In Alaska, the principle of substitution states that:
Why A buyer will pay no more for a property than the cost of an equally desirable substitute Is Correct
Answer B: A buyer will pay no more for a property than the cost of an equally desirable substitute
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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- In Alaska's remote areas, an appraiser may have difficulty using the sales comparison approach because:Property Valuation
- An appraiser using the sales comparison approach in Alaska adjusts comparable sales for differences. If a comparable is inferior to the subject property in a particular feature, the appraiser will:Property Valuation
- An appraiser in Alaska uses the sales comparison approach and finds three comparable sales. After adjustments, the adjusted values are $310,000, $315,000, and $312,000. The most likely estimate of value using reconciliation would be:Property Valuation
- The 'principle of substitution' in appraisal states that:Property Valuation
Key Terms to Know
Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
AppraisalA 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.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
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