REA Property Valuation & Appraisal Methods 3

Question 1

The 'band of investment' technique is used in appraisal to determine the:

Accepted Answer

Overall capitalization rate based on debt and equity components

Answer

The band of investment method derives a cap rate by weighting mortgage and equity return requirements by their respective proportions of total investment.

Question 2

When appraising a property using the discounted cash flow (DCF) method, the 'terminal value' represents:

Accepted Answer

The estimated sale proceeds at the end of the holding period

Answer

Terminal (reversion) value is the projected net proceeds from selling the property at the conclusion of the investment horizon.

Question 3

Which appraisal principle states that value is created and sustained when property use is consistent with surrounding land uses?

Accepted Answer

Principle of conformity

Answer

The principle of conformity holds that maximum value is achieved when a property's use is in harmony with the uses of neighboring properties.

Question 4

What is the purpose of a 'reconciliation' step in the appraisal process?

Accepted Answer

To select and weight the most reliable value indicators into a final value estimate

Answer

Reconciliation involves weighing the reliability and applicability of each approach to arrive at a credible final value opinion.

Question 5

In income property analysis, 'vacancy and collection loss' is typically subtracted from:

Accepted Answer

Potential Gross Income

Answer

Vacancy and collection loss is deducted from Potential Gross Income to arrive at Effective Gross Income.

(REA) Real Estate Analyst Certification Practice Test

(REA) Real Estate Analyst Certification Practice Test

REA Property Valuation & Appraisal Methods 3