Real Estate Appraisal Practice Exam

How does Maria, an appraiser, utilize operating statement ratios in her income-based appraisal?

1. To validate the property's market value

2. To determine the property's fair tax assessment

3. To test the validity of the income and expenses numbers

4. To forecast future property income

The correct answer is: To test the validity of the income and expenses numbers

Maria utilizes operating statement ratios in her income-based appraisal primarily to test the validity of the income and expenses numbers associated with the property. By analyzing these ratios, she can assess how well the reported income and expenditures align with industry standards or expectations for similar properties. This process helps her identify any discrepancies or unusual patterns that may indicate inaccuracies in the financial data provided. Operating statement ratios, such as the operating expense ratio or the gross income multiplier, provide benchmarks that allow an appraiser to evaluate the financial performance of a property. For instance, if a property's operating expense ratio significantly deviates from the norm for comparable properties, it may prompt further investigation into operating efficiency or accuracy in reported figures. While other options present important considerations in appraisal, testing the validity of income and expense numbers is crucial for establishing a reliable foundation upon which to base the appraisal value. It directly contributes to ensuring that the appraisal reflects a realistic and equitable assessment of the property’s income-producing potential.