Appraisal Questions Misc

Mortgage loan interest rates are 12.75 percent this week. They were 12.25 percent last week. What is the increase in basis points? 0.05 0.5 5 50

50 Explanation: The increase was 50 basis points (1275 - 1225 = 50).

What term is used to describe the additional rent paid by retail tenants on a percentage lease that is above the specified minimum rent? Base rent Overage rent Excess rent Market rent

Overage rent Explanation: The technical term for the amount of rent above the minimum rent is overage rent, which results from a percentage lease. It may or may not be the market rent.

What is meant by the term tax shelter? An investment that produces passive income An investment that produces tax advantages for the investor through deductions for cost recovery, taxes, and interest An investment that produces after-tax income that is greater than before-tax income An investment that continually produces cash losses

An investment that produces tax advantages for the investor through deductions for cost recovery, taxes, and interest Explanation: A tax shelter is thought of as an investment that produces tax advantages for the investor through deductions for cost recovery, taxes, and interest.

The common areas in a condominium project normally are owned by whom? The developer The homeowner's association Each individual unit owner The board of directors of the homeowner's association

Each individual unit owner Explanation: The common areas in a condominium are owned on a pro-rata basis by each individual unit owner.

An active railroad line running behind the property lines of lots in a residential subdivision would BEST be described as what type of obsolescence? Functional curable Functional incurable Economic curable Economic incurable

Economic incurable Explanation: A railroad line, which is beyond the boundary of the subject property, is considered economic obsolescence and thus by definition is incurable.

A strip of land used to separate two adjoining parcels of land that have incompatible uses, such as a residential subdivision and an industrial park, is referred to as a: buffer zone. planned unit development. nonconforming use. variance.

buffer zone. Explanation: The purpose of the buffer zone is to provide for the "blending" of the two incompatible uses with each other.

One of the standard techniques used by appraisers when analyzing the income of property is to divide the income being generated between the land and the improvements and then to capitalize the residual income to the improvements into a value estimate. Such a technique is referred to as the: land residual technique. building residual technique. property residual technique. plottage residual technique.

building residual technique. Explanation: The building residual technique is a method used in appraising income-producing property to estimate the total value of the property when the value of the land is known. The income not attributable to the land is assumed to be attributable to the building.

Risk resulting from uncertainty in rents, vacancies or operating expenses is referred to as: business risk. operating risk. economic risk. interest risk.

business risk. Explanation: Risk due to uncertainty in the operations of a property business is known as business risk.

A mortgage in which the lender receives a portion of the income and/or reversion is referred to as a: blanket mortgage. participation mortgage. wraparound mortgage. convertible mortgage.

participation mortgage. Explanation: Participation mortgages are also known as equity participation loans, participations, or equity kickers.

A good unit of comparison for an apartment building would be rent per: room. floor. cubic foot of storage area. lineal foot of road frontage.

room. Explanation: Rent per room, rent per apartment or rent per square foot of gross or leasable area can be used as comparison units for apartments.

The term effective rate refers to the: loan constant on a mortgage. true rate of return considering all relevant financing expenses. interest rate after inflation is considered. rate at which future payments are discounted to present cash flows.

true rate of return considering all relevant financing expenses. Explanation: If there are no financing costs, the effective rate equals the interest rate of the loan. Financing costs will cause the effective rate to be higher than the loan's interest rate.

When land is improved to the extent that it is ready to be used for the purpose for which it was intended, it is known as a: • plot. • site. • parcel. • lot.

• site. Explanation: A site refers to improved land. Plot, parcel, and lot refer to unimproved land.

The term plottage refers to: • value created by land that is not necessary for the primary improvements. • the incremental value that results when two sites are combined. • the results of a survey that is plotted on a map. • the steps taken to determine which approach to value should be used.

• the incremental value that results when two sites are combined. Explanation: Plottage refers to the incremental value that results when extra utility is gained by combining two or more sites. If extra utility is not gained by combining sites, there is no plottage value.

A property sold for $145,000 with $30,000 down and the balance in the form of a purchase money mortgage (seller financing) at 8 percent for 15 years with monthly payments. Shortly after the sale of the property, the seller sold the mortgage to an investor for $105,000. The price paid by the investor for the mortgage was based on the current market rate for mortgages. What does this indicate about the cash equivalent selling price for the property? $105,000.00 $115,000.00 $132,391.00 $135,000.00

$135,000.00 Explanation: The value of the mortgage, $105,000, plus the value of the equity, $30,000, equals the value of the property or $135,000.

A single-family residence located on a busy street rents for $50 per month less than similar rental properties located on other streets in the same area. The average gross rent multiplier in this neighborhood is 110. What is the lump-sum dollar adjustment for the locational obsolescence of the residence? $50.00 $600.00 $5,000.00 $5,500.00

$5,500.00 Explanation: $50 x 110 = $5,500. In this instance, the economic obsolescence would be $5,500.

A property has NOI of $10,000, interest payments of $8,000, and principal payments of $1,000. What is the debt coverage ratio? 0.80 0.90 1.11 1.25

1.11 Explanation: Debt coverage ratio equals net operating income divided by the mortgage payment. The mortgage payment includes interest and principal.

Jones sells land for $20,000 that he bought four years earlier for $10,000. There were no carrying charges or transaction costs. What was Jones's IRR (nearest percent)? 17 percent 19 percent 25 percent 100 percent

19 percent Explanation: 19 percent is the annual rate at which compound interest must be paid for $10,000 to become $20,000 in four years.

A tenant in a warehouse pays an annual rent of $2.75 per square foot. If the tenant pays a monthly rent of $4,354, how large is the warehouse in square feet? 1,900 square feet 4,354 square feet 19,000 square feet 27,500 square feet

19,000 square feet Explanation: $4,354 x 12 = $52,248. $52,248/$2.75 = 19,000 square feet (rounded)

Which of the following statements is CORRECT in regard to a building's age? A building's effective age is always equal to or less than its actual age. A building's effective age equals the number of years since construction was completed. Physical age is determined by the condition and utility of the building. A building's effective age may be greater than its actual age.

A building's effective age may be greater than its actual age. Explanation: Effective age can be greater than actual age if the building is not maintained well. The effective age could also be less than the actual age if it has above-average maintenance or renovations.

Which of the following statements is CORRECT in regard to a building's age? A building's effective age is always equal to or less than its actual age. A building's effective age equals the number of years since construction was completed. Physical age is determined by the condition and utility of the building. A building's effective age may be greater than its actual age.

A building's effective age may be greater than its actual age. Explanation: Effective age is determined by the condition and utility of the building. Actual age is the number of years since construction was completed. Effective age can be greater than actual age if the building is not maintained well. The effective age could also be less than the actual age if it has above-average maintenance or renovations.

The term interest rate would NOT normally refer to which of the following concepts? The cost of money A capitalization rate The rate of return on an investment A yield rate

A capitalization rate Explanation: An interest rate refers to the cost of borrowing money. It is also a yield rate and is the return on an investment. However, it is conceptually quite different from a capitalization rate.

What is meant by the term discount rate? The difference between the face amount of an obligation and the amount advanced or received The interest rate associated with the loan on a property A compound interest rate used to convert expected future income into a present value The annual mortgage payment divided by the loan principal

A compound interest rate used to convert expected future income into a present value Explanation: If the net present value of the cash flows equals zero, the discount rate equals the internal rate of return. If the net present value of the cash flows is positive, the discount rate is less than the internal rate of return and vice versa.

Which of the following physical units MOST clearly defines the term neighborhood as used by an appraiser? A section of land The area defined by a zoning district The area served by a single public school district A grouping of similar land uses within accepted geographic boundaries

A grouping of similar land uses within accepted geographic boundaries Explanation: A neighborhood is a grouping of similar land uses within accepted geographic boundaries.

The term ground lease applies to what type of lease? A lease that applies to the ground floor of a structure Any lease that includes land A lease allowing something to be removed from the land A lease that applies to the land only

A lease that applies to the land only Explanation: A ground lease is a lease that applies to the land only. One method of finding land value is to capitalize the ground lease by a market-derived capitalization rate.

If wall-to-wall carpeting is installed in an individual unit by a tenant without permission of the landlord, upon termination of the lease the landlord acquires ownership of the carpet by what legal right? Accessibility Accession Accretion Escheat

Accession Explanation: Accession is the legal right that entitles the owner of the land to all that is added either intentionally or by mistake. In this instance, the carpeting belongs to the landlord upon the termination of the lease.

Which of the following actions BEST explains the cost approach to value? Subtracting total depreciation from the purchase price Adding land value to depreciated improvement value Multiplying historic cost by an inflation factor Capitalizing income attributable to the accrued depreciation

Adding land value to depreciated improvement value Explanation: The cost approach to value requires the appraiser to add the estimated value of the land to the depreciated value of the improvements.

Which of the following products of the Appraisal Standards Board (ASB) has the least direct impact on a licensed or certified appraiser? Standards Standards rules Statements on standards Advisory opinions

Advisory opinions Explanation: Advisory opinions are informal responses to requests the ASB receives for information. An advisory opinion does not establish a new standard and is not enforceable.

In regard to Standard 2, which of the following statements is INCORRECT? Standard 2 requires a certification statement. All of the standards rules in Standard 2 are binding requirements. Standard 2 addresses oral as well as written appraisal reports. The form and content of the appraisal report are the subject of Standard 2.

All of the standards rules in Standard 2 are binding requirements. Explanation: All of the standards rules in Standard 2 are binding requirements except S.R. 2-4, which addresses oral appraisal reports.

Which of the following conditions is NOT correct in regard to a building that is the highest and best use of a vacant site? It will not have any locational obsolescence. It is the use that maximizes the value of the land. It has to conform to current building codes. All of these are correct.

All of these are correct. Explanation: Criteria for determining the highest and best use are (1) physically possible, (2) legally permissible, (3) financially feasible, and (4) maximally productive.

Tools for applying the sales comparison approach to value include which of the following techniques? Paired sales analysis Multiple regression Graphic analysis All of these techniques

All of these techniques Explanation: Paired sales analysis, multiple regression and graphic analysis can all be used in the sales comparison approach to estimate value.

Units of comparison can be used in which approach(es) to value? All three approaches The sales comparison (market) approach only The cost approach only The cost and sales comparison approaches only

All three approaches Explanation: Although probably most used in the sales comparison approach, units of comparison can be used in all three approaches; for example, cost/square feet for the cost approach and net income/price for the income approach.

Which of the following approaches to value uses market data? Income approach Direct sales comparison approach Cost approach All three approaches

All three approaches Explanation: The direct sales comparison approach was formerly referred to (and still is by some) as the market data approach. However, this is somewhat of a misnomer because data from the market is used for all three approaches to estimate value. For example, the income approach uses market data about rents, expenses, and discount rates. The cost approach uses market data about construction costs and market perceptions about how functional obsolescence affects value.

Which of the following statements BEST describes the use of depth tables by appraisers? Depth tables are a sophisticated mathematical model employed by appraisers when using the income approach to value. Depth tables generally can be used to reflect market activity in metropolitan areas. An appraiser should place little reliance on the use of depth tables without first testing market behavior. The use of depth tables is superior to any other mathematical technique, such as simple or multiple regression, because depth tables are precise and easily obtained.

An appraiser should place little reliance on the use of depth tables without first testing market behavior. Explanation: Depth tables are sometimes used by appraisers or tax assessors to estimate the value of a particular parcel of land. However, the use of such tables should be undertaken only after careful analysis of market behavior; otherwise, little reliance can be placed on such techniques.

In regard to an easement, which of the following statements is CORRECT? An easement is a personal property right rather than a real property right. An easement must always be in writing. An easement, once created, becomes a life estate. An easement may be terminated once the purpose for which it was created no longer exists.

An easement may be terminated once the purpose for which it was created no longer exists. Explanation: An easement may be terminated. For example, an easement by necessity could be terminated if the need for creating the easement no longer exists. Easements are real property rights and are not life estates since they run with the land.

Comparing the physical components of the subject property with those of comparable properties is part of what step in the appraisal process? Defining the problem Collecting the data Analyzing data via the sales comparison approach Reconciling the value approaches

Analyzing data via the sales comparison approach Explanation: Part of the analysis undertaken in the sales comparison approach involves comparing the physical components of the subject property with those similar features in the comparables.

Which principle of value suggests that the value of a property is equal to the present value of the property's projected income? Balance Anticipation Opportunity cost Substitution

Anticipation Explanation: The principle of anticipation suggests that the value of a property is equal to the present value of the property's projected income. The principle of substitution applies indirectly in that the discount rate should reflect the opportunity cost associated with other investment opportunities.

Land utilization studies, supply and demand studies, economic feasibility studies, and highest and best use analysis are all examples of which of the following actions? Review Mass appraisal Appraisal Investment analysis

Appraisal Explanation: An appraisal is an estimate of value and can take numerous forms.

Which of the following conditions is NOT an economic force that affects real estate? Building codes Desire Effective purchasing power Supply and demand

Building codes Explanation: Forces that affect real estate include social, economic, government and environmental factors. Economic forces affect real estate values through changes in supply and demand, population wants and needs, purchasing power, employment and wage levels, new development, and existing stock and prices. Building codes are considered a governmental force.

Which of the following terms indicates the amount by which the net proceeds from the resale of an asset exceed the adjusted cost, or book value, of the item? Adjusted basis Reversion Capital gain Before-tax cash flow from sale

Capital gain Explanation: The term capital gain is used primarily in income tax computations to indicate the amount by which the net proceeds from the resale of an asset exceed the book value of the item.

Which of the following terms BEST explains the technique of adjusting a sales price downward to reflect the effect that favorable financing probably had on the sales price of a property? Comparison unit technique Break-down technique Cash equivalency technique Extraction technique

Cash equivalency technique Explanation: If a property is purchased with below-market rate financing, the purchaser will probably have paid more for the property to receive the favorable financing.

The following statement would appear in which section of an analysis: "My compensation is not contingent upon the reporting of a predetermined value?" Contingent and limiting conditions Letter of transmittal Certification statement Assumptions and limiting conditions

Certification statement Explanation: S.R. 2-3 includes provisions for certification, which would include compensation provisions.

Which of the following statements is correct in regard to Standard 2 as it relates to self-contained appraisal reports? Communication must be in a manner that is not misleading. Recognized techniques must be used in the development of the appraisal. Proper communication extends to all readers of the report. Form but not content is addressed in this standard.

Communication must be in a manner that is not misleading. Explanation: Using recognized techniques in the development of an appraisal is addressed in Standard 1. Proper communication extends to intended users, not all readers. Both form and content are addressed in Standard 1.

The requirement that the appraiser must have the knowledge and experience to complete the appraisal assignment is part of which USPAP rule? Preamble Ethics Conduct Competency

Competency Explanation: The Competency Rule requires the appraiser to have the knowledge and experience necessary to complete the appraisal assignment.

A worn path crosses an owner's property. What legal doctrine would require a potential purchaser to take note of the fact that there may be an unrecorded prescriptive easement against that property? Actual notice Constructive notice Lis pendens Escheat

Constructive notice Explanation: Constructive notice is knowledge that the law assumes a person has about a particular fact, such as a worn path, regardless of whether the person actually knows about the fact. Actual notice would occur if the person actually knew the path existed. Lis pendens and escheat are legal terms not related to the subject matter of this question.

An estimate of the accrued depreciation is an important part of the cost approach to value. Which of the following economic principles is the foundation on which estimating accrued depreciation is based? Anticipation Balance Contribution Substitution

Contribution Explanation: The principle of contribution states that the value of a component part of a piece of property is equal to what that component adds to the total value, less any costs incurred. This principle is the basis on which accrued depreciation is subtracted from replacement or reproduction cost when using the cost approach to value.

In real estate appraising, what is meant by the term capitalization? The initial funds invested in a project Conversion of income into an estimate of value Value resulting from any one of the three approaches Determination of the amount of capital available for investment

Conversion of income into an estimate of value Explanation: Capitalization applies to the use of the income approach to convert income into an estimate of value.

What term applies to the effect on value of location or proximity to the intersection of two streets? Corner influence Amenity Externality Plottage

Corner influence Explanation: The specific term that explains the effect on value of location where two streets intersect is corner influence. In some sense, corner influence might be considered an externality because it is a factor external to the property that affects its value, and perhaps an amenity if the externality is positive. The effect can be positive or negative depending on the specific location and type of property.

The sales comparison approach involves various elements of comparison. Which of the following elements is NOT one employed in this approach? Cost Property rights being conveyed Conditions of sale Date of sale

Cost Explanation: Cost is not an element of comparison used in the sales comparison approach to value.

The Ethics Rule is divided into four sections. Which of the following activities is NOT one of the four sections? Confidentiality Record-keeping Departure Management

Departure Explanation: The four sections of the Ethics Rule are conduct, management, confidentiality, and record-keeping. Departure is a separate rule of the USPAP.

When an appraiser uses the straight-line method for estimating physical deterioration in the cost approach, what assumption has been made? The physical deterioration and functional obsolescence of the improvements are the same. The effective age of the improvements and the remaining economic life are the same. Deterioration occurs at a constant average annual rate. Deterioration occurs at a compounded annual rate.

Deterioration occurs at a constant average annual rate. Explanation: One of the means of estimating physical deterioration is a straight-line method. An assumption when using such a method is that deterioration or wear and tear occurs at a constant average annual rate.

Which of the following statements is CORRECT in regard to rent? Contract rent is typically used to find the fee simple value of a property. Contract rent is higher than economic rent. Economic rent is typically used to find the fee simple value of a property. Economic rent is equal to contract rent minus market rent.

Economic rent is typically used to find the fee simple value of a property. Explanation: A fee simple interest assumes no leases. Therefore contract rent, the rent specified in a lease, cannot be used to value a fee simple interest. Economic (market) rent is the appropriate cash flow to find the fee simple value.

The age-life method of computing depreciation uses which of the following periods of time to estimate depreciation? Effective age and remaining economic life Actual age and remaining economic life Effective age and actual age Actual age and remaining physical life

Effective age and remaining economic life Explanation: In using the age-life method of computing depreciation, the estimated effective age (based on condition) is added to the remaining economic life. The effective age is then divided by that sum to obtain the total percent of depreciation to date.

When a property's vacancy and credit loss is subtracted from the property's gross (potential) income, which of the following incomes is derived? Effective gross income Net operating income Taxable income Cash flow income

Effective gross income Explanation: Gross (potential) income minus vacancy and credit allowance equals effective gross income.

In an office building where there are a number of different tenants, which of the following ratios defines the amount of net rentable area to the total gross area? Net income ratio Efficiency ratio Use ratio Net efficient ratio

Efficiency ratio Explanation: The efficiency ratio expresses the relationship between leasable space and total space. For example, a 10,000-square-foot building with 25 percent of the space used for halls and elevators has an efficiency ratio of 75 percent.

Which of the following terms refers to the ratio of a property's first-year cash flow to the amount of equity invested? Equity investment rate Reversion rate Equity dividend rate Overall capitalization rate

Equity dividend rate Explanation: Equity dividend rate refers to the ratio of a property's first-year cash flow to the amount of equity invested. It may also be referred to as the equity capitalization rate.

Under a lease agreement, the lessor often includes what type of clause in a long-term lease so as to be compensated for inflation? Acceleration Escalation Exculpatory Subordination

Escalation Explanation: An escalation clause allows the landlord to increase the amount of rent due.

When using the income approach, what is the initial step the appraiser must take in reconstructing an operating statement? Estimate gross income. Estimate operating expenses. Estimate net operating income. Select an appropriate capitalization rate.

Estimate gross income. Explanation: The first step necessary in the income approach to value is to calculate estimated gross income.

In the cost approach to value, which of the following steps would an appraiser take in estimating value? Estimate the net operating income of the property Determine the value of the land using the assessed value and tax rate Estimate the accrued depreciation Calculate the acquisition price of the construction material used when the structure was built

Estimate the accrued depreciation Explanation: One of the necessary steps in the cost approach to value requires an estimate of accrued depreciation. The other three choices are not part of the cost approach to value.

You have accepted an appraisal assignment to estimate the value of a square city block that has suffered from total fire damage. Your client is interested in selling the property. Which of the following steps should you take? Apply the comparable sales approach. Estimate the highest and best use of the land. Apply the cost approach and make adjustments to physical deterioration for the fire damage. Find out how long it will take to rebuild the buildings and use the income approach to estimate the expected income stream.

Estimate the highest and best use of the land. Explanation: If you are appraising property that has been totally destroyed by fire, the correct approach would be to estimate the highest and best use of the land.

Which of the following terms applies to the excess of contract rent over market rent? Excess rent Percentage rent Overage rent Surplus rent

Excess rent Explanation: Excess rent occurs in situations favorable to the lessor, such as a strong rental market, an advantageous location or exceptional management.

Which appraisal principle states that economic factors outside the property may have a positive or negative effect on the property's value? Anticipation Substitution Contribution Externalities

Externalities Explanation: Externalities are economies or diseconomies outside or external to the property that may affect the property's value.

Simple regression analysis is used to show relationship between two variables on a straight-line basis. However, most appraisal data have a curvilinear relationship; i.e., if the value of one property characteristic is plotted against another, the result is a curved line instead of a straight line necessary for regression. What should an appraiser do if a curvilinear relationship is found? Do not use a regression analysis. Fit the curve to a straight line drawn through or closest to the greatest number of points. Use a spreadsheet instead. Use only data that fit on a straight line.

Fit the curve to a straight line drawn through or closest to the greatest number of points. Explanation: Data can be manipulated to fit a straight line to provide a better understanding of the data in regression analysis.

What term is used for a standard measurement of land, applied at the frontage of its street line, and for lots of generally uniform depth in downtown acres? Acre Front foot Quadrangle Depth-frontage ratio

Front foot Explanation: A front foot is a measurement of property frontage where each foot extends the depth of the property.

What value concept applies when the value of a property includes the benefit of a proven business operating on the property? Going-concern value Investment value Market value Use value

Going-concern value Explanation: The value of a proven business adds going-concern value. Investment value is value to a specific investment but does not necessarily include the benefits of a property operation. Use value is value to the user of the property but, as with investment value, does not necessarily imply that there is a business operating on the property.

The government agency that influences the secondary mortgage market PRIMARILY through the mortgage-backed security program is the: Resolution Trust Corporation (RTC). Federal Home Loan Mortgage Corporation (FHLMC). Government National Mortgage Association (GNMA). Federal Home Loan Bank Board (FHLBB).

Government National Mortgage Association (GNMA). Explanation: GNMA manages and mortgages properties acquired by the government. In the mortgage-backed security program, mortgage payments are passed to the holder of the security. Mortgages are grouped in amounts of $1 million or more, issued as securities and guaranteed by GNMA.

An appraiser would group the assumptions and limiting conditions in an identified section of the appraisal report. Which of the following statements is an example of an assumption or limiting condition? This report is prepared in compliance with USPAP. I have made a personal inspection of the subject property. I assume there are no hidden defects in the property that would render it more or less valuable. No one offered significant professional assistance to the person preparing the report.

I assume there are no hidden defects in the property that would render it more or less valuable. Explanation: Assumptions and limiting conditions would include such a statement as "I assume there are no hidden defects in the property that would render it more or less valuable." The other statements would be included in the appraiser's certification.

The term yield to maturity is similar to which of the following terms? Capitalization rate Adjusted internal rate of return Internal rate of return Equity dividend rate

Internal rate of return Explanation: Yield to maturity refers to the internal rate of return on an investment.

How would the income from renting garage space in an apartment building be handled by an appraiser? It would be included as "other income" in calculating potential gross income It would be ignored because the income from a garage is derived from personal property It would be deducted from net operating income It would be used to reduce the operating expenses

It would be included as "other income" in calculating potential gross income Explanation: Income from renting a garage space is an example of "other income" that would normally be included in the calculation of potential gross income because the garage is in the apartment building.

What is meant by the concept of consistent use? Land cannot be valued on a basis other than the highest and best use. Land must be used in a fashion consistent with use of similar land. Land cannot be valued based on a use that is different from the improvements. Improvements must be built in a manner consistent with current building codes.

Land cannot be valued based on a use that is different from the improvements. Explanation: In highest and best use analysis, improvements must contribute to the land value to have a value themselves.

While property is being leased, the leased fee interest is held by whom? Lessor Lessee Grantor Grantee

Lessor Explanation: The landlord's (lessor's) interest is referred to as a leased fee interest, while the legal interest of the tenant (lessee) is referred to as a leasehold interest.

What term describes the use of debt capital to acquire an income-producing asset? Liquidation Leverage Joint venture Syndication

Leverage Explanation: Debt capital is usually used in expectation of a higher rate of return on the equity investment.

Which of the following terms refers to the stages that a neighborhood goes through over time? Revitalization Growth cycle Life cycle Change

Life cycle Explanation: The neighborhood life cycle includes four periods of change: growth, stability, decline, and revitalization.

Which of the following conditions is an exam pie of external obsolescence? Location in a neighborhood that is in the decline phase of its life cycle A roof that leaks A ceiling that is too high based on current standards Light fixtures that do not meet current building codes

Location in a neighborhood that is in the decline phase of its life cycle Explanation: External obsolescence results from negative influences outside the site, such as location in a neighborhood that is in the decline phase of its life cycle.

A reconstructed statement of net operating income should include which of the following items? Tax depreciation Management charges Additions to capital Mortgage interest payments

Management charges Explanation: Management expenses should be included as an operating expense even for properties managed by the owner. The other expenses listed are not operating expenses.

In determining whether an item is real property or personal property, which of the following tests is NORMALLY considered? Manner of attachment, intention of the party who made the attachment, purpose for which the item is used Manner of attachment, age of the item, cost of the item Number of items in question, current market value, purpose for which the item is used Actual owner, cost of the item, current market value

Manner of attachment, intention of the party who made the attachment, purpose for which the item is used Explanation: A fixture is broadly defined as personal property that has become real property. The tests used by courts include the manner of attachment, intention of the party who made the attachment, and the purpose for which the item is used. Age, cost, and/or market value are not considered in making this determination.

What is the distinction between the terms market price and market value? Market price is synonymous with replacement cost, while market value is the same as assessed value. Market price is what the seller asks for, while market value is what the buyer actually pays. Market price is what the property sells for, while market value is what the sales price should be to a typical buyer. Market price is what is currently owed on the property, while market value is what is actually paid for the property.

Market price is what the property sells for, while market value is what the sales price should be to a typical buyer. Explanation: Market price and market value do not refer to the same thing. Market price is what the property sells for, while market value is what the sales price should be to the typical buyer.

What term is used to identify the rent that probably would be obtained for a specific property in the current rental market? Market rent Minimum rent Contract rent Long-term rent

Market rent Explanation: Market rent, also referred to as economic rent, is the rent most likely obtained for a specific property in the current rental market. The market rent can be derived from comparable properties at the same date as the appraisal.

What term applies to a designation of the U.S. Census Bureau for metropolitan areas with a central city having a specified minimum population and including all counties that are economically linked to the central city? Central business district Neighborhood Township Metropolitan statistical area (MSA)

Metropolitan statistical area (MSA) Explanation: A metropolitan statistical area (MSA) is an area with a central city having a specified minimum population. A neighborhood is a group of complementary land uses. A district is a type of neighborhood that has homogeneous land use, and a central business district is the core of the city where the major businesses are concentrated. A township is a measurement of land containing 36 sq miles of land.

The number of discount points charged by a lender on a specific loan is generally determined by which of the following influences? Federal Reserve System Federal National Mortgage Association Federal Housing Administration Money market

Money market Explanation: Discount points are set in the market. They are not directly established by any government agency.

What payment period is NORMALLY used in calculating a gross rent multiplier for single-family residential rental property? Daily Weekly Monthly Annually

Monthly Explanation: Normally a gross rent multiplier (GRM) is calculated based on a monthly collection of rent.

In the short run, which of the following conditions has the MOST effect on real estate prices? More changes in demand than changes in supply More changes in supply than changes in demand More inflation than demand More sellers than buyers

More changes in demand than changes in supply Explanation: The supply of real estate is measured by the amount of property for lease or sale. Because the amount of available real estate can change only as quickly as it can be built or renovated, supply changes more slowly than demand.

In developing a real property appraisal, Standard 1 requires an appraiser to consider and examine certain instruments related to the property being appraised if such information is available to the appraiser in the normal course of business. Which of the following instruments is NOT specifically mentioned as one to be examined? Agreement of sale Mortgage Option Listing

Mortgage Explanation: S.R. 5-1 requires the appraiser to consider and analyze any current agreement of sale, option or listing of the property being appraised if such information is available in the normal course of business.

There are numerous types of net leases. Ordinarily, a net lease would NOT require the lessee to be responsible for which of the following expenses? Property tax Insurance premium on the contents Day-to-day maintenance expenses Mortgage debt service

Mortgage debt service Explanation: A net lease would normally not require the tenant (lessee) to be responsible for mortgage debt service. Such an expense would be the responsibility of the lessor (landlord).

In which of the following types of leases does the lessee agree to pay rent and bear certain costs of operation to provide the lessor a guaranteed annuity? Flat lease Net lease Percentage lease Sandwich lease

Net lease Explanation: A net lease imposes an obligation on the lessee (tenant) to pay such costs as real estate taxes, insurance, and maintenance as agreed to between the lessor and the lessee. Thus the lessor receives a fixed amount, which may be treated as an annuity.

What term is used to denote the difference, if any, between the present value of expected benefits, or positive cash flows, and the present value of capital outlays, or negative cash flows? Profitability index Net present value Internal rate of return Net cash flow

Net present value Explanation: The net present value is a present value that is net of all cash flows (positive and negative) discounted to the present value. The term net cash flow by itself does not imply that the cash flow has been discounted.

When does investment value equal market value? When the property is the highest and best use of the site Only by coincidence When market demand equals market supply When the assessed value equals the investment value

Only by coincidence Explanation: Investment value is the value of a property to a particular investor. Because market value is the value of a property to a typical investor, investment value will equal market value only when the investor's preferences equal the market's preferences (i.e., by coincidence).

Using paired sales is a technique an appraiser sometimes employs in the comparable sales approach. Which of the following procedures is INAPPROPRIATE when using the paired sales technique? Pairing very similar properties in very dissimilar locations Pairing very similar properties with very dissimilar times of sale Pairing very similar properties with very dissimilar physical features Pairing very dissimilar properties with very similar locations

Pairing very dissimilar properties with very similar locations Explanation: In this technique an appraiser must use similar properties. Pairing very dissimilar properties, even though they have very similar locations, is inappropriate.

What is the term used to explain the amount of time required for cumulative estimated future income from an investment to equal the amount initially invested? Return on investment Return of investment Payback period Holding period

Payback period Explanation: The payback period is the time required for cumulative income to equal the initial investment. In computing the payback period, simply add the cash flows from each year until the sum of the cash flows equals the initial investment.

There are various types of appraisal reports. Which of the following types might NOT be considered an appraisal report? Narrative report FNMA/FHLMC form report Personal letter of opinion Form report

Personal letter of opinion Explanation: A personal letter of "opinion" is generally not considered to be an appraisal report. The uniform standards do allow oral and letter "reports" if specific guidelines are followed.

When calculating an equity dividend rate based on the first year of ownership, which of the following types of information is required? Purchase price Purchase price, loan amount, and before-tax cash flow Purchase price and net operating income Equity invested and net operating income

Purchase price, loan amount, and before-tax cash flow Explanation: Purchase price minus loan amount equals equity invested. The equity dividend rate is found by dividing the before-tax cash flow (NOT less debt service) by the equity invested.

Which of the following methods of estimating the cost of reproducing a building new is the most detailed and time consuming? Cost break-down method Comparative unit method Quantity survey method Unit-in-place method

Quantity survey method Explanation: This approach involves totaling the cost of each individual part to be used in the construction and is the most detailed method of cost estimating.

The "interests, benefits, and rights inherent in the ownership of real estate" is the normal definition for which of the following terms? Real estate Real property Personal property Fixtures

Real property Explanation: The USPAP defines real property as the interests, benefits, and rights inherent in the ownership of real estate.

In regard to Standard 2, which of the following statements is INCORRECT? Both form and content are addressed in Standard 2. Any communication must be in a manner that is not misleading. Recognized techniques must be used in the development of the appraisal. Each written real property appraisal report must contain a certification.

Recognized techniques must be used in the development of the appraisal. Explanation: Using recognized techniques in the development of an appraisal is addressed in Standard 1.

What rental unit of comparison is of primary importance in appraising office buildings with multiple tenants? Rent per room per year Rent per floor per year Rent per square foot of net rentable area per year Rent per cubic foot of gross leasable area per year

Rent per square foot of net rentable area per year Explanation: Rent per square foot of net rentable area per year is a typical comparison unit for office buildings. Rent per room is used for hotels.

Which of the following calculations is NOT needed to use the band of investment technique? Reversion Loan-to-value ratio Equity dividend rate Mortgage constant

Reversion Explanation: The band of investment technique does not explicitly consider the reversion (sale) of the property. It is simply a weighted average of the equity dividend rate and mortgage constant. The loan-to-value ratio is used for the weighting.

Which appraisal approach(es) can be used for considering the value of excess land? Cost approach only Sales comparison and income approach Cost approach and income approach Income approach only

Sales comparison and income approach Explanation: Both the sales comparison approach and the income approach can be used for considering the value of excess land. The cost approach cannot be used to obtain a value for land.

In a sublease, the sublessor holds what type of lease? Security lease Subordinated lease Sandwich lease Leased fee lease

Sandwich lease Explanation: In a sublease the sublessor (original tenant) has a sandwich lease, and no direct legal relationship is created between the lessor and the sublessee. A sublease is really an estate within an estate.

In the case of a heavy manufacturing plant, the highest and best use probably is to continue the present use. This is an example of which of the following types of property? Nonconforming use property Special purpose property Variance property Interim use property

Special purpose property Explanation: Properties that have a very limited number of uses, perhaps as few as one, are referred to as special purpose properties.

Which of the following statements is CORRECT in regard to the standards rules? Standards rules are much shorter than the standards. Standards rules are more specific in direction than the standards. None of the standards rules are followed by explanatory comments. Departure from the standards rules is not permitted.

Standards rules are more specific in direction than the standards. Explanation: While some of the standards rules are binding requirements and thus departure is not permitted, certain standards rules are specific requirements to which, under certain conditions, departure is permitted. They are lengthier than the standards and many of them are followed by explanatory comments.

Who of the following persons or entities is specifically mentioned as someone to whom an appraiser may disclose confidential factual data obtained from a client? Any reader of the appraisal report State enforcement agencies and such third parties as may be authorized by due process of law Appraisers who have previously rendered an opinion of value on the subject property Prior owners of the appraised property

State enforcement agencies and such third parties as may be authorized by due process of law Explanation: The Confidentiality section of the Ethics Rule clearly identifies three persons (entities) to whom confidential factual data obtained from a client can be disclosed. Previous appraisers and/or owners of the subject property are not listed, nor is any reader of the appraisal report.

Market rental rates tend to be set at the rate that prevails for equally desirable space. This is a reflection of what appraisal principle? Anticipation Balance Substitution Competition

Substitution Explanation: The principle of substitution is the best answer. It is one of the appraisal principles cited in most textbooks and expresses the concept that the price of an economic good, in this case space (e.g., rent), depends on the price of substitute goods.

The level of vacancy of five-bedroom apartments in a particular city provides which of the following types of information (data) to an appraiser? Supply information General data Demand information Secondary data

Supply information Explanation: Vacancy levels are an indication of market supply for that type of space; such information could be either primary or secondary data, depending on whether the data were gathered by the appraiser or by another party and published.

Which of the following statements BEST describes the amount of adjustment an appraiser should make for vacancy allowance in a property? 5 percent of gross income 1 percent for each year the property has been rented Somewhere between 5 percent and 10 percent The amount will vary with each property

The amount will vary with each property Explanation: There is no absolute number or adjustment that can be used for vacancy allowance. One of the responsibilities of the appraiser in analyzing the market is to estimate what the specific number should be for the subject property.

According to the USPAP, which one of the following requirements is part of Standard 1? The appraiser must not render services in a careless or negligent manner. Prior to accepting an appraisal assignment, the appraiser must possess the knowledge and experience necessary to complete the assignment or take specific alternatives. The appraiser must protect the confidential nature of the appraiser-client relationship. The appraisal report must contain sufficient information to enable the person(s) who receive or rely on the report to understand it properly.

The appraiser must not render services in a careless or negligent manner. Explanation: According to Standards Rule 1-1 (c), an appraiser must not render appraisal services in a careless or negligent manner. Necessary knowledge and experience is covered under the Competency Rule, confidentiality is addressed in the Ethics Rule, and the appraisal report is the subject of Standard 2.

The term book value refers to which of the following amounts? The purchase price less accrued appreciation The carrying amount of an asset, as shown on the books of a company; generally the amount paid for an asset, less depreciation The sales price less the mortgage balance The before-tax cash flow less the tax on capital gain

The carrying amount of an asset, as shown on the books of a company; generally the amount paid for an asset, less depreciation Explanation: Book value denotes the carrying amount of an asset as shown on the books of a company. The book value is not necessarily the same as the sales price or original cost.

The term book value refers to which of the following amounts? The purchase price less accrued appreciation The carrying amount of an asset, as shown on the books of a company; generally the amount paid for an asset, less depreciation The sales price less the mortgage balance The before-tax cash flow less the tax on capital gain

The carrying amount of an asset, as shown on the books of a company; generally the amount paid for an asset, less depreciation. Explanation: Book value denotes the carrying amount of an asset as shown on the books of a company. The book value is not necessarily the same as the sales price or original cost.

According to Standard 2 all written appraisal reports must include the effective date of the appraisal. Which of the following statements is CORRECT in regard to the effective date? The effective date establishes the context of the value estimate. The effective date and the date of the appraisal report will always be the same date. The effective date cannot be a date later than the date of the appraisal report. The effective date cannot be a date prior to the date of the appraisal report.

The effective date establishes the context of the value estimate. Explanation: The effective date establishes the context of the value estimate and could be a date prior to, equal to, or after the date of the appraisal report.

A property is purchased that has a 10-percent overall capitalization rate and a mortgage constant of 11 percent. What can be concluded about the equity dividend rate? The equity dividend rate will be less than 10 percent. The equity dividend rate will be between 10 percent and 11 percent. The equity dividend rate will be higher than 11 percent. Nothing can be concluded about the equity dividend rate.

The equity dividend rate will be less than 10 percent. Explanation: The equity dividend rate will be less than 10 percent because there is unfavorable leverage on an income basis. When the overall rate is less than the mortgage constant, the equity dividend rate will be less than the overall rate.

Which of the following statements is CORRECT in regard to an increase in the loan-to-value ratio for a loan to finance the purchase of a parcel of land? The selling price of the land must be higher. The selling price of the land must be lower. The equity required of the borrower must be lower. The equity required of the borrower must be higher.

The equity required of the borrower must be lower. Explanation: Equity is the difference between the value of property and the amount borrowed; thus, an increase in the loan-to-value ratio would mean less equity on the part of the borrower.

