BC Real Estate Trading Services Course Property Valuation & Appraisal 4 — Questions and Answers
Question 1: Which of the following BEST describes 'highest and best use' in BC property valuation?
- The current use of the property
- The legal, physically possible, financially feasible, and maximally productive use of the land (Correct answer)
- The use with the highest BC Assessment value
- The use permitted under current zoning only
Correct answer: The legal, physically possible, financially feasible, and maximally productive use of the land
Highest and best use is the reasonably probable use of land that is legally permissible, physically possible, financially feasible, and results in the highest value. It may or may not be the current use.
Question 2: In BC, when a licensee prepares a CMA using 'active listings' as comparables, they should note that:
- Active listings represent completed sales and are the best indicators of value
- Active listings represent asking prices and typically overstate market value compared to actual sales (Correct answer)
- Active listings must be adjusted upward for market appreciation
- Active listings are more reliable than sold comparables
Correct answer: Active listings represent asking prices and typically overstate market value compared to actual sales
Active listings are asking prices, not completed sale prices. They represent the ceiling of value — properties may sell for less. Sold comparables are the most reliable indicators of market value.
Question 3: In BC property valuation, 'accrued depreciation' is the:
- Total annual mortgage principal paid
- Total loss in value of improvements from all causes as of the date of appraisal (Correct answer)
- Amount of depreciation claimed for income tax purposes
- Decrease in land value over time
Correct answer: Total loss in value of improvements from all causes as of the date of appraisal
Accrued depreciation is the total actual loss in value of improvements from the date of construction to the appraisal date, from all causes: physical deterioration, functional obsolescence, and external obsolescence.
Question 4: In BC, a licensee tells a seller their property is worth more than it actually is to win the listing. This is called:
- A Comparative Market Analysis
- Listing inflation or 'buying the listing' (Correct answer)
- Puffery
- A disclosure violation
Correct answer: Listing inflation or 'buying the listing'
'Buying the listing' is the unethical practice of inflating the estimated value to convince a seller to list with that brokerage, with the intent to reduce the price later. This violates professional conduct rules.
Question 5: In BC, effective gross income for a rental property is calculated as:
- Potential gross income plus vacancy allowance
- Potential gross income minus vacancy and credit losses (Correct answer)
- Net operating income plus operating expenses
- Annual mortgage payments plus operating expenses
Correct answer: Potential gross income minus vacancy and credit losses
Effective Gross Income = Potential Gross Income (100% occupancy) minus vacancy and credit losses. This represents the realistic income expected to be collected.
Question 6: Which approach to value would a BC appraiser MOST likely rely upon for a unique property like a church or school?
- Income approach
- Direct comparison approach
- Cost approach (Correct answer)
- Gross rent multiplier method
Correct answer: Cost approach
The cost approach is most useful for special-purpose properties (churches, schools, government buildings) where there are few comparable sales and the properties are not typically income-producing.
BC Real Estate Trading Services Course Property Valuation & Appraisal 4
Which of the following BEST describes 'highest and best use' in BC property valuation?