Property Valuation
The principle of 'conformity' states that:
AAll properties in a neighborhood must look identical
BMaximum value is achieved when a property conforms to the neighborhood's prevailing use and character✓ Correct
CAll comparable sales must be confirmed before use in an appraisal
DAppraisers must follow USPAP standards
Explanation
The principle of conformity holds that a property achieves maximum value when it is consistent with the surrounding land uses, character, and quality. A property that under-improves or over-improves relative to the neighborhood loses value.
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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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