Real Estate Appraisal Flashcards
7 cards from real PSI practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Real Estate Appraisal flashcards as text
In the income approach, net operating income (NOI) is calculated as:
Answer: Effective gross income minus operating expenses (excluding debt service)
NOI equals effective gross income (potential income adjusted for vacancy/collection loss) minus all operating expenses, but does NOT include mortgage debt service or income taxes.
Direct capitalization converts a single year's income into a value estimate by:
Answer: Dividing NOI by the overall capitalization rate
In direct capitalization, Value = NOI ÷ Cap Rate; dividing the stabilized annual NOI by the market-derived overall capitalization rate yields the indicated value.
The cost approach is generally most reliable when appraising:
Answer: Properties with little or no depreciation, such as newly constructed buildings
The cost approach is most reliable for new or nearly new properties where depreciation is minimal and construction costs are well-documented.
Reproduction cost in the cost approach refers to:
Answer: The cost to construct an exact replica of the existing structure using current materials and techniques
Reproduction cost is the cost to build an exact duplicate of the subject structure using the same or very similar materials and construction methods at current prices.
Functional obsolescence in a residential property is best illustrated by:
Answer: A four-bedroom home with only one bathroom
Functional obsolescence results from a deficiency or superadequacy in the design or layout of the improvement; a four-bedroom home with one bathroom represents an inadequate feature relative to market expectations.
Effective gross income (EGI) is defined as:
Answer: Potential gross income minus vacancy and collection loss, plus other income
EGI equals potential gross income minus an allowance for vacancy and collection loss, plus any miscellaneous other income such as parking fees or laundry income.
The capitalization rate (cap rate) reflects:
Answer: The required rate of return on an investment property relative to its value
The overall capitalization rate represents the ratio of NOI to property value (Cap Rate = NOI / Value) and reflects the market's required rate of return for that property type and risk level.