Property Valuation
The principle of conformity in real estate appraisal suggests that value is maximized when:
AA property is the most unique in its neighborhood
BProperties in a neighborhood are similar in size, style, and use✓ Correct
CThe property conforms to the highest and best use regardless of surroundings
DThe owner conforms to all HOA requirements
Explanation
The principle of conformity holds that value is maximized when a property conforms to its surroundings. A colonial home on a street of colonial homes will typically be worth more than the same home on a street of very different architectural styles.
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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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