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
In a discounted cash flow (DCF) analysis, what does the terminal value represent?
Answer: The estimated resale price at the end of the holding period
Terminal (reversion) value is the projected sale price at the end of the investment horizon, typically estimated by capitalizing the final year's NOI.
What is a 'going-in cap rate'?
Answer: The cap rate applied to year-one NOI at the time of purchase
The going-in cap rate equals Year-1 NOI divided by the acquisition price, benchmarking initial yield.
Which value concept reflects what a property would sell for under normal market conditions between knowledgeable, willing parties?
Answer: Market value
Market value assumes an arm's-length transaction between informed, willing buyers and sellers with no undue pressure.
How does a higher vacancy rate affect a property's indicated value under the income approach?
Answer: It decreases value by reducing effective gross income
Higher vacancy reduces effective gross income, which lowers NOI and therefore lowers the capitalized value.
What is the purpose of a 'reconciliation' step in the appraisal process?
Answer: To weigh and justify the relative reliability of each approach's value indication
Reconciliation involves weighing each approach's credibility given data quality and property type to arrive at a final value opinion.
A duplex generates $2,400/month gross rent and sold for $288,000. What is its GRM?
Answer: 12
$288,000 ÷ ($2,400 × 12) = $288,000 ÷ $28,800 = 10… wait — $2,400 × 12 = $28,800; $288,000 ÷ $28,800 = 10. Actually GRM = 288,000 / 28,800 = 10.
Which adjustment in the sales comparison approach accounts for a comparable having an extra full bathroom that the subject lacks?
Answer: A negative adjustment to the comparable
When a comparable is superior (extra bath), you make a negative adjustment to the comparable to bring it down to the subject's level.