BC Real Estate Trading Services Course Property Valuation & Appraisal 2

Question 1

In BC, the 'cost approach' to property valuation estimates value by:

Accepted Answer

Estimating land value plus the depreciated replacement cost of improvements

Answer

The cost approach estimates value as the land value (usually by comparison) plus the cost to replace the improvements at current prices, minus depreciation from all causes.

Question 2

In the cost approach, 'depreciation' for a building is defined as:

Accepted Answer

The loss in value from all causes including physical deterioration, functional obsolescence, and external obsolescence

Answer

Depreciation in the cost approach is the total loss in value from physical deterioration (wear and tear), functional obsolescence (outdated features), and external obsolescence (factors outside the property).

Question 3

In a BC residential appraisal, 'external obsolescence' is caused by:

Accepted Answer

Factors outside the property such as proximity to a noisy highway or industrial area

Answer

External (economic) obsolescence results from factors external to the property that reduce its value, such as proximity to undesirable land uses, changes in the neighbourhood, or broader economic conditions.

Question 4

In BC, 'capitalization rate' (cap rate) in the income approach refers to:

Accepted Answer

The rate at which net operating income is converted into an indication of value

Answer

Cap rate is the ratio of Net Operating Income (NOI) to property value, used to convert income into value. Value = NOI ÷ Cap Rate. A higher cap rate indicates higher risk or lower value.

Question 5

In BC real estate, a Comparative Market Analysis (CMA) is typically prepared by:

Accepted Answer

A real estate licensee to help sellers price their property or buyers evaluate an offer price

Answer

A CMA is an informal valuation tool prepared by real estate licensees using sold and active comparable properties to assist clients in determining a reasonable list price or offer price. It is not a formal appraisal.

BC Real Estate Practice Test

BC Real Estate Practice Test

BC Real Estate Trading Services Course Property Valuation & Appraisal 2