Property Valuation I: Sale Comparison and Cost Approach
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Questions and Answers

What is the most probable selling price of a property under 'normal' sale conditions?

  • Eminent domain price
  • Transaction price
  • Market value (correct)
  • Investment value

    • Who uses market value appraisals according to the text?

  • Government agencies (correct)
  • Insurance companies
  • Investment bankers
  • Real estate developers

    • In markets with perfect competition and investment value revelation, where do all transactions take place?

  • Below the true market value
  • At true market value (correct)
  • At the fundamental value
  • At the investment value

    • What is the value to a particular individual or investor referred to as?

    <p>Investment value</p> Signup and view all the answers

    When is valuation calculation required according to the text?

    <p>When a property is abandoned</p> Signup and view all the answers

    What is the purpose of USPAP?

    <p>To provide a standardized process for real estate appraisal</p> Signup and view all the answers

    Why is it important to value land separately from improvements?

    <p>Improvements cannot be sold separately from the land</p> Signup and view all the answers

    What is the first step in the process of complying with USPAP?

    <p>Identify the appraisal problem</p> Signup and view all the answers

    What is the key consideration in determining the 'highest and best use' of a property?

    <p>Legally permissible use</p> Signup and view all the answers

    Why is reconciling values from multiple approaches important in real estate appraisal?

    <p>To weigh each approach based on its reliability</p> Signup and view all the answers

    What is the primary reason for using the income approach to valuation?

    <p>To consider the property’s income-producing potential</p> Signup and view all the answers

    What measure of income is generally sought by property valuers for income valuation?

    <p>Annual net operating income (NOI)</p> Signup and view all the answers

    What is the next step after estimating the net income in the income approach?

    <p>Converting NOI forecast into an estimate of property value</p> Signup and view all the answers

    What additional factor needs to be considered in income valuation if the owner has borrowed funds to the mortgage lenders?

    <p>Income taxes</p> Signup and view all the answers

    Why is it important to consider income taxes in income valuation?

    <p>To account for additional expenses affecting net income</p> Signup and view all the answers

    What is the main similarity between direct capitalization and valuing a stock using a price/earnings multiple?

    <p>Both find value as a multiple of first year net income</p> Signup and view all the answers

    In DCF valuation models, what does the appraiser need to estimate?

    <p>Typical buyer's expected holding period</p> Signup and view all the answers

    What does potential gross income (PGI) represent?

    <p>Rental income assuming 100% occupancy</p> Signup and view all the answers

    Why might the estimation of potential gross income include contract rent of long-term leases?

    <p>To account for the actual rent being paid under contractual commitments</p> Signup and view all the answers

    What is market rent in the context of potential gross income estimation?

    <p>The rental income the property would most probably command if placed for lease on the open market</p> Signup and view all the answers

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