Property Evaluation & Analysis Flashcards
7 cards from real CGA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Property Evaluation & Analysis flashcards as text
The principle of substitution states that:
Answer: A buyer will pay no more for a property than the cost of acquiring an equally desirable substitute
The principle of substitution holds that a rational buyer will not pay more for a property than the cost of obtaining an equally desirable alternative.
In income capitalization, a lower capitalization rate applied to the same NOI results in:
Answer: A higher indicated value
Since value = NOI ÷ cap rate, a lower cap rate produces a higher indicated property value when NOI remains constant.
Functional obsolescence caused by a deficiency that cannot be corrected is classified as:
Answer: Incurable functional obsolescence
Incurable functional obsolescence exists when the cost to cure exceeds the value gain from curing, or when it is physically impossible to correct.
What does the term 'arm's-length transaction' mean in the context of real property appraisal?
Answer: A sale in which both parties act prudently, knowledgeably, and without duress or special relationships
An arm's-length transaction involves unrelated parties with equal bargaining power, both acting in their own best interests without compulsion.
When using the income approach for a commercial property, vacancy and collection loss is deducted from:
Answer: Potential gross income
Vacancy and collection loss is subtracted from potential gross income to arrive at effective gross income, the first step in building to NOI.
In the cost approach, entrepreneurial profit (also called entrepreneurial incentive) represents:
Answer: The profit a developer expects to earn as compensation for risk and expertise in a development project
Entrepreneurial profit is the amount a developer expects to earn above and beyond costs as compensation for risk, time, and management of a project.
A gross rent multiplier (GRM) is most appropriately applied to:
Answer: Residential income properties where gross rent data is readily available
The GRM is a simplified income tool most appropriate for smaller residential income properties where gross rent comparables are plentiful.