Property ValuationIntermediateCalifornia Exam

What is the 'principle of conformity' in real estate appraisal?

AProperties should look exactly like their neighbors, consistent with USPAP appraisal standards

BValue is maximized when a property conforms to the general character (use, style, size) of the surrounding neighborhoodCorrect

CAll properties in a neighborhood should be the same price, per standard California valuation practice

DProperties must conform to zoning law to have value, under standard appraisal methodology

Why Value is maximized when a property conforms to the general character (use, style, size) of the surrounding neighborhood Is Correct

Answer B: Value is maximized when a property conforms to the general character (use, style, size) of the surrounding neighborhood

The principle of conformity states that a property achieves maximum value when it is similar in size, style, age, and use to surrounding properties. Under-improvement or over-improvement relative to the neighborhood can reduce value.

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.

Zoning

Local government regulations that control land use by dividing areas into zones specifying permitted uses, building sizes, and densities.

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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.

Zoning

Local government regulations that control land use by dividing areas into zones specifying permitted uses, building sizes, and densities.

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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