Property Valuation Techniques Flashcards
7 cards from real Real Estate Investing 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 Techniques flashcards as text
What does the Gross Rent Multiplier (GRM) measure?
Answer: Purchase price divided by gross annual rent
GRM = Purchase Price ÷ Gross Annual Rent, giving a quick ratio to compare similar rental properties.
In the income approach, which formula correctly calculates property value?
Answer: Value = NOI ÷ Cap Rate
Property Value = NOI ÷ Cap Rate, so a higher cap rate results in a lower indicated value.
A property generates $60,000 NOI and similar properties sell at a 6% cap rate. What is the estimated value?
Answer: $1,000,000
$60,000 ÷ 0.06 = $1,000,000.
What is 'effective gross income' (EGI) in property valuation?
Answer: Potential gross income minus vacancy and credit losses
EGI = Potential Gross Income − Vacancy & Credit Losses, representing realistic collectible income.
Which depreciation type in real estate refers to loss in value from factors outside the property boundaries?
Answer: External obsolescence
External (economic) obsolescence stems from outside forces such as neighborhood decline or highway construction nearby.
When using the sales comparison approach, what adjustment is made if a comparable sold 12 months ago in a rising market?
Answer: A positive time adjustment to the comparable
In a rising market, older comps are adjusted upward to reflect appreciation since the sale date.
Which method is most commonly used to value special-purpose properties with no comparable sales?
Answer: Cost approach
The cost approach (replacement/reproduction cost minus depreciation plus land value) is preferred for unique properties lacking market comparables.
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