Market Analysis & Valuation Flashcards
7 cards from real CHI practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Market Analysis & Valuation flashcards as text
What is 'capitalization rate' (cap rate) used for in real estate valuation?
Answer: Converting a property's net operating income into an estimated value
The cap rate divides a property's net operating income by its value, helping investors assess return potential and compare income-producing properties.
Which type of depreciation in real estate valuation is considered incurable?
Answer: Functional obsolescence due to poor floor plan that cannot be economically corrected
Incurable depreciation occurs when the cost to fix a deficiency exceeds the value it would add, making correction economically impractical.
In a Comparative Market Analysis (CMA), what is the primary purpose of making 'adjustments' to comparable sales?
Answer: To align the comparable's price with the subject property's features and condition
Adjustments compensate for differences between comparables and the subject so the resulting values reflect what the comps would have sold for if identical to the subject.
How does economic obsolescence differ from physical deterioration in a property valuation context?
Answer: Economic obsolescence is a loss in value from external market forces; physical deterioration results from wear and age
Physical deterioration is wear from use and age within the property, while economic obsolescence is a value loss caused by factors external to the property.
A home inspector identifies that a neighborhood has experienced significant commercial encroachment over the past five years. Which valuation concept does this most directly affect?
Answer: External (economic) obsolescence of residential properties
Commercial encroachment into a residential neighborhood is a classic example of external obsolescence, reducing the desirability and value of nearby homes.
What does 'absorption rate' measure in a real estate market analysis?
Answer: How quickly available homes are sold in a given market over a specific time period
Absorption rate calculates how fast homes are sold in a market, indicating whether it favors buyers or sellers and how long current inventory will last.
Which principle of value states that the value of an inferior property is enhanced by its proximity to superior properties?
Answer: Principle of progression
The principle of progression holds that a lower-value property benefits from being located near higher-value properties, pulling its value upward.