REA Property Valuation & Appraisal Methods 2

Question 1

Which depreciation type results from factors outside the property itself, such as a nearby industrial plant?

Accepted Answer

External obsolescence

Answer

External obsolescence arises from conditions outside the property's boundaries, like neighborhood decline or proximity to nuisances.

Question 2

In the income capitalization approach, what does a lower capitalization rate indicate about property value?

Accepted Answer

Higher property value

Answer

A lower cap rate applied to the same NOI produces a higher value, reflecting investor willingness to accept lower returns for less risk.

Question 3

The 'effective age' of a building differs from its actual age because it reflects:

Accepted Answer

The building's condition relative to typical buildings of similar age

Answer

Effective age reflects the building's condition and utility compared to similar structures, which may be less or more than its chronological age.

Question 4

Which approach to value is most commonly relied upon for the appraisal of special-purpose properties like churches or schools?

Accepted Answer

Cost approach

Answer

Special-purpose properties rarely sell or generate measurable income, so the cost approach is typically most applicable.

Question 5

What is 'functional obsolescence' in the context of real estate appraisal?

Accepted Answer

Loss in value due to outdated design or features within the property

Answer

Functional obsolescence is a loss in value caused by outmoded features, poor design, or inadequate utilities within the property itself.

(REA) Real Estate Analyst Certification Practice Test