Property Appraisal Methods & Valuation Flashcards
7 cards from real CIA 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 Appraisal Methods & Valuation flashcards as text
In the income capitalization approach, what does a lower capitalization rate indicate about a property?
Answer: Lower risk and higher value
A lower cap rate reflects lower perceived risk, which investors accept for stable income-producing properties, resulting in a higher indicated value.
Which depreciation type results from factors outside the property itself, such as a new highway adjacent to a residential neighborhood?
Answer: External obsolescence
External (economic) obsolescence stems from forces outside the property boundaries and is generally incurable by the property owner.
When an appraiser uses the paired-sales analysis technique, what is the primary goal?
Answer: Isolate the value contribution of a single property feature
Paired-sales analysis compares two similar sales that differ in only one characteristic to extract the market value of that specific feature.
Gross Rent Multiplier (GRM) is calculated by dividing the property's sale price by which figure?
Answer: Monthly or annual gross rent
GRM equals sale price divided by gross rent (monthly or annual), providing a quick relative value indicator without deducting expenses.
The 'effective age' of a building in appraisal differs from its actual age because it reflects:
Answer: The condition and utility of the structure relative to similar properties
Effective age is based on the apparent condition and usefulness of the structure, which may be less or greater than chronological age depending on maintenance.
For insurance appraisal purposes, which cost approach component is most directly relevant to establishing replacement cost new (RCN)?
Answer: Cost to reproduce or replace the improvements
RCN represents the current cost to construct improvements of equal utility, which is the foundation of insurable value calculations.
An appraiser finds that a subject property's finished basement adds no value compared to similar homes without basements in that market. This is an example of:
Answer: Contribution principle in action
The contribution principle holds that the value of a component is measured by what it adds to the whole, not by its cost — here, the basement contributes zero market value.