Real Estate Sales Exam Real Estate Sales Property Valuation and Appraisal 1 — Questions and Answers
Question 1: An appraiser uses the Gross Rent Multiplier (GRM) method. A comparable property recently sold for $240,000 and has a monthly gross rent of $2,000. If the subject property's monthly gross rent is $1,800, what is the indicated value of the subject property?
- $180,000
- $210,000
- $216,000 (Correct answer)
- $225,000
Correct answer: $216,000
GRM = Sale Price ÷ Monthly Gross Rent = $240,000 ÷ $2,000 = 120. Subject value = GRM × Subject Rent = 120 × $1,800 = $216,000.
Question 2: A home has bedrooms that can only be reached by walking through other bedrooms, and the kitchen is located far from the dining room. What type of depreciation does this represent?
- Physical deterioration
- External obsolescence
- Economic obsolescence
- Functional obsolescence (Correct answer)
Correct answer: Functional obsolescence
Functional obsolescence results from deficiencies or flaws in the property's design, layout, or features — such as a poor floor plan — that reduce its utility or desirability.
Question 3: The appraisal principle that states a buyer will pay no more for a property than the cost of acquiring an equally desirable substitute is known as the principle of:
- Contribution
- Substitution (Correct answer)
- Anticipation
- Conformity
Correct answer: Substitution
The principle of substitution holds that a rational buyer will not pay more for a property when a comparable alternative is available at a lower price, forming the theoretical basis for the sales comparison approach.
Question 4: After completing the cost approach, income approach, and sales comparison approach, an appraiser arrives at three different value estimates. The process of analyzing and weighting these estimates to produce a single final value opinion is called:
- Equalization
- Capitalization
- Reconciliation (Correct answer)
- Correlation
Correct answer: Reconciliation
Reconciliation is the final step in the appraisal process where the appraiser evaluates the reliability and relevance of each approach and weights them to arrive at a single, supportable value conclusion.
Question 5: A house was built 30 years ago but has been meticulously maintained and recently updated. An appraiser estimates it performs like a 10-year-old home. The 10-year figure represents the property's:
- Chronological age
- Remaining economic life
- Effective age (Correct answer)
- Physical life expectancy
Correct answer: Effective age
Effective age reflects a property's apparent age based on its condition and utility rather than its actual age. A well-maintained property can have an effective age significantly lower than its chronological age.
Question 6: In the cost approach, why is land value always estimated separately and never depreciated?
- Because land is assessed at a different rate by tax authorities
- Because land is considered permanent and cannot physically wear out or become obsolete (Correct answer)
- Because depreciation only applies to income-producing properties
- Because the sales comparison approach already accounts for land value
Correct answer: Because land is considered permanent and cannot physically wear out or become obsolete
Land is considered indestructible and permanent, so it does not suffer physical deterioration or obsolescence. In the cost approach, land is valued separately as if vacant, and only the improvements are subject to depreciation.
Real Estate Sales Exam Real Estate Sales Property Valuation and Appraisal 1
An appraiser uses the Gross Rent Multiplier (GRM) method.
A comparable property recently sold for $240,000 and has a monthly gross rent of $2,000.
If the subject property's monthly gross rent is $1,800, what is the indicated value of the subject property?