CRM Property Valuation & Appraisal 2

Question 1

Which appraisal principle states that value is created and maintained when a property conforms to the standards of its neighborhood?

Accepted Answer

Principle of conformity

Answer

The principle of conformity holds that maximum value is achieved when a property is compatible with surrounding land uses and neighborhood standards.

Question 2

Under the income approach, what does the term 'effective gross income' represent?

Accepted Answer

Potential gross income minus vacancy and credit losses

Answer

Effective gross income equals potential gross income minus an allowance for vacancy and collection (credit) losses.

Question 3

A residential property generates a net operating income of $24,000 annually. If the capitalization rate is 8%, what is the estimated value?

Accepted Answer

$300,000

Answer

Value = NOI ÷ Cap Rate = $24,000 ÷ 0.08 = $300,000.

Question 4

Which type of depreciation results from factors outside the property itself, such as a nearby industrial plant?

Accepted Answer

External obsolescence

Answer

External (economic) obsolescence is caused by negative influences originating outside the property, making it incurable from the owner's perspective.

Question 5

When using the sales comparison approach, what adjustment is made when a comparable property has a feature that the subject property lacks?

Accepted Answer

A negative (downward) adjustment to the comparable's sale price

Answer

If a comparable has a superior feature the subject lacks, its price is adjusted downward to reflect what it would have sold for without that feature.

(CRM) Certified Residential Manager Practice Test