CFE CFE Market Analysis & Valuation Methods 2 — Questions and Answers
Question 1: When conducting a market analysis for mass appraisal in Florida, which statistical measure is used to assess the uniformity of assessments across properties?
- Median
- Coefficient of Dispersion (COD) (Correct answer)
- Standard deviation
- Gross rent multiplier
Correct answer: Coefficient of Dispersion (COD)
The Coefficient of Dispersion (COD) measures the average percentage deviation of individual assessment ratios from the median ratio, indicating assessment uniformity.
Question 2: What is a 'price-related differential' (PRD) used to detect in assessment ratio studies?
- The difference between list price and sale price
- Regressivity or progressivity in assessments across different value ranges (Correct answer)
- The relationship between land value and improvement value
- The variation in sales prices by geographic area
Correct answer: Regressivity or progressivity in assessments across different value ranges
The PRD indicates whether assessments are regressive (lower-value properties over-assessed relative to higher-value ones) or progressive — a PRD above 1.03 suggests regressivity.
Question 3: In Florida mass appraisal, what does the term 'sales ratio' represent?
- The ratio of gross sales to net income for commercial properties
- The ratio of assessed value to the verified sale price of a property (Correct answer)
- The percentage of properties that sold in a given period
- The ratio of land value to total property value
Correct answer: The ratio of assessed value to the verified sale price of a property
The sales ratio (assessment ratio) is calculated by dividing the assessed value by the verified arm's-length sale price, used to evaluate appraisal accuracy and level.
Question 4: Which income approach formula is used to convert a single year's income into a value estimate?
- Value = NOI × GRM
- Value = NOI ÷ Cap Rate (Correct answer)
- Value = EGI − Operating Expenses
- Value = PGI × Vacancy Rate
Correct answer: Value = NOI ÷ Cap Rate
Direct capitalization divides net operating income by the appropriate capitalization rate (Value = NOI ÷ Cap Rate) to estimate the property's market value.
Question 5: What is 'highest and best use' and why is it critical to the valuation process?
- The current use of the property as approved by zoning
- The legally permissible, physically possible, financially feasible, and maximally productive use that produces the highest value (Correct answer)
- The use that generates the most rental income regardless of legality
- The use determined by the property appraiser's office based on land records
Correct answer: The legally permissible, physically possible, financially feasible, and maximally productive use that produces the highest value
Highest and best use is the foundational concept in appraisal — it defines the use that maximizes property value while meeting all four criteria: legal, physical, financial, and maximum productivity.
Question 6: In the cost approach, which method estimates depreciation by comparing the total depreciation of a property to its reproduction or replacement cost?
- Market extraction method (Correct answer)
- Age-life method
- Breakdown method
- Income capitalization method
Correct answer: Market extraction method
The market extraction method derives depreciation by analyzing comparable sales, subtracting land value and reproduction cost new from sale prices to quantify market-observed total depreciation.
CFE CFE Market Analysis & Valuation Methods 2
When conducting a market analysis for mass appraisal in Florida, which statistical measure is used to assess the uniformity of assessments across properties?