Chapter 17 – Introduction to Property Valuation

Question 1

Describe a comparative market analysis (CMA).

Answer 1

A CMA is a short form narrative style report prepared by a registrant for the seller of a property to establish an estimated market value and recommended listing price.

Question 2

TRUE OR FALSE? The scope of work is the amount and type of information researched and the analysis applied in the valuation assignment.

Answer 2

True

Question 3

Define highest and best use.

Answer 3

The use of land that, within all legal, physical, financial, and market constraints, will provide the maximum net return during the foreseeable future.

Question 4

The _______ approach assumes that market participants consider a property’s market value as equal to the present value of all its anticipated future net benefits.

Answer 4

income

Question 5

TRUE OR FALSE? The cost approach assumes the value of a property can exceed the cost of replacing the property.

Answer 5

False. The cost approach assumes the value can never exceed the cost of replacing it.

Question 6

_______ value is the value possessed by a property that has potential for redevelopment because it is currently not employed at its highest and best use.

Answer 6

Latent

Question 7

What is the principle of substitution?

Answer 7

The principle of substitution holds that a property’s value should be no more than the cost of purchasing a substitute property that provides similar utility.

Question 8

What valuation method is used to value properties that have redevelopment potential or latent value?

Answer 8

Residual method (or hybrid technique)

Question 9

Define floor price and ceiling price.

Answer 9

Floor price is the minimum price at which a seller is willing to sell their property.
Ceiling price is the maximum price a purchaser is willing to pay for a property.

Question 10

The ________ principle is a financial reporting principle requiring that asset value be recorded at its historic cost of acquisition.

Answer 10

cost