Real Estate Valuation & Appraisal

Question 1

The three standard approaches to value used by appraisers are:

Accepted Answer

Sales comparison, cost, and income

Answer

Appraisers use the sales comparison approach, cost approach, and income approach, weighting each based on the property type and available data.

Question 2

The sales comparison approach estimates value primarily by:

Accepted Answer

Comparing the subject property to recently sold similar properties

Answer

The sales comparison approach adjusts the sale prices of comparable properties for differences to arrive at an indicated value for the subject property.

Question 3

Market value is defined as the most probable price a property would sell for:

Accepted Answer

In an arm's-length transaction between informed and willing parties

Answer

Market value assumes an arm's-length transaction with a willing buyer and seller, adequate time on the market, and no undue pressure on either party.

Question 4

In the sales comparison approach, if a comparable sold for more than the subject because it has a pool, the appraiser would make a:

Accepted Answer

Negative adjustment to the comparable

Answer

When the comparable is superior to the subject (has a feature the subject lacks), a downward (negative) adjustment is made to the comparable's sale price.

Question 5

The principle of substitution states that a buyer will pay no more for a property than the cost of:

Accepted Answer

An equally desirable substitute property

Answer

The principle of substitution holds that value is set by the price of acquiring an equally desirable alternative, forming the basis of the sales comparison approach.

Real Estate Practice Test

Real Estate Practice Test

Real Estate Valuation & Appraisal