What is meant by the term surplus productivity? The excess in revenues received above the market rate The income attributable to land rent that remains after labor, capital and coordination have been charged The income received after operating expenses, taxes and debt service have been paid The income received after the marginal level of productivity is reached

The income attributable to land rent that remains after labor, capital and coordination have been charged Explanation: Surplus productivity is the concept on which residual valuation techniques are based. Land receives any surplus income after providing a return on the building.

The amount of debt payment due on a loan is a function of the amount borrowed, the interest charged, and the term of the loan. In regard to the term, which of the following statements is CORRECT? The longer the term, the greater the periodic payment. The longer the term, the less the periodic payment. The longer the term, the higher the interest rate charged and thus the higher the payment. The longer the term, the lower the interest rate charged and thus the higher the payment.

The longer the term, the less the periodic payment. Explanation: The relationship between the term of the loan and the payment due is inverse, which means the longer the term, the less the periodic payment.

Which of the following explanations applies to the term base rent? The actual rent specified in a lease The minimum rent payable under a percentage lease The typical rent paid for comparable properties The minimum rent multiplied by an index to find the actual rent in an index lease

The minimum rent payable under a percentage lease Explanation: Base rent and percentage rent typically are used in retail leases where the tent pays a base rent plus a percent of sales.

If the metes-and-bounds method of legally describing land is being used, which of the following statements is CORRECT? The starting point must be a natural benchmark. There must be a definite point of beginning. Monuments cannot be used as part of the description. No other method, such as lot-and-block, can be used as part of the description.

There must be a definite point of beginning. Explanation: One of the necessary requirements when land is being surveyed by the metes-and-bounds method is that a definite point of beginning be established.

What does linkage refer to? The amount of the monthly mortgage payment going toward reducing the principal Time-distance cost necessary to access a supporting facility Relationship between gross income and net income for income-producing property Percent of an area's employment engaged in basic industries

Time-distance cost necessary to access a supporting facility Explanation: Linkage is defined as the proximity of a parcel of land to a supporting land use and refers to the time and distance necessary to reach the supporting facility.

Linear regression typically would NOT be used for which of the following purposes? To determine an adjustment in the sales comparison approach for comparable sales To complete a mass appraisal of a residential area for tax assessment To test for the effect of a flood on home values To perform sensitivity analysis on changes in income in the income approach to value

To perform sensitivity analysis on changes in income in the income approach to value Explanation: Regression analysis provides an understanding of the relationship among different market variables. Sensitivity analysis is used to determine the sensitivity of a model to change in the variables.

Which of the following estimates will result in a capitalization rate of 10 percent? Value $500,000; gross income $50,000 Value $500,000; effective gross income $50,000 Value $500,000; net operating income $50,000 Value $500,000; cash flow $50,000

Value $500,000; net operating income $50,000 Explanation: The basic formula V = I - R denotes net operating income. Net operating income of $50,000 divided by a value of $500,000 would result in a capitalization rate of 10 percent.

Paired data sets analysis could be used to estimate which of the following factors? Value of location Regression analysis Age of the property Reproduction cost new

Value of location Explanation: Paired data sets are sets of comparables that are similar except for one factor.

Which of the following actions on the part of the appraiser is a specific requirement of Standard 1? Define the value being estimated Value the property under its highest and best use Identify and consider the effect on value of any personal property included in the appraisal Identify the real property interest

Value the property under its highest and best use Explanation: Standard 1 requires the appraiser to consider the effect on use and value of highest and best use.

An irregularly shaped lot is located in an area where the zoning setback requirement of 15 feet would result in a planned building not properly fitting on the lot. To seek relief from the harshness of this requirement, the owner may seek what type of adjustment from the local authority? Nonconforming use Exception Variance Special-use permit

Variance Explanation: A variance is a type of safety valve provided through the zoning ordinance that allows a property owner who is unfairly burdened by a zoning restriction to seek relief; an irregularly shaped lot would be an example of such a burden. The remaining choices are all related to public limitations on real estate.

The date of valuation for an appraisal is determined by which of the following? The actual date the appraisal is signed The date the appraisal assignment is accepted The date the property is actually inspected Whatever date is specified in the appraisal report

Whatever date is specified in the appraisal report Explanation: The actual date specified in the appraisal report determines the date of valuation.

A superadequacy is defined as: land being used more efficiently than its highest and best use. a feature of a building that is not fully valued by the marketplace. a building whose effective life is less than its actual age. real estate generating an abnormal rate of return.

a feature of a building that is not fully valued by the marketplace. Explanation: A superadequacy is defined as a feature of a building that is not fully valued by the marketplace. A custom-built home in a neighborhood of speculative-built houses might suffer from superadequacies.

The comparable sales (market) approach to value is generally considered to be the MOST reliable when: the improvements are new and unoccupied. a ready access to current market data exists. the land is vacant and the rate of inflation is high. functional obsolescence does not exist.

a ready access to current market data exists. Explanation: The comparable sales approach to value is based primarily on the proper analysis of current market data. Without access to current market data, the appraiser should not try to employ this approach.

The term before-tax cash flow can best be defined as: net operating income less interest expenses. net operating income less mortgage payments (principal and interest). actual cash flow available to the investor after all cash expenses except federal income taxes. gross income less mortgage payments.

actual cash flow available to the investor after all cash expenses except federal income taxes. Explanation: The term before-tax cash flow is usually meant to consider all cash inflows and outflows that affect the owner except federal income taxes.

With the sales comparison approach, the estimated sales price of a comparable property after additions and/or subtractions have been made to the actual sales price for improvements and deficiencies, when compared to the subject property, is referred to as the: market value. actual sales price. adjusted sales price. economic price.

adjusted sales price. Explanation: In theory, the adjusted sales price is what a comparable property would sell for if it were exactly equal to the subject property in terms of all of its features, location, age, etc.

The term absorption rate refers to: an estimate of the expected annual sales or new occupancy of a particular type of land use. an estimate of the rate at which a type of real estate space will be sold or occupied. the rate at which the cash flow from a property will cover the initial investment in the property. the rate of return used to convert future payments into present cash values.

an estimate of the rate at which a type of real estate space will be sold or occupied. Explanation: An absorption rate is the measure of the rate at which a type of real estate space will be sold or occupied.

The term economic base analysis can be described as a(n): analysis of the economic activity of a community that allows it to attract income from outside its boundaries. analysis of population trends in a community. compilation of demographic data for comparable areas. analysis of how interest rates will affect the base rent on a property.

analysis of the economic activity of a community that allows it to attract income from outside its boundaries. Explanation: Economic base analysis measures the economic activity of a community that allows it to attract income from outside its boundaries. The analysis includes, but is not limited to, population, demographic and interest rate data.

The operative words in Standard 2 that result in the actions of the appraiser being referred to as an appraisal are: confirmation and reporting of data. analysis, opinion, and conclusion. certification statement. application of the approaches to value.

analysis, opinion, and conclusion. Explanation: The efforts of the appraiser that result in his or her actions being referred to as an appraisal are the analysis, opinion, and conclusion.

If an appraiser enters into an agreement to perform an appraisal service that calls for something less than would be required by the specific appraisal requirements of the USPAP, then the appraiser must: clearly set forth this fact in the report. have another appraiser cosign the report. accept hourly compensation rather than a flat fee. not refer to the report as an appraisal.

clearly set forth this fact in the report. Explanation: The Department Rule permits limited exceptions to sections of the standards if, among other requirements, this fact is clearly set forth in the report.

Curable physical deterioration is measured by: applying the ratio of effective age to estimated total physical life to the reproduction or replacement cost of each component. calculating the cost of restoring a component to new or reasonably new condition, i.e., the cost to cure. calculating the cost of installing the modern component minus the remaining value of the existing component. calculating the reproduction cost of the item minus any physical deterioration already charged, plus the cost to install a normally adequate or standard item.

calculating the cost of restoring a component to new or reasonably new condition, i.e., the cost to cure. Explanation: Curable physical deterioration refers to items of deferred maintenance. Therefore the depreciation equals the cost to restore the item to a new or reasonably new condition.

