Property Valuation & Market Analysis Flashcards

Which statement best describes the principle of anticipation in real estate valuation?

Answer: Value reflects the present worth of future benefits the property will produce

The principle of anticipation holds that value is created by expected future benefits such as income, amenity, or resale proceeds, discounted to present value.

A paired sales analysis is used in the sales comparison approach primarily to:

Answer: Isolate and quantify the market value of a single property feature

Paired sales analysis compares two otherwise similar sales that differ in only one feature to extract a market-supported dollar or percentage adjustment for that feature.

An absorption rate study in a market analysis measures:

Answer: The rate at which listed properties are sold or removed from the market over a given period

Absorption rate measures how quickly available inventory is being sold or absorbed by the market, expressed as units per month or months of supply.

When using the income capitalization approach for a residential rental property, which income figure is most relevant?

Answer: Net operating income after operating expenses but before debt service

Net Operating Income (NOI) — income after operating expenses but before debt service — is the income figure used in the direct capitalization formula: Value = NOI ÷ Cap Rate.

Economic life of a building refers to:

Answer: The period during which improvements contribute positively to property value

Economic life is the period over which improvements contribute value to the property; once operating costs exceed income benefits, the economic life has ended.

A market area with rising days-on-market (DOM) and increasing price reductions most likely indicates:

Answer: A softening market shifting toward buyer favor

Rising DOM and frequent price reductions signal weakening demand or excess supply, both of which shift negotiating power toward buyers.

Which valuation approach is most appropriate for a special-purpose property such as a church or school that rarely sells?

Answer: Cost approach

The cost approach is most suitable for special-purpose properties because comparable sales and income data are scarce, making replacement cost the most reliable value indicator.