Market Analysis & Valuation Flashcards

What is 'reconciliation' in the context of a real estate appraisal?

Answer: The appraiser's process of weighing multiple value indications to arrive at a final value conclusion

Reconciliation is the final step where the appraiser weighs the results from each valuation approach to arrive at a single, well-supported final value estimate.

A property's asking price is significantly higher than all recent comparable sales in the area. What is the most likely market outcome?

Answer: The property will likely sit on the market longer and may require a price reduction

Overpriced properties relative to market comparables typically experience extended days on market and often require price reductions to attract qualified buyers.

What is the significance of 'arm's length transaction' when selecting comparable sales for a CMA?

Answer: It confirms the sale occurred between unrelated parties acting in their own best interests, reflecting true market value

Arm's length transactions between unrelated, non-pressured parties are considered reliable indicators of market value and are preferred as comparables.

Which market trend would most likely cause residential property values to decline in a given area?

Answer: A major employer in the area announcing a large facility closure

Major employer closures reduce local employment and population, decreasing housing demand and putting downward pressure on residential property values.

When a home inspector's report reveals significant structural issues, how does this typically affect the appraisal process?

Answer: The lender may require repairs before the appraisal can support the loan amount, or the appraiser may note the condition as a value-impacting factor

Significant structural defects revealed in a home inspection can prompt lenders to require repairs as a condition of financing, and appraisers account for them in their value conclusion.

What does 'gross rent multiplier' (GRM) help estimate in real estate analysis?

Answer: A quick approximation of a property's value based on its gross rental income

GRM is calculated by dividing a property's sale price by its gross annual rental income, providing a quick, rough estimate of value for income-producing properties.

A homeowner makes a significant improvement that is unusual for the neighborhood, such as adding an in-ground pool where no other homes have one. Which valuation principle explains why the full cost of the pool may not be recovered in the sale price?

Answer: Principle of contribution

The principle of contribution states that the value of an improvement equals only what it adds to market value, not necessarily its cost — especially if the improvement exceeds what buyers in that market expect.