Real Estate Sales Exam Property Valuation and Appraisal 2

Question 1

Which appraisal approach is most commonly used for income-producing properties like apartment buildings?

Accepted Answer

Income capitalization approach

Answer

The income capitalization approach converts a property's expected income stream into a value estimate, making it the primary method for income-producing properties.

Question 2

A property generates a net operating income (NOI) of $60,000 and the capitalization rate is 6%. What is the estimated property value?

Accepted Answer

$1,000,000

Answer

Value = NOI ÷ Cap Rate = $60,000 ÷ 0.06 = $1,000,000.

Question 3

What does 'functional obsolescence' refer to in property appraisal?

Accepted Answer

A loss in value due to outdated or inadequate design features

Answer

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.

Question 4

An appraiser adjusts a comparable sale downward by $5,000 because the comp has a feature the subject property lacks. What does this mean?

Accepted Answer

The subject property is worth $5,000 less than the comp

Answer

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.

Question 5

What is the gross rent multiplier (GRM)?

Accepted Answer

Sales price divided by gross monthly rent

Answer

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.

Real Estate Sales Exam Practice Test

Real Estate Sales Exam Practice Test

Real Estate Sales Exam Property Valuation and Appraisal 2