Section 5, Unit 2: Three Approaches to Value

An investor is analyzing a property by looking at its ability to produce future income. The property is a 10-unit apartment building. Which of the following would be used to determine this value?

Gross income multiplier

What does the income approach to value rely on when valuing properties that are five or more units?

Gross income multiplier

An investor is analyzing a three-unit property by looking at its ability to produce future income. Which of the following would most likely be used to determine this value?

Gross rent multiplier

is a valuation method used for rental properties, and estimates how rental income relates to value

Gross rent multiplier or GRM,

Using the income approach, determine the value of a property that has a net operating income of $15,000 and a cap rate of 15%.

$100,000

The GRM for Sunny Hills is 147. If a three-bedroom, one-bath house in Sunny Hills rents for $820 monthly and sold for $125,000, what is the suggested value of a house that leases for $1,000 monthly based on the GRM?

$147,000

A property generates $30,000 in net operating income and has a 15% cap rate. Using the income approach, what is its value?

$200,000

Demographics impact the housing market. Which of the following is a true statement?

An increase in the number of retirees in a given population would negatively impact the demand for large, single-family homes.

The value principle of ______ is the basis of the income approach to appraisal.

Anticipation

In the sales comparison approach, using comparables that are five and 15 years old when appraising a subject that is 10 years old is an example of what?

Bracketing

When you're putting together a listing presentation, which of these is a key point to address?

Buyers won't pay more for a home than the market dictates.

In the sales comparison approach, which of these are selected and evaluated both quantitatively and qualitatively against the subject property?

Comparables

Which of the following provides an opinion of list price range by looking at recently sold properties, comparing current competing properties and properties that didn't sell, and estimating buyer appeal regarding the style, location, and size?

Comparative market analysis

Burt owns a development company that specializes in constructing new, energy-efficient houses. The best approach for an appraiser to use in the appraisal of Burt's newly built homes is the ______.

Cost approach

Which approach to value measures the cost to produce a property, including land acquisition and construction costs?

Cost approach

With the cost approach to value, what is the replacement cost?

Cost to build a functionally equivalent improvement

Related to depreciation, what are the two types of physical deterioration?

Curable and incurable

When a real estate professional goes beyond a broad brushstroke approach to a CMA and takes the time to research not only recent sales, but competition and expired listings, what trait are they exhibiting?

Diligence

Appraisers compare properties using two categories of comparison.

Elements of comparison, Units of comparison

An agent has a seller who wants to list the property at $550,000. The market has taken a downturn, and the fair market value is estimated at $495,000. What is the best approach for this listing?

Explain the benefits in the long run of entering the market at a fair price.

Nearby industrial odor is an example of which type of depreciation?

External depreciation

To make valid computations of adjustments for the sales comparison approach to value, elements of comparison must be applied in a specific order. Which element is applied first?

Financing terms and cash equivalency

When you're using the sales comparison approach to value a property, which of the following is considered a category of adjustment?

Financing terms and cash equivalency

A form of depreciation or loss in value caused by defects in design defines which of the following terms?

Functional obsolescence

A poor floor plan is an example of which type of depreciation?

Functional obsolescence

Homes in a new home development have been built with a floor plan that doesn't appeal to today's buyers. In a cost approach valuation of the houses, what sort of depreciation will the appraiser apply?

Functional obsolescence

A home enters the market priced above fair market value. Within the same time frame, three additional homes enter the market listed between 5% and 10% less than the first home, at a fair market price. What is likely to happen with the first home?

If a property is overpriced from the beginning, buyers will move on and likely make a purchasing decision before the price is corrected on the overpriced home.

At a listing appointment, licensee Chet asks Sam, the seller, if his property is his own home or an investment property. Why would Chet ask this?

If the home is his own, he's likely to be purchasing a new one, so Chet has a chance to land two transactions.

Which approach to value is typically used for investment property of two- to four-family units?

Income approach

Which one of these would NOT be an element of comparison an appraiser would use when applying the sales comparison approach to a property valuation?

Income generated

What happens when an appraiser determines a property's value to be less than the pre-approved loan amount?

Most buyers will have an appraisal contingency, so they can back out and receive a refund of their earnest money.

To calculate the value of a house by the income approach, if you know the GRM derived from the comparables is 110, you would:

Multiply the gross monthly rent by 110

The best way to start comparative market analysis data collection is to use properties that sold within which timeframe?

No later than three to six months ago

Which type of listing can help a real estate professional determine how quickly a home in a given price range received an accepted offer?

Pending

To make valid computations of adjustments for the sales comparison approach to value, elements of comparison must be applied in a specific order. Which one of these elements listed is applied last?

Physical characteristics

The three types of depreciation are:

Physical depreciation, Functional obsolescence, External depreciation

On which principle of value is the sales comparison approach based?

Substitution

The three approaches are based on certain principles of value. On which value principle is the sales comparison approach based?

Substitution

In completing a CMA, finding a comparable property that had a quick sale may indicate which of the following?

The market for similar homes is good.

In pricing a property, what might expired listings tell the real estate professional?

The price at which a property won't sell

What's the primary purpose of a CMA?

To determine an appropriate listing price range

An agent lists a home that receives an offer for full list price within one day in a buyers' market. There is a chance the agent ______ the home.

Underpriced

After you've made a professional listing presentation and the seller has declined to use you as a listing agent, what's the best practice?

You should accept the outcome either way.

Steve is preparing a market analysis for the Joneses and has selected three comparable properties. How many adjustments should Steve make to the Joneses' property?

Zero