Q1. Which of the following statements regarding real estate valuation is TRUE?

A)   The estimated market value of a property depends upon the particular investor.

B)   The most reliable real estate valuation method is the cost approach.

C)   Each property is unique, so the investment value may be dependent upon the particular use planned for the property.

Q2. Which of the following least likely affects a property’s investment potential?

A)   The legal rights associated with the property.

B)   The activity around the property, both commercial and non-commercial.

C)   Structure of the financing mechanisms used to buy the property.

Q3. Define the sales comparison method and the cost approach.

                  Sales comparison                                                 Cost approach

A)      uses the price of a similar property or properties

from recent transactions to value real estate              links the value of a property to an investor's specific marginal tax rate

B)      uses a discounted cash flow model to

estimate the present value of the future income

 produced by the property                                         links the value of a property to an investor's specific marginal tax rate

C) uses the price of a similar property or properties

 from recent transactions to value real estate            the value of real estate is determined by the replacement

cost of improvements, plus an estimate for the value of the land

LOS d, (Part 2): Explain the characteristics of real estate as an investable asset class. fficeffice" />

Q1. Which of the following statements regarding real estate valuation is TRUE?

A)   The estimated market value of a property depends upon the particular investor.

B)   The most reliable real estate valuation method is the cost approach.

C)   Each property is unique, so the investment value may be dependent upon the particular use planned for the property.

Correct answer is C)        

The market value is completely independent of any considerations based upon the investor or potential investor. There is not a “most reliable” valuation method – all have their advantages and disadvantages. The investment value may be dependent upon the planned use of the property—remember that market value and investment value are two different things.

Q2. Which of the following least likely affects a property’s investment potential?

A)   The legal rights associated with the property.

B)   The activity around the property, both commercial and non-commercial.

C)   Structure of the financing mechanisms used to buy the property.

Correct answer is C)        

The financing and investing decisions are made separately. Market value analysis does not consider how the asset will be financed.

Q3. Define the sales comparison method and the cost approach.

                  Sales comparison                                                 Cost approach

A)      uses the price of a similar property or properties

from recent transactions to value real estate              links the value of a property to an investor's specific marginal tax rate

B)      uses a discounted cash flow model to

estimate the present value of the future income

 produced by the property                                         links the value of a property to an investor's specific marginal tax rate

C) uses the price of a similar property or properties

 from recent transactions to value real estate            the value of real estate is determined by the replacement

cost of improvements, plus an estimate for the value of the land

Correct answer is C)        

The sales comparison method values property relative to similar properties that have been recently sold. The cost approach values a property at the cost it would be to rebuild it

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