CIA Property Appraisal Methods & Valuation 2

Question 1

In the income capitalization approach, what does a lower capitalization rate indicate about a property?

Accepted Answer

Lower risk and higher value

Answer

A lower cap rate reflects lower perceived risk, which investors accept for stable income-producing properties, resulting in a higher indicated value.

Question 2

Which depreciation type results from factors outside the property itself, such as a new highway adjacent to a residential neighborhood?

Accepted Answer

External obsolescence

Answer

External (economic) obsolescence stems from forces outside the property boundaries and is generally incurable by the property owner.

Question 3

When an appraiser uses the paired-sales analysis technique, what is the primary goal?

Accepted Answer

Isolate the value contribution of a single property feature

Answer

Paired-sales analysis compares two similar sales that differ in only one characteristic to extract the market value of that specific feature.

Question 4

Gross Rent Multiplier (GRM) is calculated by dividing the property's sale price by which figure?

Accepted Answer

Monthly or annual gross rent

Answer

GRM equals sale price divided by gross rent (monthly or annual), providing a quick relative value indicator without deducting expenses.

Question 5

The 'effective age' of a building in appraisal differs from its actual age because it reflects:

Accepted Answer

The condition and utility of the structure relative to similar properties

Answer

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.

(CIA) Certified Insurance Appraiser Practice Test

(CIA) Certified Insurance Appraiser Practice Test

CIA Property Appraisal Methods & Valuation 2