Property Appraisal Methods & Valuation Flashcards
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Read the first 7 Property Appraisal Methods & Valuation flashcards as text
What is the primary distinction between 'reproduction cost' and 'replacement cost' in the cost approach?
Answer: Reproduction cost replicates the exact structure; replacement cost builds a functionally equivalent structure with modern materials
Reproduction cost duplicates the original construction exactly, while replacement cost reflects a modern equivalent with updated materials and design.
A property has a market value of $400,000, an NOI of $28,000, and an overall cap rate of 7%. What value does the income approach indicate?
Answer: $400,000
V = NOI / R = $28,000 / 0.07 = $400,000, which matches the stated market value in this scenario.
Which type of obsolescence is most likely curable from an economic standpoint?
Answer: Functional obsolescence due to an outdated but easily upgraded HVAC system
Functional obsolescence is curable when the cost to cure is less than or equal to the value added, as with a replaceable mechanical system.
In the sales comparison approach, a time adjustment (market condition adjustment) is needed when comparable sales occurred:
Answer: At a different point in time when market conditions differed from the effective date of appraisal
Market condition adjustments account for value changes between the comparable's sale date and the appraisal's effective date in a changing market.
An appraiser is valuing a 10-unit apartment building. Which approach would typically provide the most meaningful value indication?
Answer: Income capitalization approach, supported by sales comparison
Income-producing residential properties are primarily valued by their income-generating capacity, with the sales comparison approach providing a market check.
The 'economic life' of an improvement refers to:
Answer: The period over which the improvement contributes positively to total property value
Economic life ends when the improvement no longer adds value to the land, even if the structure is still physically standing.
When a property is subject to a below-market lease, how does this typically affect its value compared to a fee simple interest?
Answer: It decreases value because the leased fee interest captures less than market income
A below-market lease constrains income, reducing the leased fee value below what the property would be worth if leased at market rates.