Real Estate License Property Valuation and Appraisal 2 — Questions and Answers
Question 1: Which appraisal approach is most appropriate for valuing a newly constructed school building with no comparable sales?
- Cost approach (Correct answer)
- Sales comparison approach
- Income capitalization approach
- Gross rent multiplier approach
Correct answer: Cost approach
The cost approach is best for special-purpose or unique properties where comparable sales and income data are scarce.
Question 2: An appraiser deducts $15,000 from a comparable's sale price because it has a finished basement the subject lacks. What is this adjustment based on?
- The contributory value of the feature (Correct answer)
- The original cost of the basement
- The replacement cost new
- The assessed tax value
Correct answer: The contributory value of the feature
Adjustments in the sales comparison approach reflect the contributory value a feature adds to market value, not its cost.
Question 3: In the sales comparison approach, if the comparable is superior to the subject, the appraiser should:
- Subtract value from the comparable (Correct answer)
- Add value to the comparable
- Subtract value from the subject
- Make no adjustment
Correct answer: Subtract value from the comparable
When a comparable is superior, you subtract from its price to make it equivalent to the inferior subject.
Question 4: A property's net operating income is $48,000 and the capitalization rate is 8%. What is its indicated value?
- $600,000 (Correct answer)
- $384,000
- $540,000
- $960,000
Correct answer: $600,000
Value equals NOI divided by cap rate: $48,000 / 0.08 = $600,000.
Question 5: Which of the following is an example of functional obsolescence?
- An outdated single bathroom in a four-bedroom house (Correct answer)
- A factory built next door
- A roof that needs replacement
- A declining neighborhood
Correct answer: An outdated single bathroom in a four-bedroom house
Functional obsolescence is a loss in value from outdated design or features within the property itself.
Question 6: The principle that a property's value is influenced by the cost of acquiring an equally desirable substitute is the principle of:
- Substitution (Correct answer)
- Conformity
- Anticipation
- Contribution
Correct answer: Substitution
The principle of substitution holds that a buyer will pay no more than the cost of an equally desirable alternative.
Question 7: What does the gross rent multiplier (GRM) relate?
- Sale price to gross rental income (Correct answer)
- Net income to value
- Cost to depreciation
- Land value to building value
Correct answer: Sale price to gross rental income
The GRM is the ratio of a property's sale price to its gross rental income, used to estimate value quickly.
Real Estate License Property Valuation and Appraisal 2
Which appraisal approach is most appropriate for valuing a newly constructed school building with no comparable sales?