Wisconsin Real Estate License Property Valuation and Financing 2

Question 1

Which appraisal approach relies most heavily on recently sold comparable properties to estimate value?

Accepted Answer

Sales comparison approach

Answer

The sales comparison approach values a property by comparing it to similar recently sold properties.

Question 2

In the cost approach, what is subtracted from the reproduction cost of improvements before adding land value?

Accepted Answer

Accrued depreciation

Answer

The cost approach subtracts accrued depreciation from the cost of improvements, then adds land value.

Question 3

A property generates $24,000 net operating income and the market cap rate is 8%. What is its estimated value?

Accepted Answer

$300,000

Answer

Value equals NOI divided by cap rate: $24,000 / 0.08 = $300,000.

Question 4

What term describes a loss in value due to outdated features or design that cannot be easily changed?

Accepted Answer

Functional obsolescence

Answer

Functional obsolescence is a loss in value from outdated or poorly designed features within the property.

Question 5

Which principle holds that a property's maximum value is set by the cost of acquiring an equally desirable substitute?

Accepted Answer

Principle of substitution

Answer

The principle of substitution states a buyer will pay no more than the cost of an equally desirable substitute.

Wisconsin Real Estate License Practice Test