FHA Property Valuation Methods & Techniques 3

Question 1

A property's estimated reproduction cost new is $320,000 and total accrued depreciation is $64,000. The site value is $45,000. What is the indicated value via the cost approach?

Accepted Answer

$301,000

Answer

Cost approach value = (Reproduction cost new − Accrued depreciation) + Site value = ($320,000 − $64,000) + $45,000 = $301,000.

Question 2

External obsolescence caused by proximity to a busy highway is best described as:

Accepted Answer

Locational obsolescence — incurable

Answer

Proximity to a negative external influence such as a highway is locational (external) obsolescence and is virtually always incurable because the appraiser cannot move the property.

Question 3

Which adjustment in the sales comparison approach accounts for the fact that a comparable sale occurred 18 months ago in a rising market?

Accepted Answer

Market conditions (time) adjustment

Answer

A market conditions (time) adjustment is applied to account for price changes between the date of a comparable sale and the effective date of the appraisal.

Question 4

The gross rent multiplier for a property is calculated as:

Accepted Answer

Sale price ÷ monthly gross rent

Answer

GRM = Sale price ÷ Monthly gross rent; it expresses how many months of gross rent equal the property's sale price.

Question 5

Under the income approach, if a property generates an annual NOI of $18,000 and the market capitalization rate is 6%, what is the indicated value?

Accepted Answer

$300,000

Answer

Value = NOI ÷ Cap rate = $18,000 ÷ 0.06 = $300,000.

(FHA) Federal Housing Administration Appraiser Certification Practice Test

(FHA) Federal Housing Administration Appraiser Certification Practice Test

FHA Property Valuation Methods & Techniques 3