Michigan Property Valuation
Practice Questions & Answers (2026)
Property valuation questions on the Michigan exam test the three approaches to value (sales comparison, cost, and income), how appraisals work, and what affects market value. The Michigan Department of Licensing and Regulatory Affairs (LARA) tests when each approach is most appropriate, how adjustments are made in the sales comparison approach, and what factors an appraiser considers vs. ignores. Michigan 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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Michigan Property Valuation — Practice Questions & Answers
140 questions on Property Valuation from the Michigan real estate question bank. First 10 are free — sign up to unlock all 140.
Q1. The income capitalization approach is most commonly used to appraise:
Explanation
The income capitalization approach converts income into a value estimate and is most appropriate for income-producing properties such as apartment buildings, office buildings, and shopping centers.
Q2. A property generates a net operating income (NOI) of $45,000 annually. Using a capitalization rate of 7.5%, what is the estimated value?
Explanation
Value = NOI ÷ Cap rate = $45,000 ÷ 0.075 = $600,000. The capitalization rate converts income into a value estimate.
Q3. External obsolescence in appraisal refers to:
Explanation
External (economic) obsolescence is caused by factors outside the property's boundaries, such as proximity to a landfill, highway noise, or neighborhood decline. It is generally incurable.
Q4. Highest and best use in appraisal is the use that is:
Explanation
Highest and best use is the use that meets four criteria: legally permissible, physically possible, financially feasible, and maximally productive — resulting in the highest value for the property.
Q5. The income approach to property valuation in Michigan is most commonly used for:
Explanation
The income approach is primarily used to value income-producing properties such as apartment complexes, office buildings, and retail centers by capitalizing the net operating income.
Q6. The sales comparison approach to value is based on the principle of:
Explanation
The sales comparison (market data) approach is based on the principle of substitution: a knowledgeable buyer will pay no more for a property than the cost of acquiring a comparable substitute property.
Q7. In Michigan, the cost approach to value estimates:
Explanation
The cost approach estimates value by calculating the land value separately and adding the depreciated cost to reproduce or replace the existing improvements.
Q8. A Michigan appraiser notes that a subject property's bathroom has outdated fixtures. This type of depreciation is called:
Explanation
Functional obsolescence refers to a loss in value due to design deficiencies or outdated features within the property itself, such as outdated fixtures, poor floor plans, or insufficient electrical systems.
Q9. A Michigan home is appraised using the GRM method. Monthly rent is $1,500 and the GRM for comparable properties is 140. What is the estimated value?
Explanation
Value = Monthly Rent × GRM = $1,500 × 140 = $210,000.
Q10. In Michigan, capitalization rate (cap rate) is calculated as:
Explanation
Cap rate = Net Operating Income ÷ Value (or purchase price). It expresses the rate of return an investor can expect from an income-producing property.
Q11. When performing a comparative market analysis (CMA) in Michigan, which adjustment is made to comparable sales?
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