Valuing and Financing Property Flashcards
7 cards from real Wisconsin Real Estate License practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Valuing and Financing Property flashcards as text
The cost approach is MOST appropriate for valuing which type of property?
Answer: A newly built church or school
The cost approach works best for special-purpose or new properties that lack comparable sales.
In the cost approach, what is subtracted from the cost of improvements?
Answer: Accrued depreciation
The cost approach subtracts accrued depreciation from reproduction/replacement cost, then adds land value.
Loss in value from an outdated floor plan is an example of:
Answer: Functional obsolescence
Functional obsolescence is a loss in value caused by outdated or poor design features within the property.
Depreciation caused by factors outside the property boundaries is called:
Answer: External obsolescence
External (economic) obsolescence results from negative influences outside the property, such as neighborhood decline.
The income approach is primarily used to value:
Answer: Income-producing rental properties
The income approach values properties based on the income they generate, ideal for rentals and commercial buildings.
In the income approach, capitalization rate is calculated by dividing net operating income by:
Answer: Value (or sale price)
Cap rate = Net Operating Income / Value; rearranged, Value = NOI / Cap Rate.
A property has NOI of $20,000 and a cap rate of 10%. Its estimated value is:
Answer: $200,000
Value = NOI / Cap Rate = $20,000 / 0.10 = $200,000.