Free CAE Property Valuation Techniques Questions and Answers — Questions and Answers
Question 1: Which of the following is a key method used in the cost approach to valuation?
- Gross rent multiplier
- Depreciated replacement cost (Correct answer)
- Direct capitalization
- Comparable sales ratio
Correct answer: Depreciated replacement cost
The cost approach estimates the value of a property by determining the cost to replace or reproduce the structure, minus depreciation, plus land value.
Question 2: What is the primary principle behind the sales comparison approach?
- Anticipation
- Progression
- Substitution (Correct answer)
- Contribution
Correct answer: Substitution
The sales comparison approach is based on the principle of substitution, which suggests that a buyer will not pay more for a property than a similar one.
Question 3: Which factor is NOT typically considered in the income approach to valuation?
- Net operating income
- Capitalization rate
- Property taxes (Correct answer)
- Market rent
Correct answer: Property taxes
The income approach is based on net operating income, capitalization rate, and market rent—not typically property taxes, which are part of operating expenses.
Question 4: What does 'functional obsolescence' refer to in property valuation?
- Damage from natural disasters
- Changes in zoning laws
- Outdated design or inefficiency (Correct answer)
- External noise pollution
Correct answer: Outdated design or inefficiency
Functional obsolescence refers to a loss in value due to outdated design or features, making the property less desirable.
Question 5: Which valuation method is most appropriate for income-producing properties?
- Sales comparison
- Cost approach
- Income approach (Correct answer)
- Land residual method
Correct answer: Income approach
The income approach is most suitable for properties like apartment buildings and offices that generate rental income.
Question 6: Which element most affects land value in the cost approach?
- Zoning
- Location (Correct answer)
- Foundation type
- Window placement
Correct answer: Location
Location is a key determinant of land value because it influences accessibility, demand, and desirability.
Free CAE Property Valuation Techniques Questions and Answers
Which of the following is a key method used in the cost approach to valuation?