Real Estate Valuation & Appraisal 2

Question 1

The cost approach to value is most reliable for:

Accepted Answer

Unique or special-use properties with few comparables

Answer

The cost approach is most applicable for unique properties (schools, churches, government buildings) where comparable sales data is scarce.

Question 2

The income approach to value is most commonly used for:

Accepted Answer

Income-producing investment properties

Answer

The income approach estimates value by capitalizing or discounting the property's income stream, making it ideal for rental and commercial properties.

Question 3

Capitalization rate (cap rate) is calculated as:

Accepted Answer

Net operating income ÷ property value

Answer

Cap rate = NOI ÷ property value; it expresses the relationship between a property's income and its value, used to compare investment properties.

Question 4

The Gross Rent Multiplier (GRM) is calculated by dividing the:

Accepted Answer

Sale price by the annual gross rental income

Answer

GRM = sale price ÷ annual gross rents; it provides a quick, rough estimate of value by comparing price to rental income without accounting for expenses.

Question 5

Functional obsolescence in real estate is caused by:

Accepted Answer

Outdated design, layout, or features within the property itself

Answer

Functional obsolescence results from features within the property that are outdated, inadequate, or no longer desired by the market, such as a single bathroom in a large home.

Real Estate Practice Test

Real Estate Practice Test

Real Estate Valuation & Appraisal 2