Real Estate Valuation Methods

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Questions and Answers

What is the Gross Rent Multiplier (GRM) calculated by?

  • Subtracting the property price from the monthly rental amount
  • Multiplying the property price by the monthly rental amount
  • Dividing the property price by the monthly rental amount (correct)
  • Adding the property price to the monthly rental amount

Which step in the Comparative Market Analysis involves identifying comparables?

  • Step 2
  • Step 1 (correct)
  • Step 3
  • Step 4

Under FIRREA, who is permitted to perform federally-related appraisals as of January 1, 1993?

  • Property developers
  • All real estate agents
  • Banking professionals
  • State-certified appraisers (correct)

What is Market Value?

<p>An estimated price at which a property will sell at a particular time. (B)</p> Signup and view all the answers

What is the primary reason why investors won't pay more for a property with a certain income stream according to the text?

<p>Substitution principle (A)</p> Signup and view all the answers

What does Salvage Value refer to?

<p>A nominal estimate for when a structure has reached its economic life. (A)</p> Signup and view all the answers

In the Income Approach to property valuation, what does NOI stand for?

<p>Net Operating Income (C)</p> Signup and view all the answers

How is Reproduction Value calculated?

<p>Based on the cost of constructing an exact duplicate of the subject property's improvements. (C)</p> Signup and view all the answers

What is the purpose of applying a capitalization rate in the Income Approach to valuation?

<p>To convert Net Operating Income into property value (C)</p> Signup and view all the answers

What is Assessed Value used for?

<p>Basis for ad valorem taxation used by taxing authorities. (B)</p> Signup and view all the answers

What is the main requirement for all appraisals used in federally-related transactions according to FIRREA?

<p>To be performed by competent individuals under proper supervision (B)</p> Signup and view all the answers

How is Depreciated Value determined?

<p>Established by subtracting accumulated depreciation from the purchase price. (B)</p> Signup and view all the answers

What does Investment Value represent?

<p>Income properties using capitalized cash flow generated by them. (D)</p> Signup and view all the answers

What is Book Value based on?

<p>Acquisition prices plus capital improvements minus accumulated depreciation. (A)</p> Signup and view all the answers

What does Progression and Regression refer to?

<p>The value of a property is impacted by the values of neighboring properties. (D)</p> Signup and view all the answers

What is Replacement Value based on?

<p>Based on the cost of constructing an exact duplicate of the subject property's improvements, assuming current construction costs. (D)</p> Signup and view all the answers

What is market value?

<p>The price agreed upon by a willing buyer and seller under specific conditions (A)</p> Signup and view all the answers

What defines Gross Living Area (GLA)?

<p>Refers to the total area of all rooms 'above grade' measured from their exterior walls (D)</p> Signup and view all the answers

What is an essential requirement for a space to be included in GLA footage?

<p>Being attached to the main house and under heat (D)</p> Signup and view all the answers

What is the purpose of adjusting comparables in property appraisal?

<p>To make deductions from comparables superior to the subject property and add to those inferior (B)</p> Signup and view all the answers

Which type of cost appraisal involves creating an exact replica of the property?

<p>Reproduction cost (C)</p> Signup and view all the answers

What is an element of depreciation related to outmoded physical or design features?

<p>Functional obsolescence (C)</p> Signup and view all the answers

What distinguishes between curable and incurable functional obsolescence?

<p>'Curable' means cost to cure is less than resulting value; 'incurable' when cost exceeds value contribution (C)</p> Signup and view all the answers

What should be excluded when selecting comparables for appraisal adjustments?

<p>'Avoid making adjustments to the subject property itself' (A)</p> Signup and view all the answers

What should you consider when adjusting comparables weightings?

<p>The best indicator is one with fewest and smallest adjustments, resulting in a smaller net adjustment from the sale price (C)</p> Signup and view all the answers

According to market value requirements, what does 'arm's length transaction' mean?

