just the original purchase price, but also the aging or deterioration of the property. Understanding this concept is vital for real estate professionals and clients alike, as it provides insight into the true value of an investment over time.

The actual cash value (ACV) of a property refers to the value of a property after accounting for depreciation. This means that, while the market value of a property can change based on a variety of factors, ACV specifically reflects the current value of an asset by subtracting depreciation from its replacement cost. As properties age and wear out, their ACV typically decreases over time, making this statement accurate.

This recognition of depreciation is crucial for insurance purposes, where ACV is often used to determine the payout on claims—a factor that considers not just the original purchase price, but also the aging or deterioration of the property. Understanding this concept is vital for real estate professionals and clients alike, as it provides insight into the true value of an investment over time.