Real Estate Sales Property Valuation and Appraisal 1 Flashcards

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?

Answer: $216,000

GRM = Sale Price ÷ Monthly Gross Rent = $240,000 ÷ $2,000 = 120. Subject value = GRM × Subject Rent = 120 × $1,800 = $216,000.

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?

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.

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:

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.

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:

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.

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:

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.

In the cost approach, why is land value always estimated separately and never depreciated?

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.