Property Valuation
Which of the following is TRUE about the principle of conformity in real estate appraisal?
AProperties of similar type and quality in the same area tend to maintain or increase their value
BThe value of a property is determined by what it would cost to replace it
CA property's value is maximized when its use is consistent with surrounding properties
DBoth A and C✓ Correct
Explanation
The principle of conformity holds that maximum value is achieved when a property's use is consistent with the surrounding land uses. Properties that conform to neighborhood standards in type, quality, and size tend to maintain their value better than nonconforming properties.
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Key Terms to Know
Appraisal
A professional estimate of a property's market value prepared by a licensed or certified appraiser.
Comparable Sales (Comps)Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
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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