Arkansas Real Estate License Property Valuation and Appraisal 2

Question 1

Which appraisal approach estimates value by calculating the cost to replace the improvements minus depreciation, plus land value?

Accepted Answer

Cost approach

Answer

The cost approach values property by estimating replacement cost of improvements, deducting depreciation, then adding land value.

Question 2

Functional obsolescence in a property is best described as:

Accepted Answer

Loss of value from outdated design or features that no longer meet market needs

Answer

Functional obsolescence occurs when a property's design, layout, or features are outdated and no longer desirable in the current market.

Question 3

An appraiser is valuing a rental property generating $36,000 annual net operating income with a 9% cap rate. What is the estimated value?

Accepted Answer

$400,000

Answer

Value = NOI ÷ Cap Rate = $36,000 ÷ 0.09 = $400,000.

Question 4

The principle of substitution states that:

Accepted Answer

A buyer will pay no more for a property than the cost of an equally desirable substitute

Answer

The principle of substitution holds that a rational buyer will not pay more for a property than the cost of acquiring a comparable substitute.

Question 5

Which type of depreciation is generally considered incurable?

Accepted Answer

External obsolescence from a nearby highway

Answer

External obsolescence results from factors outside the property boundary, such as a nearby highway, which the owner cannot control or cure.

Arkansas Real Estate License Practice Test