California Property Valuation
Practice Questions & Answers (2026)
Property valuation questions on the California exam test the three approaches to value (sales comparison, cost, and income), how appraisals work, and what affects market value. The California Department of Real Estate (DRE) tests when each approach is most appropriate, how adjustments are made in the sales comparison approach, and what factors an appraiser considers vs. ignores. California candidates often struggle with income approach calculations — particularly gross rent multiplier (GRM) and net operating income (NOI) — and with the cost approach depreciation calculations. These are high-difficulty math and concept questions where careful study of the explanations pays off significantly on exam day.
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California Property Valuation — Practice Questions & Answers
127 questions on Property Valuation from the California real estate question bank. First 10 are free — sign up to unlock all 127.
Q1. Which appraisal approach is most commonly used for single-family homes?
Explanation
The sales comparison approach (market approach) is most commonly used for residential properties. It compares the subject property to recent sales of similar properties.
Q2. The income approach to value is most appropriate for:
Explanation
The income approach estimates value based on the income a property generates. It's used for rental properties, commercial buildings, and other income-producing real estate.
Q3. What is 'depreciation' in real estate appraisal?
Explanation
In appraisal, depreciation is any loss in value from any cause — physical deterioration, functional obsolescence, or external/economic obsolescence.
Q4. Functional obsolescence refers to:
Explanation
Functional obsolescence is a loss in value due to outdated design, poor floor plan, or features that no longer meet current market standards (e.g., only one bathroom in a 5-bedroom home).
Q5. What is 'highest and best use' in real estate?
Explanation
Highest and best use is the reasonably probable use that is: legally permissible, physically possible, financially feasible, and maximally productive (most profitable).
Q6. What is 'comparables' (comps) in real estate?
Explanation
Comparables (comps) are recently sold properties that are similar to the subject property in size, location, condition, and features. They are used in the sales comparison approach to estimate market value.
Q7. What is the cost approach to value?
Explanation
The cost approach estimates value as: Land Value + Cost to Reproduce/Replace Improvements - Depreciation. It is most useful for new construction and special-use properties.
Q8. External obsolescence (economic obsolescence) is caused by:
Explanation
External obsolescence is a loss in value caused by factors outside the property — such as a declining neighborhood, nearby industrial development, or increased traffic. It is generally incurable.
Q9. What is a capitalization rate (cap rate)?
Explanation
The cap rate is the ratio of a property's Net Operating Income (NOI) to its value/price. Cap Rate = NOI ÷ Value. It represents the expected rate of return on an investment property.
Q10. Gross Rent Multiplier (GRM) is calculated as:
Explanation
GRM = Property Value ÷ Monthly Gross Rent. It is a quick valuation tool for residential income properties. Example: $600,000 ÷ $4,000/month = GRM of 150.
Q11. What is 'market value'?
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