Curable superadequate features are measured by: applying the ratio of effective age to estimated total physical life to the reproduction or replacement cost of each component. calculating the cost of restoring a component to new or reasonably new condition, i.e., the cost to cure. calculating the cost of installing the modem component minus the remaining value of the existing component. calculating the reproduction cost of the item minus any physical deterioration already charged, plus the cost to install a normally adequate or standard item.

calculating the reproduction cost of the item minus any physical deterioration already charged, plus the cost to install a normally adequate or standard item. Explanation: A superadequacy or overimprovement is an item whose cost exceeds its value. Superadequate features are a type of functional obsolescence and may be curable or incurable. The superadequacy is curable if the cost of correcting it is currently economically feasible.

Numerous methods and techniques are used to estimate replacement or reproduction cost. The method that measures the total square footage or cubic footage of a building and then multiplies this total by a current cost per square foot or cubic foot factor is known as the: quantity survey method. unit-in-place method. comparative unit method. price index method.

comparative unit method. Explanation: The comparative unit method is a common way in which replacement cost is estimated. For example, a house with 2,000 square feet located in an area where similar construction costs $90 per square foot would have an estimated replacement cost of 2,000 x $90, or $180,000.

To be the highest and best use of an improved site, the current use must: conform to the interim use. be the same as anticipated future uses. conform to current building codes. have no obsolescence.

conform to current building codes. Explanation: The criteria used to determine whether a property is at its highest and best use are: (1) physically possible, (2) legally permissible, (3) financially feasible, and (4) maximally productive. Legally permissible includes conforming to current building codes.

Primary data refers to: the main data used by the appraiser. data collected by the appraiser. data that have a direct impact on value. data published by a reliable source.

data collected by the appraiser. Explanation: Primary data refers to any data collected by the appraiser, including information that does not have a direct impact on the value of the property. Secondary data is that collected and published by another party, e.g., census data or mls.

The voluntary conveyance of title to land from an individual private owner to a public agency such as the city or county is known as: accretion. escheat. patent. dedication.

dedication. Explanation: Dedication is the donation of property by an owner to a public authority. Examples would include roads in a subdivision or land to be used as open space in a subdivision.

The conversion of estimated future income into a present value estimate is referred to as: reversion. direct capitalization. discounting. guessing.

discounting. Explanation: Discounting or discounted cash flow analysis is the process of finding the present value of future cash flows. It should be based on reasonable estimates of the future income, not on guessing. While this is capitalization, it is not direct capitalization. Direct capitalization (e.g., use of overall capitalization rates derived from the market) does not involve discounting estimated future income; direct capitalization uses current income.

Owner A gives owner B an easement across A's land to shorten the distance B has to travel to reach land he owns. The land B owns has benefited by this easement and is known as the: dominant estate. servient estate. lien estate. estate in gross.

dominant estate. Explanation: The estate that benefits from the creation of an easement is known as the dominant estate. Owner A's land is the servient estate since it is burdened by the creation of the easement.

Methods of estimating accrued depreciation include: economic age-life, modified economic age-life, sales comparison, break-down method. economic age-life, comparative unit, sales comparison, break-down method. economic age-life, modified economic age-life, quantity survey, break-down method. economic age-life, modified economic age-life, sales comparison, comparative unit method.

economic age-life, modified economic age-life, sales comparison, break-down method. Explanation: Common methods are economic age-life, modified economic age-life, sales comparison, and break-down.

A technique used by market analysts and appraisers that attempts to measure the current economic activity and expected future economic growth in a specific geographic area is commonly referred to as: basic industry analysis. nonbasic industry analysis. economic base analysis. site analysis.

economic base analysis. Explanation: Economic base analysis, which involves addressing both basic and nonbasic industry sources, attempts to measure the present as well as the future economic activity and growth potential of an area.

In economics, the cost commanded by a factor of production that is unique or inelastic in supply is referred to as: economic rent. market rent. fixed cost. supply cost.

economic rent. Explanation: The portion of rental income attributable to the land is often considered economic rent, since the land will exist no matter what the rental rate.

Normally, the financial compensation of a property manager to cover property management fees is based on a percentage of: effective gross income. net income. pretax cash flow. after-tax cash flow.

effective gross income. Explanation: Normally with income-producing property, the owner will employ someone to manage the property. Compensation for such a person is usually a percentage of effective gross income, which serves as an incentive to the property manager to keep the space fully occupied and collect all rents.

An interest rate that incorporates the effects of discount points is referred to as a(n): discount rate. effective rate. internal rate of return. financial management rate of return.

effective rate. Explanation: The effective rate can be calculated by finding the internal rate of return of the actual cash flows in a loan schedule. Payments are based on the full amount loaned. However, the amount of money received includes the financing costs. The effective rate will be higher than the interest rate on loans with financing costs. If no financing costs are involved, the effective rate will equal the interest rate.

The ratio of net rentable area to gross area in a multi-tenant building is normally referred to as: floor-area-ratio. net operating ratio. efficiency ratio. variance ratio.

efficiency ratio. Explanation: The efficiency ratio shows the relationship between leasable space and total space. A building with 50,000 square feet of total space but only 35,000 square feet of space that can be rented has an efficiency ratio of 70 percent.

All of the following actions are specific appraisal requirements required by Standard 1 EXCEPT: adequately identify the real estate. define the value being considered. base projections of future rent and expenses on reasonably clear and appropriate evidence. explain and support the exclusion of any of the usual valuation approaches.

explain and support the exclusion of any of the usual valuation approaches. Explanation: The requirement to explain and support the exclusion of any of the usual valuation approaches is a requirement of S.R. 2-2(a)(xi).

The term economic obsolescence denotes the same thing as: economic base. superadequacy. economic function. external depreciation.

external depreciation. Explanation: Economic obsolescence and external depreciation refer to the same thing.

Risk due to the use of debt financing is referred to as: interest risk. financial risk. leverage risk. equity risk.

financial risk. Explanation: Financial risk arises from the method of financing chosen. If an investor uses all equity to purchase a property, financial risk does not exist.

A poor floor plan or outdated plumbing fixtures are types of: curable physical depreciation. functional obsolescence. economic obsolescence. incurable physical depreciation.

functional obsolescence. Explanation: Functional obsolescence or depreciation results from outdated or defective design.

In valuation theory, the economic concept that considers the usefulness of property is known as: situs. linkage. plottage value. functional utility.

functional utility. Explanation: Functional utility attempts to consider and measure the usefulness of property.

The term effective gross income can be defined as: income after the effect of financing. gross potential income less an allowance for vacancy and collection. income actually collected after all operating expenses. potential gross income from space that can actually be rented.

gross potential income less an allowance for vacancy and collection. Explanation: Effective gross income includes an allowance for vacancy and collection but does not deduct any operating expenses or financing costs.

An appraiser estimates the income for several possible uses of a vacant site for the purpose of estimating how that income contributes to the value of the land. This is an example of: reconciliation. highest and best use analysis. market analysis. regression analysis.

highest and best use analysis. Explanation: Highest and best use analysis involves analyzing income for alternative uses of a site to determine which use maximizes land value.

Appraisers may find themselves involved in the appraisal of a mobile home. A common term used to denote a mobile home is: condominium. manufactured housing. PUD. cooperative.

manufactured housing. Explanation: Manufactured housing is a term used to denote what some people refer to as a mobile home.

The process of identifying and analyzing sub-markets of a larger market is known as: extraction. market allocation. market segmentation. substitution.

market segmentation. Explanation: Markets can be subdivided into submarkets by price, location and type of purchaser. The process of identifying and analyzing these submarkets is called market segmentation. Allocation and extraction refer to methods of land valuation.

When real estate is put up as collateral for a loan, the borrower is known as the ____________ and the lender is known as the ___________ : mortgagor, mortgagee mortgage, mortgagor mortgagee, financial intermediary agent, principal

mortgagor, mortgagee Explanation: The borrower is the mortgagor and the lender is the mortgagee. This is true since it is the mortgagor who "gives" the mortgagee a mortgage (security) against the property to secure the note signed by the borrower.

