Property Valuation and Appraisal Flashcards
6 cards from real CA REAL ESTATE practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Property Valuation and Appraisal flashcards as text
The principle of substitution states that a buyer will pay no more for a property than:
Answer: The cost of an equally desirable substitute property
The principle of substitution holds that value is capped at the cost of acquiring a comparable substitute.
Which type of depreciation refers to a loss in value due to outdated or inefficient design features within the property?
Answer: Functional obsolescence
Functional obsolescence is a loss in value caused by outdated design, layout, or equipment within the property.
A property generates a net operating income of $50,000 per year and has a capitalization rate of 5%. What is the estimated value?
Answer: $1,000,000
Value = NOI ÷ Cap Rate = $50,000 ÷ 0.05 = $1,000,000.
In California, who is licensed to perform federally related real property appraisals?
Answer: A licensed or certified appraiser
Only licensed or certified appraisers may perform federally related real estate appraisals under FIRREA requirements.
The income approach to value is MOST appropriate for which type of property?
Answer: Income-producing investment properties
The income approach is most suitable for investment properties where investors base value on income-generating potential.
What is the gross rent multiplier (GRM) used to estimate?
Answer: Property value based on rental income
The GRM is calculated by dividing the sale price by the gross monthly (or annual) rental income to estimate value.