Approaches to Value

Question 1

Capitalization Rate

Answer 1

The percentage rate or rate of interest considered a reasonable return on the investment

Question 2

Comparative Market Analysis (CMA)

Answer 2

A comparison of prices of recently sold homes that are similar to a seller’s home

Question 3

Cost Approach

Answer 3

Also called “appraisal by summation”, it estimates today’s cost of all improvements, minus all factors of depreciation, plus the valuation of the land using the market data approach

Question 4

Effective Gross Income

Answer 4

Total income after deductions for vacancies and bad debts. Also referred to as ‘Adjusted Gross Income’

Question 5

Income Approach

Answer 5

An appraisal technique used on income-producing properties; assumes that income from property establishes value

Question 6

Market Data Approach

Answer 6

Similar to the approach used by licensees or investors when listing residences

Question 7

Net Income

Answer 7

The gross income less costs and expense for a 1-year period

Question 8

Replacement Cost

Answer 8

Estimates cost based on using today’s materials and technologies

Question 9

Reproduction Cost

Answer 9

Estimates the cost by using the original materials and technologies