REAL ESTATE LAW & PRACTICE UNIT 4: VALUATION
AND APPRAISAL
EXAM GUIDE 2025
|MOST COMMON QUESTIONS WITH CORRECTLY
VERIFIED ANSWERS|ALREADY A+
GRADED|GUARANTEED PASS
Abstraction (Abstractive Method) - DEFINITION: Estimating the value of land by
deducting the value of the improvements from the overall price of the property. (also called the
extraction method)
EXAMPLE: The procedure is:• Estimate the depreciated value of the improvements of known
sales or the subject by the cost approach• The sale price minus the depreciated value of the
improvements minus the "as is" site improvements is the site value
Accrued Depreciation (Cost Approach) - DEFINITION: The difference between a property's
estimated replacement or reproduction cost (cost approach to value) and current market value.
It is the sum of depreciation from all causes.
EXAMPLE: This is an essential step in the cost approach because, without a complete analysis of
loss in value from all causes, the cost approach may not lead to a meaningful value conclusion.
Adjusted Selling Price - DEFINITION: The price a of a comparable property adjusted
upwards (if has inferior features) or downwards (if it has superior features) when compared to
the subject property.
EXAMPLE: Assume the house is identical to the neighbor's house, except the neighbor has an
attached garage and the subject does not. The sales in the area indicate that an attached garage
adds $5,000 to the selling price. If the neighbor's house sold recently for $125,000, the subject
home would be worth $120,000.This reflects the indicated market value.
Age-life Table (Depreciation) - DEFINITION: Method of determining depreciation based
on the relationship of a property's actual or effective age to its economic life.
,EXAMPLE: Example: Effective age (based on condition) is 10 years and estimated remaining
economic life is 30 years 10 + 30 = 40 year economic life: = 25% depreciation today.
Amenity - DEFINITION: A feature of real property that enhances its attractiveness and
increases the occupant's or user's satisfaction although the feature is not essential to the
property's use.
EXAMPLE: Amenities may be tangible, such as a swimming pool or tennis court, or they may be
intangible, such as proximity to a school or park.
Anticipation Principle - DEFINITION: A principle of value that states that what you expect
to happen in the future affects your decision to buy now.
EXAMPLE: Don is considering buying some rental property. There is a commercial property
available in a strip mall. It includes three different store spaces and each could be leased for
$15,000 per year. If he leases them for 30 years, he could earn an income off the commercial
properties for that entire time. This is the principle of anticipation, a component of the income
approach to real estate.
Appraisal - DEFINITION: The process of estimating and supporting an opinion of value.
Appraiser - DEFINITION: An independent person trained to provide an unbiased opinion
of a property's value.
Approaches to Value - DEFINITION: The three primary methods of calculating value in an
appraisal: Cost Approach, Income Approach, Sales Comparison Approach
EXAMPLE: Unlike a Comparative Market Analysis prepared by a broker, which uses only the
Sales Comparison Approach, an appraisal is performed giving consideration to all three methods
and then selecting the most appropriate through the process of reconciliation.
Arms length - DEFINITION: A term indicating parties to a transaction are acting
independently and with full bargaining knowledge and position. A sale to a family member is
not "arms length" and may therefore impact market value or have tax consequences.
Assemblage - DEFINITION: Consolidating two or more parcels to create a larger building
site in order to create a greater return. The resultant increase in value is known as plottage.
Book Value - DEFINITION: The value of an asset including accumulated depreciation as
reflected in the financial books of the owner. This is an accounting concept.
,Capital Improvement - DEFINITION: A permanent improvement that extends the life of a
property, as opposed to maintenance. Capital improvements are not included in computing the
operating expenses of a property.
EXAMPLE: For example, an extensive remodel or new roof would be considered capital
improvements, but painting or repairing a ceiling fan would not.
Change Principle - DEFINITION: Changes in social and economic conditions have a
constant impact on property value and must be considered in an appraisal.
Characteristics of Value - DEFINITION: Monetary value of a property has a variety of
characteristics including demand, utility, scarcity, and transferability.
EXAMPLE: A property in the middle of the desert, 100 miles from the closest neighbor has lower
value than a property that is located next to an employment center where the is more demand
for real estate.
Comparables - DEFINITION: Similar properties in the vicinity of the subject (property
being appraised) in the sales comparison approach to value. An appraiser will compare the
comps to the subject, and make adjustments to the comparables accordingly.
EXAMPLE: A broker who is preparing a Comparative Market Analysis also uses comparables to
help price a property.
Comparative Market Analysis (CMA) - DEFINITION: An analyzed opinion prepared by a
real estate licensee relating to the value of a specific interest in real estate for the purpose of
listing, purchase or sale by comparing it to property recently listed or sold, or currently on the
market. Sometimes called a Competitive Market Analysis.
EXAMPLE: In many ways, a CMA is a simplified version of an appraisal using the sales
comparison approach, but it is used by brokers to help determine the value of the real estate.
Competition Principle - DEFINITION: A principle of value stating that Competition drives
down profit, whereas excess Profit generates competition.