<p>A transaction between unrelated parties with no hidden influences (D)</p> Signup and view all the answers

What is an important condition for the market value of a property?

<p>Arm's length transaction (C)</p> Signup and view all the answers

What does Gross Living Area (GLA) include?

<p>Stairwells and closets (B)</p> Signup and view all the answers

What should be excluded from GLA measurements?

<p>Seasonal porches (C)</p> Signup and view all the answers

How is 'Depreciated Improvement Cost' calculated?

<p>Depreciated Improvement Costs + Land Value (D)</p> Signup and view all the answers

What distinguishes between curable and incurable functional obsolescence?

<p>Cost to cure is less than the value addition (B)</p> Signup and view all the answers

Which type of spaces can generally count towards Gross Living Area calculations?

<p>Entry areas (B)</p> Signup and view all the answers

'Subtract if Superior!' guideline is related to adjusting comparables in terms of:

<p>Making deductions from comparables superior to the subject property (A)</p> Signup and view all the answers

'Economic Obsolescence' refers to depreciation caused by:

<p>Adverse changes in surroundings (B)</p> Signup and view all the answers

'Reproduction' cost appraisal involves:

<p>'Exact replica' creation expense (C)</p> Signup and view all the answers

What does Insured Value represent for a property?

<p>The face amount paid by an insurance policy if the property becomes unusable (D)</p> Signup and view all the answers

How is Reproduction Value different from Replacement Value?

<p>Reproduction Value is based on functional equivalent costs while Replacement Value is based on construction costs (A)</p> Signup and view all the answers

What concept considers the values of neighboring properties when determining a property's value?

<p>Market Value (A)</p> Signup and view all the answers

What does Book Value for a property represent?

<p>Total investment in the property minus depreciation (A)</p> Signup and view all the answers

What is Salvage Value associated with in real estate?

<p>Price someone could purchase the property for if dismantled (B)</p> Signup and view all the answers

What does Assessed Value serve as the basis for in real estate?

<p>Ad valorem taxation by taxing authorities (A)</p> Signup and view all the answers

How is Depreciated Value determined for a property?

<p>$\text{Purchase price} - \text{Accumulated depreciation}$ (A)</p> Signup and view all the answers

What does Investment Value focus on in real estate valuation?

<p>$\text{Property's capitalized cash flow}$ (C)</p> Signup and view all the answers

What is the purpose of applying a suitable capitalization rate in the Income Approach to valuation?

<p>To determine the property value based on expected future income stream (B)</p> Signup and view all the answers

Why may Gross Rent Multipliers (GRMs) not always produce precise value estimates?

<p>Because GRMs are uncomplicated and do not consider all property factors (C)</p> Signup and view all the answers

What is one of the steps involved in the Comparative Market Analysis (CMA) approach?

<p>Identifying comparables for analysis (D)</p> Signup and view all the answers

What does FIRREA require regarding appraisals used in federally-related transactions?

<p>They must be performed by state-certified appraisers only (C)</p> Signup and view all the answers

In the Income Approach, why do investors refuse to pay more for a property with a certain income stream compared to others?

<p>As a result of anticipated future income streams (C)</p> Signup and view all the answers

What is a key aspect of USPAP requirements for appraisers?

<p>Utilizing acknowledged appraisal techniques (B)</p> Signup and view all the answers

What should be done when making adjustments to comparables in the Comparative Market Analysis (CMA)?

<p>Compensate for differences between comparables and the subject (D)</p> Signup and view all the answers

Why might using only Gross Rent Multipliers (GRMs) to assess property value be limited?

<p>'GRM' may not reflect all relevant property factors (B)</p> Signup and view all the answers

Why are competent individuals required to conduct appraisals in federally-related transactions according to FIRREA?

<p>To prevent any possible errors in property assessments (A)</p> Signup and view all the answers

How does the application of a multiplier in determining Gross Rent Multipliers (GRMs) contribute to property valuation?

<p>By utilizing market data on sale prices and gross rent (B)</p> Signup and view all the answers

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