Property Valuation & Market Analysis Flashcards

Which economic characteristic of land makes it necessary to consider location as the primary value influence?

Answer: Immobility

Because land is immobile (fixed in location), its value is inherently tied to its specific geographic position and surrounding environment.

The gross rent multiplier (GRM) is calculated by dividing the:

Answer: Sale price by the annual gross rent

GRM = Sale Price ÷ Annual Gross Rent (or monthly rent if using monthly GRM), providing a quick income-based valuation metric.

A property appraised using the cost approach shows a land value of $80,000 and improvements valued at $220,000 after depreciation. What is the indicated value?

Answer: $300,000

In the cost approach, indicated value equals land value plus depreciated cost of improvements: $80,000 + $220,000 = $300,000.

Which market condition is indicated when the months of supply falls below 4–5 months?

Answer: Seller's market

Low months of supply (typically under 4–5 months) means limited inventory relative to demand, creating a seller's market with upward price pressure.

In the income approach to value, vacancy and collection loss is subtracted from potential gross income to arrive at:

Answer: Effective gross income

Effective Gross Income (EGI) = Potential Gross Income minus Vacancy & Collection Loss, representing realistic achievable income.

A property that generates $36,000 NOI annually sells for $450,000. What is the cap rate?

Answer: 8%

$36,000 ÷ $450,000 = 0.08, or an 8% capitalization rate.

Functional obsolescence caused by an over-improvement (super-adequacy) is best described as:

Answer: Features that exceed market standards and cannot be recovered in resale

Super-adequacy occurs when improvements exceed what the market will pay for, such as a $100,000 pool in a neighborhood where pools add only $20,000 in value.