BC Real Estate Trading Services Course Property Valuation 2

Question 1

What is 'gross rent multiplier' (GRM) and how is it used in BC real estate?

Accepted Answer

A simplified valuation tool that estimates property value by multiplying the gross annual rent by a factor derived from comparable sales

Answer

The Gross Rent Multiplier is a quick valuation tool: Value = Gross Annual Rent × GRM. The GRM is derived from comparable properties by dividing their sale price by their gross annual rent. While simpler than a full income approach, GRM does not account for operating expenses and is best used as a preliminary screening tool.

Question 2

In BC, who can perform a property appraisal for mortgage lending purposes?

Accepted Answer

A member of the Appraisal Institute of Canada (AIC) with the appropriate designation (AACI or CRA)

Answer

For mortgage lending purposes, appraisals must be performed by qualified members of the Appraisal Institute of Canada (AIC). The two main designations are AACI (Accredited Appraiser Canadian Institute) for all property types and CRA (Canadian Residential Appraiser) for residential properties. Lenders require these qualifications for risk management.

Question 3

What is a 'Comparative Market Analysis' (CMA) and how does it differ from a formal appraisal?

Accepted Answer

A CMA is an estimate of market value prepared by a real estate licensee using comparable sales, while a formal appraisal is a more rigorous analysis by a designated appraiser

Answer

A CMA is prepared by a real estate licensee to help clients determine a listing or offer price. It uses comparable sales but is less rigorous than a formal appraisal. An appraisal follows strict professional standards (CUSPAP), is performed by a designated appraiser, and is typically required by lenders. A CMA cannot be used in place of a formal appraisal for lending.

Question 4

What is 'functional obsolescence' in property valuation?

Accepted Answer

A loss in value due to outdated design features, poor layout, or inadequate systems that reduce the property's utility compared to modern standards

Answer

Functional obsolescence is a loss in value caused by the property's design or features being outdated or inadequate by current standards. Examples include insufficient electrical capacity, single bathroom in a large home, outdated kitchen layout, or lack of parking. It can be curable (cost-effective to fix) or incurable (too expensive relative to the value gained).

Question 5

How does BC Assessment determine property values for tax purposes?

Accepted Answer

By using mass appraisal techniques based on market data, considering property characteristics, location, and recent sales as of July 1 each year

Answer

BC Assessment uses mass appraisal techniques to value all properties in BC annually. Values are based on market conditions as of July 1 (the valuation date) and reflect the property's physical condition as of October 31. The process considers comparable sales, property characteristics, location, and market trends to estimate fair market value.

BC Real Estate Practice Test

BC Real Estate Practice Test

BC Real Estate Trading Services Course Property Valuation 2