CRECI Property Valuation Methods 2

Question 1

In the income capitalization approach, what does the overall capitalization rate (cap rate) represent?

Accepted Answer

The ratio of net operating income to property value

Answer

The ratio of gross rent to purchase price

Answer

The ratio of debt service to net operating income

Answer

The ratio of equity dividends to total investment

Question 2

Which depreciation type in the cost approach results from factors outside the property boundaries, such as highway noise?

Accepted Answer

External obsolescence

Answer

Physical deterioration

Answer

Functional obsolescence

Answer

Deferred maintenance

Question 3

When reconciling value indications from multiple appraisal approaches, the appraiser should assign the greatest weight to:

Accepted Answer

The approach most applicable given the property type and available data

Answer

The approach yielding the highest value

Answer

The cost approach whenever land value is uncertain

Answer

The income approach whenever a lease is in place

Question 4

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:

Accepted Answer

$2,000,000

Answer

$720,000

Answer

$1,200,000

Answer

$6,000,000

Question 5

What is the primary purpose of adjusting comparable sales in the sales comparison approach?

Accepted Answer

To account for differences between each comparable and the subject property

Answer

To lower the indicated value below listing prices

Answer

To average all sale prices without modification

Answer

To eliminate comparables with negative adjustments

Question 6

The gross rent multiplier (GRM) is best used for valuing which type of property?

Accepted Answer

Residential income properties with reliable rental data

Answer

Large institutional office towers

Answer

Industrial distribution centers

Answer

Single-tenant net-leased retail

Question 7

Which statement best describes the principle of substitution as it applies to real estate valuation?

Accepted Answer

A prudent buyer will pay no more than the cost to acquire an equally desirable substitute

Answer

A buyer will pay more for a property with unique features

Answer

Property values always increase when similar properties sell nearby

Answer

Appraisers should substitute income data when sales data is unavailable