RPA Property Valuation Principles & Methods 2 — Questions and Answers
Question 1: An appraiser is valuing a property in a neighborhood where most homes have three bedrooms but the subject has five bedrooms. Which appraisal principle explains why the extra bedrooms may add little value?
- Principle of progression
- Principle of regression
- Principle of contribution (Correct answer)
- Principle of substitution
Correct answer: Principle of contribution
The principle of contribution states that a component's value is measured by how much it adds to the whole, not its cost—extra bedrooms beyond market norms typically add diminishing marginal value.
Question 2: When using the sales comparison approach, an appraiser finds a comparable sale that is superior to the subject in terms of condition. How should this adjustment be applied?
- Add to the subject's value
- Subtract from the comparable's sale price (Correct answer)
- Add to the comparable's sale price
- No adjustment is needed
Correct answer: Subtract from the comparable's sale price
If a comparable is superior to the subject in a given characteristic, a negative (downward) adjustment is made to the comparable's sale price to reflect what it would have sold for if it matched the subject.
Question 3: The income capitalization approach divides net operating income by which factor to produce a value indication?
- Gross rent multiplier
- Overall capitalization rate (Correct answer)
- Effective gross income multiplier
- Discount rate
Correct answer: Overall capitalization rate
Value = NOI ÷ Overall Capitalization Rate (OAR) is the direct capitalization formula used in the income approach.
Question 4: Which type of depreciation results from factors external to the property, such as a new highway built adjacent to a residential neighborhood?
- Physical deterioration
- Functional obsolescence
- External obsolescence (Correct answer)
- Deferred maintenance
Correct answer: External obsolescence
External (economic) obsolescence arises from conditions outside the property boundaries and is typically incurable by the property owner.
Question 5: In the cost approach, what term describes the difference between the reproduction cost of a building and its current depreciated value?
- Accrued depreciation (Correct answer)
- Economic life
- Remaining economic life
- Effective age
Correct answer: Accrued depreciation
Accrued depreciation is the total loss in value from all causes (physical, functional, external) measured from the reproduction or replacement cost new.
Question 6: An appraiser estimates a property's value by analyzing what a knowledgeable buyer would pay for comparable properties in the current market. This best reflects which appraisal principle?
- Anticipation
- Substitution (Correct answer)
- Balance
- Conformity
Correct answer: Substitution
The principle of substitution holds that a prudent buyer will pay no more for a property than the cost of an equally desirable substitute, which underlies the sales comparison approach.
Question 7: Which reconciliation technique requires an appraiser to weight each approach's value indication based on its applicability and reliability for the specific assignment?
- Simple averaging
- Weighted reconciliation (Correct answer)
- Bracketing
- Range analysis
Correct answer: Weighted reconciliation
Weighted reconciliation assigns greater emphasis to the approach that is most credible and supportable for the property type and data available, rather than mechanically averaging results.
RPA Property Valuation Principles & Methods 2
An appraiser is valuing a property in a neighborhood where most homes have three bedrooms but the subject has five bedrooms.
Which appraisal principle explains why the extra bedrooms may add little value?