Appraisal methods, comparable sales analysis, and property valuation concepts tested on state real estate licensing exams.
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- What are the three primary approaches to property valuation used in appraisals?
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Sales comparison approach, cost approach, and income approach.- Which approach to valuation is most commonly used for residential properties?
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Sales comparison approach.- What is the sales comparison approach based on?
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The principle that a property's value is indicated by comparing it to similar properties that have recently sold.- Define a comparable property in appraisal.
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A property that is similar to the subject property in location, size, condition, and features, and has recently sold in an arm's length transaction.- What is an arm's length transaction?
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A sale between unrelated parties who are each acting in their own interest and have no special relationship to each other.- What does the cost approach to valuation estimate?
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The cost to construct the building new, plus the land value, minus depreciation.- What is physical depreciation in appraisal?
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Loss in value due to wear, tear, and deterioration of the building materials and structure over time.- Define external obsolescence in real estate appraisal.
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Loss in value caused by negative external factors outside the property, such as nearby industrial use, poor schools, or highway noise.- What is functional obsolescence?
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Loss in value due to outdated or inadequate design, layout, or features of the building that do not meet current market standards.- Which approach to valuation is most appropriate for income-producing properties?
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Income approach.- What does the income approach value a property based on?
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The income that the property can generate, capitalized at an appropriate rate of return.- Define capitalization rate in the income approach.
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The rate of return on investment, calculated by dividing net operating income by property value.- What is net operating income (NOI)?
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Gross potential income minus vacancies and collection losses, plus miscellaneous income, minus operating expenses.- What adjustment is made to a comparable property's sale price if it sold under duress or distress?
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An upward adjustment to the subject property's indicated value, because the distressed sale price is typically lower than market value.- What does it mean to adjust comparable properties in a sales comparison analysis?
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To modify the sale prices of comparable properties to account for differences between them and the subject property.
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