Conformity Principle - DEFINITION: A property that conforms to its surrounding
properties in style, age, size, and appearance tends to maximize value.
Contribution - DEFINITION: A value principle holding that an amenity or improvement is
worth the value it adds, not what it costs.
EXAMPLE: While the remodel of the kitchen costs $50,000, the value added to the property at
the time it is listed for sale is only $35,000, or $15,000 less than the cost of the remodel.
, Cost Approach - DEFINITION: An approach to determining value based on adding the cost
of the land (as if vacant) (+) the current replacement cost of improvements (-) accrued
depreciation.
EXAMPLE: The cost approach is particularly useful for unique properties that have few
comparable sales and for new construction. If you were asked to appraise a church for example,
you may use the cost approach because it would be rare to find many sales of
churches.Replacement or reproduction cost - depreciation + land value = value
Cost Per Square Foot - DEFINITION: A unit of measure that may be utilized in the cost
approach to value.
Curable Depreciation - DEFINITION: Depreciation that is not cost-prohibitive to repair.
EXAMPLE: For example, suppose you have to pay $10,000 to fix your bathroom, but the value
added to your home by fixing your bathroom is $5,000 - then this is considered incurable since
the value added is less than the cost of the repairs. If the value added is $10,000 or more then it
would be considered to be curable.
Deferred Maintenance - DEFINITION: Postponement of curable repairs that a purchaser
would evaluate in a purchase offer analysis.
Demand - DEFINITION: The quantity of a good or service that the market desires at a
certain price.
Depreciation - DEFINITION: In the real estate world, depreciation refers to the decrease
in the value of property as improvements age. In accounting, it is the amount an owner is
allowed to take as a deduction from income based on the cost of the property and its useful life.
Depth Tables - DEFINITION: Charts intended to standardize lot values based on increase
in lot depth, based on the front of a lot having greater value than the rear. Used by county
assessors to assist in applying uniform assessments.
Development Method - DEFINITION: The estimated value after development less the cost
of development and less entrepreneurial profit equals the approximate value of the land.
EXAMPLE: Finished lots would sell for $50,000 each. A parcel of land could be used to develop
10 finished lots. The development cost would be $300,000. The developer works to achieve
entrepreneurial profit of 20 percent of the finished lot price. Based on this scenario, the value of
the land is $100,000 which is calculated as 10 finished lots times $50,000 per lot; minus
$300,000 development cost, minus $100,000 (10 lots time $50,000 per lot times 20%) of
entrepreneurial profit.
AND APPRAISAL
EXAM GUIDE 2025
|MOST COMMON QUESTIONS WITH CORRECTLY
VERIFIED ANSWERS|ALREADY A+
GRADED|GUARANTEED PASS
Abstraction (Abstractive Method) - DEFINITION: Estimating the value of land by
deducting the value of the improvements from the overall price of the property. (also called the
extraction method)
EXAMPLE: The procedure is:• Estimate the depreciated value of the improvements of known
sales or the subject by the cost approach• The sale price minus the depreciated value of the
improvements minus the "as is" site improvements is the site value
Accrued Depreciation (Cost Approach) - DEFINITION: The difference between a property's
estimated replacement or reproduction cost (cost approach to value) and current market value.
It is the sum of depreciation from all causes.
EXAMPLE: This is an essential step in the cost approach because, without a complete analysis of
loss in value from all causes, the cost approach may not lead to a meaningful value conclusion.
Adjusted Selling Price - DEFINITION: The price a of a comparable property adjusted
upwards (if has inferior features) or downwards (if it has superior features) when compared to
the subject property.
EXAMPLE: Assume the house is identical to the neighbor's house, except the neighbor has an
attached garage and the subject does not. The sales in the area indicate that an attached garage
adds $5,000 to the selling price. If the neighbor's house sold recently for $125,000, the subject
home would be worth $120,000.This reflects the indicated market value.
Age-life Table (Depreciation) - DEFINITION: Method of determining depreciation based
on the relationship of a property's actual or effective age to its economic life.
,EXAMPLE: Example: Effective age (based on condition) is 10 years and estimated remaining
economic life is 30 years 10 + 30 = 40 year economic life: = 25% depreciation today.
Amenity - DEFINITION: A feature of real property that enhances its attractiveness and
increases the occupant's or user's satisfaction although the feature is not essential to the
property's use.
EXAMPLE: Amenities may be tangible, such as a swimming pool or tennis court, or they may be
intangible, such as proximity to a school or park.
Anticipation Principle - DEFINITION: A principle of value that states that what you expect
to happen in the future affects your decision to buy now.
EXAMPLE: Don is considering buying some rental property. There is a commercial property
available in a strip mall. It includes three different store spaces and each could be leased for
$15,000 per year. If he leases them for 30 years, he could earn an income off the commercial
properties for that entire time. This is the principle of anticipation, a component of the income
approach to real estate.
Appraisal - DEFINITION: The process of estimating and supporting an opinion of value.
