Property Valuation
The principle of conformity states that property values are maximized when:
AProperties in the area are of varying ages and styles
BProperties in the area conform to similar use, style, and quality✓ Correct
CThe subject property is larger than all neighboring properties
DSurrounding properties are of lower value
Explanation
The principle of conformity holds that property values are maximized when properties are similar in character, use, and quality within a neighborhood. This is why residential appraisers seek comparable properties in similar neighborhoods.
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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.
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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