CFA Practice Question
Most market value appraisals, when estimating the value of real estate, look ______.
A. forward in time
B. both backward and forward in time
C. backward in time
Explanation: Most information that is gathered by an appraiser is based on events that have already taken place (for example, sales prices of comparable properties that have closed in the past).
User Contributed Comments 10
| User | Comment |
|---|---|
| murli | Under income method, it is forward looking, so I think answer should be B. |
| lemec | most but not all real estate appraisals are backward looking |
| kamal3r | Income Method and DCF method are both forward looking, |
| Tomas | The question asks about valuation in the real estate market where the comparable sales approach is the most common valuation method. In this case you estimate the fair market value based on PAST transactions. For valuation of companies/assets forward looking DCF is usually used. |
| mlaci | Looking at - a stupid term: collecting info from the past to forecast the future. Now where are you looking at? |
| ofabian | anyone who uses any forward-looking approach to value real estate is foolish. typically dcf and income approaches utilize historic assumptions anyway - using projections - even if you are valuing an existing lease is aggressive, especially since market appraisals are done for banks. |
| djread | The only thing that tricked me here is that under the income method you are assuming that the computed NOI will be recieved in perpetuity. I took that to be "forward looking." Now I know not to |
| soukhov | it means that REM is absolutely unefficiet market? |
| Friso | I agree with kamal3r, DCF can be used in real estate (think rent payments) and that is a forward looking method. |
| Mclarke | yes real estate investments look at economic forecasts for something like commercial real estate, which is forward looking of course. this question could be reworded for clarity perhaps. |