Appraiser - DEFINITION: An independent person trained to provide an unbiased opinion
of a property's value.
Approaches to Value - DEFINITION: The three primary methods of calculating value in an
appraisal: Cost Approach, Income Approach, Sales Comparison Approach
EXAMPLE: Unlike a Comparative Market Analysis prepared by a broker, which uses only the
Sales Comparison Approach, an appraisal is performed giving consideration to all three methods
and then selecting the most appropriate through the process of reconciliation.
Arms length - DEFINITION: A term indicating parties to a transaction are acting
independently and with full bargaining knowledge and position. A sale to a family member is
not "arms length" and may therefore impact market value or have tax consequences.
Assemblage - DEFINITION: Consolidating two or more parcels to create a larger building
site in order to create a greater return. The resultant increase in value is known as plottage.
Book Value - DEFINITION: The value of an asset including accumulated depreciation as
reflected in the financial books of the owner. This is an accounting concept.
,Capital Improvement - DEFINITION: A permanent improvement that extends the life of a
property, as opposed to maintenance. Capital improvements are not included in computing the
operating expenses of a property.
EXAMPLE: For example, an extensive remodel or new roof would be considered capital
improvements, but painting or repairing a ceiling fan would not.
Change Principle - DEFINITION: Changes in social and economic conditions have a
constant impact on property value and must be considered in an appraisal.
Characteristics of Value - DEFINITION: Monetary value of a property has a variety of
characteristics including demand, utility, scarcity, and transferability.
EXAMPLE: A property in the middle of the desert, 100 miles from the closest neighbor has lower
value than a property that is located next to an employment center where the is more demand
for real estate.
Comparables - DEFINITION: Similar properties in the vicinity of the subject (property
being appraised) in the sales comparison approach to value. An appraiser will compare the
comps to the subject, and make adjustments to the comparables accordingly.
EXAMPLE: A broker who is preparing a Comparative Market Analysis also uses comparables to
help price a property.
Comparative Market Analysis (CMA) - DEFINITION: An analyzed opinion prepared by a
real estate licensee relating to the value of a specific interest in real estate for the purpose of
listing, purchase or sale by comparing it to property recently listed or sold, or currently on the
market. Sometimes called a Competitive Market Analysis.
EXAMPLE: In many ways, a CMA is a simplified version of an appraisal using the sales
comparison approach, but it is used by brokers to help determine the value of the real estate.
Competition Principle - DEFINITION: A principle of value stating that Competition drives
down profit, whereas excess Profit generates competition.
Conformity Principle - DEFINITION: A property that conforms to its surrounding
properties in style, age, size, and appearance tends to maximize value.
Contribution - DEFINITION: A value principle holding that an amenity or improvement is
worth the value it adds, not what it costs.
EXAMPLE: While the remodel of the kitchen costs $50,000, the value added to the property at
the time it is listed for sale is only $35,000, or $15,000 less than the cost of the remodel.
, Cost Approach - DEFINITION: An approach to determining value based on adding the cost
of the land (as if vacant) (+) the current replacement cost of improvements (-) accrued
depreciation.
EXAMPLE: The cost approach is particularly useful for unique properties that have few
comparable sales and for new construction. If you were asked to appraise a church for example,
you may use the cost approach because it would be rare to find many sales of
churches.Replacement or reproduction cost - depreciation + land value = value
Cost Per Square Foot - DEFINITION: A unit of measure that may be utilized in the cost
approach to value.
Curable Depreciation - DEFINITION: Depreciation that is not cost-prohibitive to repair.
EXAMPLE: For example, suppose you have to pay $10,000 to fix your bathroom, but the value
added to your home by fixing your bathroom is $5,000 - then this is considered incurable since
the value added is less than the cost of the repairs. If the value added is $10,000 or more then it
would be considered to be curable.
Deferred Maintenance - DEFINITION: Postponement of curable repairs that a purchaser
would evaluate in a purchase offer analysis.
Demand - DEFINITION: The quantity of a good or service that the market desires at a
certain price.
Depreciation - DEFINITION: In the real estate world, depreciation refers to the decrease
in the value of property as improvements age. In accounting, it is the amount an owner is
allowed to take as a deduction from income based on the cost of the property and its useful life.
Depth Tables - DEFINITION: Charts intended to standardize lot values based on increase
in lot depth, based on the front of a lot having greater value than the rear. Used by county
assessors to assist in applying uniform assessments.
Development Method - DEFINITION: The estimated value after development less the cost
of development and less entrepreneurial profit equals the approximate value of the land.
EXAMPLE: Finished lots would sell for $50,000 each. A parcel of land could be used to develop
10 finished lots. The development cost would be $300,000. The developer works to achieve
entrepreneurial profit of 20 percent of the finished lot price. Based on this scenario, the value of
the land is $100,000 which is calculated as 10 finished lots times $50,000 per lot; minus
$300,000 development cost, minus $100,000 (10 lots time $50,000 per lot times 20%) of
entrepreneurial profit.
