SAEE - Core Valuation Principles Questions and Answers 1

Question 1

An appraiser determines that adding a swimming pool to a property, which costs $50,000, will only increase the property's overall market value by $30,000. Which core valuation principle does this situation best illustrate?

Accepted Answer

Principle of Contribution

Answer

The Principle of Contribution states that the value of any component of a property is determined by how much it adds to the market value of the whole, not by its cost. In this case, the pool's contribution to value ($30,000) is less than its actual cost ($50,000).

Question 2

The Principle of Substitution is the foundation for which of the three primary valuation approaches?

Accepted Answer

The Sales Comparison Approach

Answer

The Sales Comparison Approach is most directly based on the Principle of Substitution, as it compares a subject property to similar properties that have recently sold. The principle posits that a prudent buyer will not pay more for a property than the cost of acquiring a similar substitute property.

Question 3

A parcel of vacant land is located in an area zoned for commercial use. An appraiser is analyzing its potential. Which of the following is NOT one of the four required criteria for determining the 'Highest and Best Use' of the property?

Accepted Answer

Current use

Answer

The four criteria for determining the Highest and Best Use are: legal permissibility, physical possibility, financial feasibility, and maximum productivity. The actual current use of a property is not a required criterion and may, in fact, not be its highest and best use.

Question 4

An investor is purchasing a commercial property and bases the offer price on the present worth of the future income the property is expected to generate. This is a direct application of which valuation principle?

Accepted Answer

Principle of Anticipation

Answer

The Principle of Anticipation states that value is created by the expectation of future benefits, such as income or appreciation. The investor is valuing the property based on the anticipated future income stream.

Question 5

A developer purchases an older, small home on a large lot surrounded by modern, high-value commercial buildings. The developer intends to demolish the house and build a multi-story office building that is permitted by zoning. This plan aligns with which valuation principle?

Accepted Answer

Principle of Highest and Best Use

Answer

This scenario directly relates to the Principle of Highest and Best Use. The current use (a small home) is not the maximally productive use of the land given its location and zoning. Demolishing the existing structure to build a commercial building represents the use that would result in the highest value for the property.

SAEE Test Practice Test

SAEE Test Practice Test

SAEE - Core Valuation Principles Questions and Answers 1