Property Valuation Methods Flashcards
7 cards from real CRECI practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Property Valuation Methods flashcards as text
In real estate appraisal, the 'holding period' in a DCF analysis refers to:
Answer: The projected ownership period over which cash flows are analyzed
The holding period is the assumed investment duration — typically 5 to 10 years for commercial properties — over which periodic cash flows and a reversion are discounted.
Which principle states that value is created and maintained when a property's use is consistent with surrounding land uses?
Answer: Principle of conformity
The principle of conformity holds that maximum value is achieved when a property's use is harmonious with surrounding uses in the neighborhood.
What is 'going-concern value' and how does it differ from real property value?
Answer: It includes the value of the real estate plus business intangibles such as goodwill and trained staff
Going-concern value encompasses the total value of an operating business entity, including real estate, personal property, and intangible assets like goodwill.
When a commercial property is under-improved relative to its highest and best use, which principle explains the potential for value increase through development?
Answer: Principle of increasing returns
The principle of increasing returns holds that added improvements will increase value up to the point of maximum productivity, applicable when a site is under-improved.
In the sales comparison approach, a 'time adjustment' (market conditions adjustment) is made to account for:
Answer: Changes in market prices between the comparable's sale date and the appraisal's effective date
Market conditions adjustments reflect appreciation or depreciation between the comparable's sale date and the subject's effective date of value.
The terminal capitalization rate used in a DCF reversion calculation is typically set:
Answer: Slightly higher than the going-in cap rate to reflect increased risk at resale
The terminal cap rate is usually set slightly above the going-in rate to account for property aging, lease rollover risk, and market uncertainty at the time of resale.
Under USPAP, which report type provides the full description of the data, reasoning, and analysis used by the appraiser?
Answer: Appraisal Report
Under the current USPAP edition, the Appraisal Report contains sufficient information to allow the intended users to understand the appraiser's analyses, opinions, and conclusions.