Certified Apartment Portfolio Supervisor (CAPS) Practice Exam - Module 2

Which are the three main approaches to property valuation?

1. Cost approach, market analysis, appraisal approach

2. Cost approach, sales comparison approach, income capitalization approach

3. Cost approach, financial forecasting, investment analysis

4. Asset-based approach, sales comparison, operational analysis

The correct answer is: Cost approach, sales comparison approach, income capitalization approach

The three main approaches to property valuation are the cost approach, sales comparison approach, and income capitalization approach. The cost approach involves calculating the cost to replace or reproduce the property, minus any depreciation, to determine its value. This approach is particularly useful for valuing new properties or special-use properties that do not frequently sell in the market. The sales comparison approach involves comparing the property to similar properties that have recently sold in the same market. This method helps establish a value based on actual market activity, offering insights into what buyers are willing to pay for properties with similar characteristics. The income capitalization approach focuses on the property’s potential to generate income, valuing it based on the expected future cash flows it can provide, often applied in investment property scenarios. This approach is essential for investors looking at multifamily units or commercial properties where rental income is a significant factor in valuation. By combining these three methods, a more comprehensive and accurate valuation can be achieved, suited for various property types and market conditions. Other options provided contain approaches that do not represent the three primary methodologies for property valuation commonly recognized in real estate practice, making them less relevant in this context.