Property Valuation and Appraisal Flashcards
7 cards from real Arkansas Real Estate License practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Property Valuation and Appraisal flashcards as text
Which appraisal approach estimates value by calculating the cost to replace the improvements minus depreciation, plus land value?
Answer: Cost approach
The cost approach values property by estimating replacement cost of improvements, deducting depreciation, then adding land value.
Functional obsolescence in a property is best described as:
Answer: Loss of value from outdated design or features that no longer meet market needs
Functional obsolescence occurs when a property's design, layout, or features are outdated and no longer desirable in the current market.
An appraiser is valuing a rental property generating $36,000 annual net operating income with a 9% cap rate. What is the estimated value?
Answer: $400,000
Value = NOI ÷ Cap Rate = $36,000 ÷ 0.09 = $400,000.
The principle of substitution states that:
Answer: A buyer will pay no more for a property than the cost of an equally desirable substitute
The principle of substitution holds that a rational buyer will not pay more for a property than the cost of acquiring a comparable substitute.
Which type of depreciation is generally considered incurable?
Answer: External obsolescence from a nearby highway
External obsolescence results from factors outside the property boundary, such as a nearby highway, which the owner cannot control or cure.
In the sales comparison approach, an adjustment is made to a comparable sale when:
Answer: The comparable has a feature the subject lacks, requiring a negative adjustment to the comparable
When a comparable is superior to the subject (has a feature the subject lacks), a negative adjustment is made to the comparable's sale price.
What is the gross rent multiplier (GRM) used to estimate?
Answer: Property value based on a ratio of sale price to gross annual rent
The GRM is calculated by dividing the sale price of a property by its gross annual (or monthly) rent, then applied to the subject's rent to estimate value.