BC Real Estate Trading Services Course Property Valuation & Appraisal 3 — Questions and Answers
Question 1: When a BC appraiser makes a 'positive adjustment' to a comparable sale, it means:
- The comparable sold for more than market value
- The comparable is inferior to the subject, so its price is adjusted upward (Correct answer)
- The comparable sold recently and no adjustment is needed
- The subject property is less desirable than the comparable
Correct answer: The comparable is inferior to the subject, so its price is adjusted upward
A positive adjustment means adding value to the comparable's price because the comparable lacks a feature the subject has. The comparable is inferior in that element, so its price is adjusted upward to reflect what it would have sold for with that feature.
Question 2: In BC, 'functional obsolescence' in property valuation is best described as:
- Wear and tear from physical use of the building
- Reduced value due to outdated or inefficient design features of the building (Correct answer)
- Loss of value from changes in the neighbourhood
- Depreciation caused by deferred maintenance
Correct answer: Reduced value due to outdated or inefficient design features of the building
Functional obsolescence is loss of value due to features of the building itself that are outmoded, inefficient, or undesirable — such as an outdated floor plan, poor ceiling heights, or inadequate electrical service.
Question 3: In BC residential appraisals, which factors are considered when selecting comparables?
- Properties listed on MLS in any location across Canada
- Recently sold properties that are similar in type, size, location, and condition to the subject (Correct answer)
- Only properties sold at the same price as the subject
- Properties assessed by BC Assessment at similar values
Correct answer: Recently sold properties that are similar in type, size, location, and condition to the subject
Good comparables are recent sales of similar properties — comparable in type (residential), size, location, age, condition, and features. The more similar they are, the fewer adjustments needed.
Question 4: Net Operating Income (NOI) for a BC income property is calculated as:
- Gross rent minus mortgage payments
- Effective gross income minus operating expenses (excluding debt service) (Correct answer)
- Total rent collected minus property taxes only
- Potential gross income minus vacancy
Correct answer: Effective gross income minus operating expenses (excluding debt service)
NOI = Effective Gross Income (potential income minus vacancy and credit losses) minus all operating expenses, excluding debt service (mortgage payments). NOI is used in the income approach to estimate value.
Question 5: In BC, a property's BC Assessment value compared to its market value typically:
- Is always exactly equal to market value
- May differ — BC Assessment uses a mass appraisal as of July 1, while market value reflects current conditions (Correct answer)
- Is always higher than market value due to government overvaluation
- Is set by the municipality, not the province
Correct answer: May differ — BC Assessment uses a mass appraisal as of July 1, while market value reflects current conditions
BC Assessment uses mass appraisal as of July 1 of the previous year. By the time assessments are published and taxes levied, market conditions may have changed, causing assessed value to differ from current market value.
Question 6: In BC, the 'gross rent multiplier' (GRM) method estimates value by:
- Dividing the sale price by the monthly rent
- Multiplying the gross monthly rent by a market-derived factor (GRM) to estimate value (Correct answer)
- Multiplying annual net income by a capitalization rate
- Adding gross rent to the land value
Correct answer: Multiplying the gross monthly rent by a market-derived factor (GRM) to estimate value
GRM = Sale Price ÷ Monthly Gross Rent. To estimate value: Value = Monthly Gross Rent × GRM. It is a quick comparative method but less precise than full income capitalization as it ignores expenses.
BC Real Estate Trading Services Course Property Valuation & Appraisal 3
When a BC appraiser makes a 'positive adjustment' to a comparable sale, it means: