Sales comparison → homes (adjust the COMPS)
Before you read
Test yourself first: 5 questions
Question 1 of 5
The principle of substitution states that the maximum value of a property tends to be set by:
Answer: A. Substitution holds that a knowledgeable buyer will pay no more for a property than the cost of acquiring an equally desirable substitute, making it the foundation of all three appraisal approaches.
Question 2 of 5
In the appraisal process, the final step in which the appraiser weighs the value indications from the different approaches to arrive at a single value estimate is called:
Answer: B. Reconciliation is the analysis and weighting of the value indications from the approaches used to reach a final opinion of value; it is not a simple averaging.
Question 3 of 5
When reconciling value indications from the cost, sales comparison, and income approaches, the appraiser should:
Answer: B. Reconciliation requires judgment: the appraiser gives more weight to the approach most appropriate and reliable for the property type, rather than mechanically averaging.
Question 4 of 5
Before an agent can act as a dual agent representing both buyer and seller in the same transaction, agency principles require:
Answer: A. Dual agency requires disclosure to and the informed written consent of both the buyer and the seller before the agent may represent both parties.
Question 5 of 5
A loss in value caused by an outdated floor plan or obsolete feature is:
Answer: A. Functional obsolescence is loss in value from outdated design within the property. External obsolescence comes from outside factors; physical deterioration is wear and tear.
Keep the streak going with more questions like these, each with a full rationale.
Must-know rules
- DUST: Demand, Utility, Scarcity, Transferability
- Sales comparison → homes (adjust the COMPS)
- Cost → new/special-purpose (cost − depreciation + land)
- Income → rentals (Value = NOI ÷ cap rate)
- Substitution caps value at an equal alternative
- Progression up / Regression down from neighbors
- Highest & best use: legal, possible, feasible, max-productive
Value — Principles & Approaches: FAQs
Is Value — Principles & Approaches on the real estate exam?
Yes. Valuation & Appraisal is a scored domain on the real estate licensing exam, and this topic appears in the national portion.
Is this cheat sheet free?
Yes — every page on Cinna RE's resource library is free to read, print and share. The app adds practice questions, mock exams and a readiness score.
