Property ValuationIntermediateAlaska Exam

An Alaska property with a 40-year-old structure in excellent condition has an effective age of 15 years. This reflects the principle that:

AOlder structures are always worth less

BEffective age is based on condition and utility, not chronological ageCorrect

CRenovated properties always have a 15-year effective age, in most cases

DBuilding permits must be obtained every 15 years

Why Effective age is based on condition and utility, not chronological age Is Correct

Answer B: Effective age is based on condition and utility, not chronological age

Effective age reflects a building's functional condition and utility rather than its chronological age. A well-maintained or renovated 40-year-old building may function like a 15-year-old building in terms of condition, remaining useful life, and market appeal.

Exam Tip: Property Valuation

Valuation questions focus on the three approaches to value: sales comparison, cost, and income. Know which approach is best for which property type. The income approach uses cap rate and NOI — memorize these formulas.

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Key Terms to Know

Comparable Sales (Comps)

Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.

Depreciation

A reduction in the value of an improvement (building) over time due to physical deterioration, functional obsolescence, or external factors.

Appraisal

A professional estimate of a property's market value prepared by a licensed or certified appraiser.

Capitalization Rate (Cap Rate)

A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.

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