Property Valuation and Appraisal Flashcards
7 cards from real Real Estate Sales Exam 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 and Appraisal flashcards as text
Which appraisal approach is most commonly used for income-producing properties like apartment buildings?
Answer: Income capitalization approach
The income capitalization approach converts a property's expected income stream into a value estimate, making it the primary method for income-producing properties.
A property generates a net operating income (NOI) of $60,000 and the capitalization rate is 6%. What is the estimated property value?
Answer: $1,000,000
Value = NOI ÷ Cap Rate = $60,000 ÷ 0.06 = $1,000,000.
What does 'functional obsolescence' refer to in property appraisal?
Answer: A loss in value due to outdated or inadequate design features
Functional obsolescence is a loss in value caused by deficiencies or superadequacies in the property's design, layout, or features relative to current market standards.
An appraiser adjusts a comparable sale downward by $5,000 because the comp has a feature the subject property lacks. What does this mean?
Answer: The subject property is worth $5,000 less than the comp
When a comp has a superior feature, the appraiser adjusts the comp downward, indicating the subject property is worth less than the comp by that amount.
What is the gross rent multiplier (GRM)?
Answer: Sales price divided by gross monthly rent
The GRM equals the sales price divided by the gross monthly (or annual) rent and is a quick valuation tool for small residential income properties.
Which type of depreciation is generally considered incurable in an appraisal?
Answer: External (economic) obsolescence
External obsolescence (caused by factors outside the property such as a nearby industrial plant or zoning change) is typically incurable because the owner cannot correct it.
In the cost approach, what does 'accrued depreciation' represent?
Answer: The total loss in value of improvements from all causes
Accrued depreciation is the total loss in value of improvements from all sources — physical deterioration, functional obsolescence, and external obsolescence.
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