NAR Property Valuation & Market Analysis 2 — Questions and Answers
Question 1: Which adjustment is made in the sales comparison approach when a comparable property has a feature that the subject property lacks?
- A positive adjustment to the comparable
- A negative adjustment to the comparable (Correct answer)
- A positive adjustment to the subject
- No adjustment is needed
Correct answer: A negative adjustment to the comparable
When a comparable has a superior feature the subject lacks, a negative adjustment is applied to the comparable's sale price to account for the difference.
Question 2: What does a capitalization rate (cap rate) primarily measure in income-producing property analysis?
- The ratio of gross income to property value
- The ratio of net operating income to property value (Correct answer)
- The ratio of cash flow to mortgage balance
- The ratio of vacancy rate to occupancy rate
Correct answer: The ratio of net operating income to property value
The cap rate equals Net Operating Income divided by property value, expressing the rate of return an investor expects from an income-producing property.
Question 3: A neighborhood that is transitioning from residential to commercial use is said to be in which stage of its life cycle?
- Growth
- Stability
- Decline (Correct answer)
- Revitalization
Correct answer: Decline
A neighborhood undergoing transition from residential to commercial use typically reflects the decline stage, where original land uses are being replaced.
Question 4: In an appraisal, 'effective age' differs from 'actual age' because it reflects:
- The year the building permit was issued
- The condition and utility of the structure relative to its peers (Correct answer)
- The depreciation claimed for tax purposes
- The number of years remaining on the mortgage
Correct answer: The condition and utility of the structure relative to its peers
Effective age reflects how old a property appears based on its condition and maintenance, which may be more or less than its chronological actual age.
Question 5: Which type of depreciation is considered incurable when the cost to cure exceeds the value added?
- Physical deterioration — short-lived
- Physical deterioration — long-lived (Correct answer)
- Functional obsolescence — curable
- External obsolescence
Correct answer: Physical deterioration — long-lived
Long-lived physical deterioration affecting the entire structure is typically incurable because the cost to correct it would exceed the value gain.
Question 6: When performing a competitive market analysis (CMA), which property type should be weighted most heavily?
- Expired listings that failed to sell
- Active listings currently on the market
- Pending sales under contract but not yet closed
- Recently closed sales of similar properties (Correct answer)
Correct answer: Recently closed sales of similar properties
Recently closed sales provide actual transacted market evidence and are the most reliable indicator of current market value in a CMA.
Question 7: Regression and progression are principles that describe how:
- Interest rates affect property values over time
- A property's value is influenced by surrounding properties of different values (Correct answer)
- Market supply and demand reach equilibrium
- Depreciation accrues over a property's economic life
Correct answer: A property's value is influenced by surrounding properties of different values
Regression holds that a superior property surrounded by inferior ones loses value, while progression holds that an inferior property surrounded by superior ones gains value.
NAR Property Valuation & Market Analysis 2
Which adjustment is made in the sales comparison approach when a comparable property has a feature that the subject property lacks?