Property ValuationIntermediateArizona Exam

The 'principle of balance' in real estate appraisal holds that:

AAll three appraisal approaches must produce values within 5% of each other before the appraiser can reconcile and report a final opinion of value

BMaximum value is achieved when the four agents of production (land, labor, capital, coordination) are in proper balanceCorrect

CAn income property's net operating income must equal or exceed the property's annual debt service to support the market value concluded in the appraisal

DThe appraiser must give equal weight to physical, economic, and social value influences to avoid introducing systematic bias into the reconciled value

Why Maximum value is achieved when the four agents of production (land, labor, capital, coordination) are in proper balance Is Correct

Answer B: Maximum value is achieved when the four agents of production (land, labor, capital, coordination) are in proper balance

The principle of balance states that real estate values are maximized when the four agents of production—land, labor, capital, and entrepreneurial coordination—are in proper proportion to each other.

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.

Key Property Valuation Terms in This Question

Appraisal

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

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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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