Property Valuation & Appraisal Methods Flashcards
7 cards from real REA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Property Valuation & Appraisal Methods flashcards as text
Which depreciation type results from factors outside the property itself, such as a nearby industrial plant?
Answer: External obsolescence
External obsolescence arises from conditions outside the property's boundaries, like neighborhood decline or proximity to nuisances.
In the income capitalization approach, what does a lower capitalization rate indicate about property value?
Answer: Higher property value
A lower cap rate applied to the same NOI produces a higher value, reflecting investor willingness to accept lower returns for less risk.
The 'effective age' of a building differs from its actual age because it reflects:
Answer: The building's condition relative to typical buildings of similar age
Effective age reflects the building's condition and utility compared to similar structures, which may be less or more than its chronological age.
Which approach to value is most commonly relied upon for the appraisal of special-purpose properties like churches or schools?
Answer: Cost approach
Special-purpose properties rarely sell or generate measurable income, so the cost approach is typically most applicable.
What is 'functional obsolescence' in the context of real estate appraisal?
Answer: Loss in value due to outdated design or features within the property
Functional obsolescence is a loss in value caused by outmoded features, poor design, or inadequate utilities within the property itself.
In the sales comparison approach, a 'negative adjustment' to a comparable sale means:
Answer: The comparable is superior to the subject and its price is adjusted downward
When the comparable has a feature superior to the subject, a negative adjustment lowers the comparable's price to reflect the subject's lesser value.
Which term describes the total potential rental income if a property were 100% occupied at market rates?
Answer: Potential Gross Income (PGI)
Potential Gross Income is the maximum income achievable assuming full occupancy at prevailing market rents.