CGA Property Evaluation & Analysis 3

Question 1

The principle of substitution states that:

Accepted Answer

A buyer will pay no more for a property than the cost of acquiring an equally desirable substitute

Answer

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.

Question 2

In income capitalization, a lower capitalization rate applied to the same NOI results in:

Accepted Answer

A higher indicated value

Answer

Since value = NOI ÷ cap rate, a lower cap rate produces a higher indicated property value when NOI remains constant.

Question 3

Functional obsolescence caused by a deficiency that cannot be corrected is classified as:

Accepted Answer

Incurable functional obsolescence

Answer

Incurable functional obsolescence exists when the cost to cure exceeds the value gain from curing, or when it is physically impossible to correct.

Question 4

What does the term 'arm's-length transaction' mean in the context of real property appraisal?

Accepted Answer

A sale in which both parties act prudently, knowledgeably, and without duress or special relationships

Answer

An arm's-length transaction involves unrelated parties with equal bargaining power, both acting in their own best interests without compulsion.

Question 5

When using the income approach for a commercial property, vacancy and collection loss is deducted from:

Accepted Answer

Potential gross income

Answer

Vacancy and collection loss is subtracted from potential gross income to arrive at effective gross income, the first step in building to NOI.

(CGA) Certified General Appraiser Practice Test

(CGA) Certified General Appraiser Practice Test

CGA Property Evaluation & Analysis 3