Real Estate Sales Exam FREE Real Estate Sales Property Valuation and Appraisal Questions and Answers 2 — Questions and Answers
Question 1: Which appraisal approach estimates value by calculating the cost to rebuild the structure, minus depreciation, plus land value?
- Sales comparison approach
- Cost approach (Correct answer)
- Income capitalization approach
- Gross rent multiplier approach
Correct answer: Cost approach
The cost approach determines value by estimating reproduction or replacement cost, subtracting accrued depreciation, and adding land value.
Question 2: A property generates $60,000 in annual net operating income and the capitalization rate is 8%. What is the estimated property value using the income approach?
- $480,000
- $750,000 (Correct answer)
- $600,000
- $720,000
Correct answer: $750,000
Property value equals net operating income divided by the capitalization rate: $60,000 ÷ 0.08 = $750,000.
Question 3: What type of depreciation is caused by factors external to the property, such as a nearby landfill?
- Physical deterioration
- Functional obsolescence
- External (economic) obsolescence (Correct answer)
- Deferred maintenance
Correct answer: External (economic) obsolescence
External or economic obsolescence results from negative influences outside the property boundaries that reduce its value.
Question 4: In the sales comparison approach, if a comparable property has a feature that the subject property lacks, how should the appraiser adjust?
- Add the value of the feature to the subject property
- Subtract the value of the feature from the comparable (Correct answer)
- Add the value of the feature to the comparable
- No adjustment is needed
Correct answer: Subtract the value of the feature from the comparable
Adjustments are always made to the comparable property, and a superior feature in the comp requires a downward adjustment to make it equivalent to the subject.
Question 5: Which principle of value states that the maximum value of a property is set by how much it would cost to acquire an equally desirable substitute?
- Principle of contribution
- Principle of substitution (Correct answer)
- Principle of anticipation
- Principle of conformity
Correct answer: Principle of substitution
The principle of substitution holds that a buyer will pay no more for a property than the cost of obtaining an equally desirable alternative.
Question 6: What does the gross rent multiplier (GRM) measure?
- The ratio of net operating income to sale price
- The ratio of sale price to gross monthly or annual rent (Correct answer)
- The ratio of operating expenses to gross income
- The ratio of debt service to net income
Correct answer: The ratio of sale price to gross monthly or annual rent
The GRM is calculated by dividing the sale price of a property by its gross rental income, providing a quick valuation estimate.
Real Estate Sales Exam FREE Real Estate Sales Property Valuation and Appraisal Questions and Answers 2
Which appraisal approach estimates value by calculating the cost to rebuild the structure, minus depreciation, plus land value?