SAEE - Core Valuation Principles Questions and Answers Flashcards
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Read the first 7 SAEE - Core Valuation Principles Questions and Answers flashcards as text
The four agents of production in real estate value theory are:
Answer: Land, labor, capital, and entrepreneurial coordination
Classical economic theory identifies land, labor, capital, and entrepreneurial coordination as the four agents that combine to create value.
An apartment complex generates $120,000 in potential gross income annually. Vacancy and collection losses are 8%. What is the effective gross income?
Answer: $110,400
$120,000 × (1 − 0.08) = $110,400 effective gross income after accounting for vacancy and collection loss.
The concept of 'balance' in appraisal theory holds that value is maximized when:
Answer: The four agents of production are in proper proportion
Balance means the agents of production — land, labor, capital, and entrepreneurship — are optimally combined to produce maximum value.
Which statement correctly describes the relationship between price and value in real estate?
Answer: Price is what is paid; value is an estimate of worth based on analysis
Price is the amount actually exchanged in a transaction, while value is an appraiser's informed estimate of worth under defined conditions.
When a neighborhood transitions from residential to commercial use, early-stage properties may be undervalued because the market has not yet fully recognized the change. This reflects the principle of:
Answer: Change
The principle of change holds that real estate values are in constant flux due to economic, physical, social, and governmental forces.
A property is listed for $500,000 but sells for $475,000 after 90 days on market. For appraisal purposes, the market value is BEST reflected by:
Answer: The actual sale price of $475,000, assuming arm's-length conditions
The actual arm's-length sale price best reflects market value because it represents what a willing buyer paid a willing seller with adequate market exposure.
The concept of 'surplus productivity' in land valuation refers to:
Answer: The net income remaining after compensating labor, capital, and coordination — attributed to land
Surplus productivity is the income remaining after all other agents of production are paid their required returns, and this residual is imputed to land.