CCS Property Valuation & Appraisal 3 — Questions and Answers
Question 1: A condominium complex has 50 units, all identical. If the entire complex sold for $10 million, what valuation principle cautions against simply dividing to value one unit?
- Principle of substitution
- Principle of contribution (Correct answer)
- Principle of conformity
- Principle of regression
Correct answer: Principle of contribution
The principle of contribution holds that value of a component depends on its contribution to the whole, not simply a proportional division of bulk sale price.
Question 2: Which document is the most critical for an appraiser to review when determining a condominium unit's legal description?
- The homeowners insurance policy
- The condominium declaration and plat (Correct answer)
- The property tax assessment notice
- The seller's disclosure statement
Correct answer: The condominium declaration and plat
The condominium declaration and recorded plat define legal boundaries, unit numbers, and the share of common elements, which are essential for a proper legal description.
Question 3: When using the income approach for an investor-owned condo, which formula correctly calculates Net Operating Income (NOI)?
- Gross income minus vacancy and collection loss
- Effective gross income minus operating expenses (Correct answer)
- Potential gross income minus mortgage payments
- Market rent minus property taxes only
Correct answer: Effective gross income minus operating expenses
NOI equals effective gross income (after vacancy/collection losses) minus all operating expenses, excluding debt service.
Question 4: A condo unit is in a project where 60% of units are investor-owned rentals. How might this affect the appraisal?
- It increases value because rental demand is strong
- It may limit financing eligibility and reduce appraised value (Correct answer)
- It has no effect since unit condition determines value
- It only matters if the HOA is delinquent on dues
Correct answer: It may limit financing eligibility and reduce appraised value
High investor concentration can disqualify the project from conventional financing guidelines, limiting the buyer pool and potentially suppressing value.
Question 5: What is 'effective age' in the context of condominium appraisal?
- The number of years since the building received its certificate of occupancy
- The age indicated by the condition and utility of the property (Correct answer)
- The age calculated from the original building permit date
- The weighted average age of all mechanical systems in the building
Correct answer: The age indicated by the condition and utility of the property
Effective age reflects the property's apparent age based on condition, maintenance, and modernization, which may differ from its actual chronological age.
Question 6: In a condominium appraisal, 'functional obsolescence' caused by a poor floor plan that cannot be easily corrected is called:
- Curable functional obsolescence
- Incurable functional obsolescence (Correct answer)
- External obsolescence
- Physical deterioration
Correct answer: Incurable functional obsolescence
Incurable functional obsolescence exists when the cost to cure the deficiency exceeds the value added, making correction economically impractical.
Question 7: What does a 'paired sales analysis' allow an appraiser to do?
- Compare two appraisal firms' value conclusions
- Isolate and quantify the value contribution of a specific feature (Correct answer)
- Calculate the average appreciation rate in a market area
- Determine the appropriate capitalization rate for income properties
Correct answer: Isolate and quantify the value contribution of a specific feature
By comparing two otherwise identical sales that differ only in one feature, an appraiser can isolate that feature's market value contribution.
CCS Property Valuation & Appraisal 3
A condominium complex has 50 units, all identical.
If the entire complex sold for $10 million, what valuation principle cautions against simply dividing to value one unit?