CA Real Estate Property Valuation and Appraisal 1 — Questions and Answers
Question 1: Which appraisal approach estimates value by calculating the cost to replace or reproduce a building minus depreciation, plus land value?
- Income approach
- Sales comparison approach
- Cost approach (Correct answer)
- Gross rent multiplier approach
Correct answer: Cost approach
The cost approach estimates value by adding land value to the depreciated cost of improvements.
Question 2: In California, what is the primary method used by appraisers to value single-family homes?
- Income approach
- Sales comparison approach (Correct answer)
- Cost approach
- Capitalization approach
Correct answer: Sales comparison approach
The sales comparison approach is preferred for residential properties because it uses recent comparable sales data.
Question 3: Which type of depreciation is caused by factors outside the property, such as a nearby freeway?
- Physical deterioration
- Functional obsolescence
- Economic obsolescence (Correct answer)
- Structural depreciation
Correct answer: Economic obsolescence
Economic (external) obsolescence results from negative influences outside the property that reduce its value.
Question 4: What does the capitalization rate (cap rate) represent in real estate appraisal?
- The ratio of net operating income to property value (Correct answer)
- The percentage of down payment required
- The annual appreciation rate
- The ratio of gross rent to sale price
Correct answer: The ratio of net operating income to property value
The cap rate is calculated by dividing the net operating income (NOI) by the property's value or purchase price.
Question 5: Which principle of value states that the value of a property is determined by what a buyer would pay in an open and competitive market?
- Principle of substitution
- Principle of supply and demand (Correct answer)
- Principle of contribution
- Principle of conformity
Correct answer: Principle of supply and demand
The principle of supply and demand states that value is set by the interplay of market supply and buyer demand.
Question 6: When appraising income property, which term describes the total potential rental income if the property were fully occupied?
- Effective gross income
- Net operating income
- Gross scheduled income (Correct answer)
- Cash flow before tax
Correct answer: Gross scheduled income
Gross scheduled income (GSI) is the maximum possible rental income assuming 100% occupancy at market rents.
CA Real Estate Property Valuation and Appraisal 1
Which appraisal approach estimates value by calculating the cost to replace or reproduce a building minus depreciation, plus land value?