Real Estate Investing Real Estate Investing Real Estate Valuation Methods Questions and Answers 2

Question 1

A property generates $120,000 in net operating income and the market capitalization rate is 8%. What is the estimated value using the income approach?

Accepted Answer

$1,500,000

Answer

$960,000

Answer

$1,200,000

Answer

$1,000,000

Question 2

Which valuation method is most appropriate for a unique, owner-occupied industrial facility with no recent comparable sales?

Accepted Answer

Cost approach

Answer

Sales comparison approach

Answer

Income approach

Answer

Gross rent multiplier

Question 3

In the sales comparison approach, if a comparable property sold for $350,000 but lacks a garage that the subject property has, and garages in the area add $25,000 in value, what adjusted sale price should be used?

Accepted Answer

$375,000

Answer

$325,000

Answer

$350,000

Answer

$300,000

Question 4

What does the gross rent multiplier (GRM) represent?

Accepted Answer

The ratio of a property's sale price to its gross annual rental income

Answer

The ratio of net operating income to property value

Answer

The annual return on a real estate investment

Answer

The percentage of rental income consumed by operating expenses

Question 5

When using the cost approach, which type of depreciation accounts for losses in value due to outdated floor plans or design features?

Accepted Answer

Functional obsolescence

Answer

Physical deterioration

Answer

External obsolescence

Answer

Economic depreciation

Question 6

An appraiser identifies three comparable properties that sold for $280,000, $295,000, and $310,000 after adjustments. Which step best describes how the appraiser reconciles these values?

Accepted Answer

Weighting the comparables based on similarity to the subject and reliability of data

Answer

Averaging all three sale prices equally

Answer

Selecting the highest adjusted price

Answer

Discarding the lowest and highest and using the middle value