CHI Market Analysis & Valuation 2 — Questions and Answers
Question 1: In a seller's market, which condition is most commonly observed?
- High inventory with few buyers
- Low inventory with many competing buyers (Correct answer)
- Equal supply and demand
- Declining home prices
Correct answer: Low inventory with many competing buyers
A seller's market is characterized by limited housing inventory and strong buyer demand, which drives prices upward.
Question 2: Which of the following best describes the 'income approach' to property valuation?
- Estimating value based on replacement cost minus depreciation
- Calculating value based on the property's ability to generate rental income (Correct answer)
- Comparing the property to recently sold similar properties
- Assessing land value separately from improvements
Correct answer: Calculating value based on the property's ability to generate rental income
The income approach values a property by capitalizing its net operating income, primarily used for investment and rental properties.
Question 3: What does 'days on market' (DOM) indicate in a real estate analysis?
- The age of the property listing permit
- How long a property has been listed for sale before going under contract (Correct answer)
- The number of days a buyer has to complete due diligence
- The time required to close escrow after offer acceptance
Correct answer: How long a property has been listed for sale before going under contract
DOM measures how long a property was actively listed before receiving an accepted offer, reflecting local market demand.
Question 4: A home inspector reviewing a property for valuation purposes notices deferred maintenance. How does this typically affect market value?
- It has no effect if the home is structurally sound
- It increases value by showing original features are intact
- It generally reduces market value due to anticipated repair costs (Correct answer)
- It only affects value if the inspector documents it formally
Correct answer: It generally reduces market value due to anticipated repair costs
Deferred maintenance signals future repair costs to buyers and appraisers, typically resulting in a downward adjustment to market value.
Question 5: Which factor is considered an 'external obsolescence' in property valuation?
- Outdated kitchen appliances
- A cracked foundation wall
- A new highway constructed adjacent to the property (Correct answer)
- Worn carpet throughout the home
Correct answer: A new highway constructed adjacent to the property
External obsolescence arises from outside the property's boundaries, such as nearby nuisances or infrastructure changes that reduce desirability.
Question 6: What is 'market value' as used in real estate appraisal?
- The price the seller originally paid for the property
- The tax-assessed value assigned by the municipality
- The most probable price a property would bring in a competitive, open market transaction (Correct answer)
- The replacement cost of the improvements on the land
Correct answer: The most probable price a property would bring in a competitive, open market transaction
Market value is the estimated price a willing buyer and seller would agree upon in an arm's-length transaction under normal market conditions.
Question 7: When performing a sales comparison approach, an appraiser finds a comparable sale with a superior garage compared to the subject property. What adjustment is made to the comparable?
- A positive adjustment is added to the comparable's sale price
- A negative adjustment is subtracted from the comparable's sale price (Correct answer)
- No adjustment is needed for garage differences
- The comparable is discarded from the analysis
Correct answer: A negative adjustment is subtracted from the comparable's sale price
When a comparable is superior to the subject in a feature, a negative adjustment is made to the comparable to bring it in line with the subject's value.
CHI Market Analysis & Valuation 2
In a seller's market, which condition is most commonly observed?