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 is the primary limitation of using the GRM as a valuation tool?
Answer: It ignores operating expenses, making it unreliable for expense-heavy properties
GRM uses gross rent only, so two properties with identical rents but very different expense ratios will appear equally valued.
A property's NOI increases by 5% while the cap rate remains unchanged. What happens to its value?
Answer: Value increases by 5%
Since Value = NOI ÷ Cap Rate, a 5% rise in NOI with a constant cap rate produces a direct 5% increase in value.
What is 'price per square foot' most useful for in real estate valuation?
Answer: Quick benchmarking and comparison of similar properties within a market
Price per square foot normalizes properties of different sizes to enable fast market comparisons, though it must be used alongside other metrics.
When appraising a property for refinancing purposes, which value standard is typically required by lenders?
Answer: Market value
Lenders require market value appraisals because they need to know what the collateral would sell for under normal market conditions.
What does a 'sensitivity analysis' in property valuation reveal?
Answer: How changes in key assumptions (rent, cap rate, vacancy) affect estimated value or returns
Sensitivity analysis stress-tests a valuation model by varying inputs to show how much the output changes with each assumption.
In highest and best use analysis, which test must a use satisfy LAST?
Answer: Maximally productive
Highest and best use follows the sequence: physically possible → legally permissible → financially feasible → maximally productive.
Which appraisal approach is generally given the most weight when valuing an owner-occupied single-family home?
Answer: Sales comparison approach
Owner-occupied homes are bought and sold based on comparable sales, making the sales comparison approach most reflective of market behavior.