Principles of Real Estate Exam #2
Questions with Answers
Appraisals - ✔✔Appraisals are performed as part of a federally related transaction and must
comply to state standards and be performed by state licensed or certified appraisers
Market Value - ✔✔Most probable selling price that a property will bing
Market Value is paid in... - ✔✔cash or its equivalent
How long is a property exposed to the market? - ✔✔A reasonable time period
Buyers and sellers are informed as to... - ✔✔uses and defects of the property
3 approaches for estimating value - ✔✔Income approach, cost approach, market approach
2 ways to report final value estimate on an appraisal - ✔✔Narrative, Form
Narrative appraisal estimate is.. - ✔✔more descriptive, costs 5-7 grand
Form appraisal estimate is... - ✔✔less descriptive, used for residential properties
Market Comparison Approach - ✔✔estimate of value is obtained by comparing subject
property with recently sold comparable properties, works best for residential properties
Cost Approach - ✔✔Land + replacement cost - depreciation (physical, functional, economic.
Doesn't work as well for residential buildings because it's hard to calculate on old buildings
, Income Approach - ✔✔Value = N.O.I./Capitalization Rate
How to find N.O.I (net operating income) - ✔✔Gross Income - vacancy loss = effective gross
income... - operating expenses = N.O.I
CAP rate - ✔✔Economic end to life of property is when the total revenue = total cost
3 ways to calculate CAP rate - ✔✔Straight, Sinking Fund Method, Market Extraction CAP rate
Straight method (CAP rate) - ✔✔100%/Economic Life = %
Sinking Method (CAP rate) - ✔✔Assumes
Market Extraction (CAP rate) - ✔✔Value = Income/CAP rate
SP = Sales Price
C = Cap rate
N.O.I. = Net Operating Income
SP = Sum 1 - N.O.I./C
Construction Agreement (DCCP) - ✔✔General description of home, costs, completion,
payments
Specifications - ✔✔Detailed list of materials and components, not unlike a list of ingredients in
a recipe
Plans/Blue Lines - ✔✔picture of structure, specifies how components are assembled
Questions with Answers
Appraisals - ✔✔Appraisals are performed as part of a federally related transaction and must
comply to state standards and be performed by state licensed or certified appraisers
Market Value - ✔✔Most probable selling price that a property will bing
Market Value is paid in... - ✔✔cash or its equivalent
How long is a property exposed to the market? - ✔✔A reasonable time period
Buyers and sellers are informed as to... - ✔✔uses and defects of the property
3 approaches for estimating value - ✔✔Income approach, cost approach, market approach
2 ways to report final value estimate on an appraisal - ✔✔Narrative, Form
Narrative appraisal estimate is.. - ✔✔more descriptive, costs 5-7 grand
Form appraisal estimate is... - ✔✔less descriptive, used for residential properties
Market Comparison Approach - ✔✔estimate of value is obtained by comparing subject
property with recently sold comparable properties, works best for residential properties
Cost Approach - ✔✔Land + replacement cost - depreciation (physical, functional, economic.
Doesn't work as well for residential buildings because it's hard to calculate on old buildings
, Income Approach - ✔✔Value = N.O.I./Capitalization Rate
How to find N.O.I (net operating income) - ✔✔Gross Income - vacancy loss = effective gross
income... - operating expenses = N.O.I
CAP rate - ✔✔Economic end to life of property is when the total revenue = total cost
3 ways to calculate CAP rate - ✔✔Straight, Sinking Fund Method, Market Extraction CAP rate
Straight method (CAP rate) - ✔✔100%/Economic Life = %
Sinking Method (CAP rate) - ✔✔Assumes
Market Extraction (CAP rate) - ✔✔Value = Income/CAP rate
SP = Sales Price
C = Cap rate
N.O.I. = Net Operating Income
SP = Sum 1 - N.O.I./C
Construction Agreement (DCCP) - ✔✔General description of home, costs, completion,
payments
Specifications - ✔✔Detailed list of materials and components, not unlike a list of ingredients in
a recipe
Plans/Blue Lines - ✔✔picture of structure, specifies how components are assembled
