Property Valuation Methods Flashcards
7 cards from real CRECI 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 Valuation Methods flashcards as text
In the income capitalization approach, what does the overall capitalization rate (cap rate) represent?
Answer: The ratio of net operating income to property value
The cap rate equals NOI divided by property value, expressing the return on investment as a percentage.
Which depreciation type in the cost approach results from factors outside the property boundaries, such as highway noise?
Answer: External obsolescence
External (economic) obsolescence stems from conditions outside the property, like nearby nuisances or market downturns.
When reconciling value indications from multiple appraisal approaches, the appraiser should assign the greatest weight to:
Answer: The approach most applicable given the property type and available data
Reconciliation requires the appraiser to weight each approach based on its reliability and relevance for the specific property and assignment.
In direct capitalization, if a commercial property has an NOI of $120,000 and comparable sales indicate a cap rate of 6%, the indicated value is:
Answer: $2,000,000
$120,000 NOI ÷ 0.06 cap rate = $2,000,000 indicated value.
What is the primary purpose of adjusting comparable sales in the sales comparison approach?
Answer: To account for differences between each comparable and the subject property
Adjustments compensate for differences in features, time, location, and conditions between comparables and the subject.
The gross rent multiplier (GRM) is best used for valuing which type of property?
Answer: Residential income properties with reliable rental data
GRM is most appropriate for simpler residential income properties where gross rent data is abundant and consistent.
Which statement best describes the principle of substitution as it applies to real estate valuation?
Answer: A prudent buyer will pay no more than the cost to acquire an equally desirable substitute
The principle of substitution holds that value is limited by what a buyer would pay for an equally desirable alternative property or improvement.