CIA Property Appraisal Methods & Valuation 3

Question 1

Under the Marshall & Swift cost estimating method, what does the 'local multiplier' adjustment account for?

Accepted Answer

Regional differences in labor and material costs

Answer

Local multipliers adjust national base costs to reflect the actual cost environment in a specific geographic market.

Question 2

In a direct capitalization analysis, net operating income (NOI) is calculated by subtracting which items from effective gross income?

Accepted Answer

Operating expenses (excluding debt service and income taxes)

Answer

NOI equals effective gross income minus all operating expenses, but excludes debt service and income taxes, which are financing and tax decisions.

Question 3

Which appraisal approach is generally considered most reliable for valuing a special-purpose property like a church or fire station?

Accepted Answer

Cost approach

Answer

Special-purpose properties rarely sell, making comparable sales scarce, and they don't produce rental income, so the cost approach is typically most applicable.

Question 4

The 'square foot method' of cost estimating applies a cost per square foot to the gross living area. What is a key limitation of this method?

Accepted Answer

It ignores quality and shape differences between buildings

Answer

The square foot method is a quick estimate that may overlook variations in construction quality, shape efficiency, and unique features that affect actual costs.

Question 5

When adjusting comparable sales in the sales comparison approach, adjustments are made to the comparables, not the subject, because:

Accepted Answer

The comparable's price is the known quantity being adjusted to reflect the subject

Answer

The comparable's sale price is the known data point; adjustments modify it to simulate what it would have sold for if it were identical to the subject.

(CIA) Certified Insurance Appraiser Practice Test

(CIA) Certified Insurance Appraiser Practice Test

CIA Property Appraisal Methods & Valuation 3