In the analysis of sales data as part of the sales comparison approach, conditions of sales refers to the: validity of the sales contract. amount of interest paid on an assumed mortgage. motives, intention, and knowledge of the parties. amount of personal property included.

motives, intention, and knowledge of the parties. Explanation: In the sales comparison approach, the term conditions of sales refers to the motives, intention, and knowledge of the parties. For example, a "hurried" sale due to a job relocation could result in the property actually selling for less than what it would normally bring.

Excess land is land that is: not as valuable because it is not necessary to accommodate a site's highest and best use. not needed to support the existing improvement. always used for expansion of the existing improvement. not included in the estimated value of the improvements.

not needed to support the existing improvement. Explanation: Excess land is land not needed to support the existing improvement. Excess land should be identified in highest and best use analysis and valued separately if appropriate. In some situations, the site may be too large for the existing improvement but not considered to contain excess land. This situation occurs when the extra land cannot be used separately.

When a mortgage specifies that future advances can be made using the same property as collateral, the mortgage is referred to as a (n): future advance mortgage. overcollateralized mortgage. blanket mortgage. open-end mortgage.

open-end mortgage. Explanation: An open-end mortgage provides for future advances. A blanket mortgage covers more than one parcel of property at the same time.

The building cost estimate method that replicates the contractor's development of a bid, and is the most comprehensive way to estimate building costs, is known as the: unit-in-place method. quantity survey method. break-down method. comparative unit method.

quantity survey method. Explanation: The quantity survey method computes material costs and labor hours required. Then these costs are used to estimate unit and total costs. Entrepreneurial profit is added to costs. This approach has limited use because of the time and expense involved.

There are numerous techniques available to estimate reproduction or replacement cost of a building. The most detailed and precise technique is the: comparative unit method. builder's (trade break-down) method. unit-in-place method. quantity survey method.

quantity survey method. Explanation: The quantity survey method, which is the most detailed and precise technique for estimating replacement or reproduction cost, requires calculating the quantity and the cost of each material item plus the total cost of installation. The remaining choices are all less-detailed techniques for estimating replacement or reproduction cost.

A limited appraisal performed for the purpose of confirming whether or not the completed improvements and/or market conditions are consistent with the assumptions and statements made in an earlier prospective appraisal is commonly referred to as a(n): recertification of value letter of opinion update of an appraisal self-contained evaluation

recertification of value Explanation: A recertification of value is a limited appraisal performed for the purpose of confirm-in whether or not the completed improvements and/or market conditions are consistent with the assumptions and statements made in an earlier prospective appraisal.

Percentage rent is defined as the: amount of contract rent above market rent. amount of rent paid above the minimum rent. rent received based on a portion of sales. rent received based on an inflation index.

rent received based on a portion of sales. Explanation: Percentage rent is typically used in retail leases and is the rent received based on a portion of sales.

Data obtained from published sources are referred to as: primary data. secondary data. general data. specific data.

secondary data. Explanation: Secondary data are published by other sources whereas primary data are gathered by the appraiser.

A collection of retail stores with a common parking area and generally one or more large department, discount, or food stores, and sometimes including an enclosed mall or walkway, is commonly referred to as a: mall. retail complex. mixed-use development. shopping center.

shopping center. Explanation: The term shopping center refers to the small stores and anchors present in the center. The term mall refers to the small stores and common areas. A mixed-use development refers to a complex that contains different types of real estate such as retail, office, and hotel.

Each written or oral appraisal report must include all of the following items EXCEPT: state the qualifications of the appraiser. clearly and accurately set forth the appraisal in a manner that will not be misleading. contain sufficient information to enable the person who receives or relies on the report to understand it properly. define the value to be estimated.

state the qualifications of the appraiser. Explanation: The qualifications of the appraiser are not required to be included in each written or oral analysis report. B and C are from S.R. 1-1, and D is from S.R. 2-2.

A mortgage in which a second lender makes payments on the first loan and provides the borrower a subordinated larger loan is referred to as a: direct reduction mortgage. participation mortgage. wraparound mortgage. shared appreciation mortgage.

wraparound mortgage. Explanation: Wraparound mortgages have been used to obtain additional financing without taking out a new second mortgage and without disturbing the existing mortgage.

Discount Foods is leasing a store for $1,000 per month rent. If the landlord could rent the store on a new lease now, it would command $4,000 per month. What is the contract rent? • $1,000.00 • $3,000.00 • $4,000.00 • $5,000.00

• $1,000.00 Explanation: The $1,000 is the contract rent and the $4,000 is the market (economic) rent.

A commercial building leases for $3,000 per month. If the building's dimensions are 60 feet by 80 feet, what is the annual rent per square foot? • $63.00 • $1.00 • $7.50 • $12.00

• $7.50 per square foot Explanation: 60 x 80 = 4,800 square feet $3,000 x 12 = $36,000 annual rent $36,000/4,800 = $7.50 per square foot.

A property has NOI of $10,000, interest payments of $8,000, and principal payments of $1,000. What is the debt coverage ratio? • 0.80 • 0.90 • 1.11 • 1.25

• 1.11 Explanation: Debt coverage ratio equals net operating income divided by the mortgage payment. The mortgage payment includes interest and principal.

Which of the following statements applies to a property with a nonconforming use? • The existing nonconforming use is the highest and best use. • A nonconforming use is likely to arise from changes in zoning. • A nonconforming-use property may be underimproved but cannot be overimproved. • In the sales comparison approach, an appraiser does not have to make a separate adjustment for the nonconforming use.

• A nonconforming use is likely to arise from changes in zoning. Explanation: A nonconforming use is a use that was formerly legally permissible but is not acceptable under current zoning.

What term is used to describe tangible and intangible factors that enhance the desirability and thus add to the value of real estate? • Amenities • Goodies • Enhancements • Negative externalities

• Amenities Explanation: The term amenities refers to positive factors that enhance property value. An example would be an excellent view of a golf course from a residence. An amenity might also be referred to as a positive externality.

In regard to an unpaid property tax that has become due and payable, which of the following statements is INCORRECT? • The property tax is a specific lien against the property. • The claim of the taxing authority is superior to any private claim. • The property may be sold to satisfy the claim. • Any other property owned by the individual owner may be sold to satisfy the claim against the property in question.

• Any other property owned by the individual owner may be sold to satisfy the claim against the property in question. Explanation: A property tax is a specific lien and is thus levied against a specific property. Other property of the owner cannot be sold to satisfy the financial claim. A property tax claim that has not been paid may result in the property being sold to satisfy the lien.

Land utilization studies, supply and demand studies, economic feasibility studies, and highest and best use analysis are all examples of which of the following actions? • Review • Mass appraisal • Appraisal • Investment analysis

• Appraisal Explanation: An appraisal is an estimate of value and can take numerous forms.

How would an appraiser MOST likely be able to use the assessed values found in the public land records for properties in a particular area? • As a starting point to derive an opinion of value • As a true indication of local property values • As input in calculating property taxes needed in the income approach to value • As an indication of gross rent multipliers for the area

• As input in calculating property taxes needed in the income approach to value Explanation: An appraiser should be careful in regard to using assessed value information for anything other than as input in calculating property taxes. The assessed value of property as found in the public land records should not be used as an indicator of market value or probable sales price.

Which of the following terms BEST explains the technique of adjusting a sales price downward to reflect the effect that favorable financing probably had on the sales price of a property? • Comparison unit technique • Break-down technique • Cash equivalency technique • Extraction technique

• Cash equivalency technique Explanation: If a property is purchased with below-market rate financing, the purchaser will probably have paid more for the property to receive the favorable financing.

What term is used to explain the appraisal principle that states that value is based on the concept that the more a property or its components are in harmony with the surrounding properties or components, the greater the contributory value? • Substitution • Conformity • Anticipation • Contribution

• Conformity Explanation: The principle of conformity states that value is created when a property conforms to the environment due to economic pressures, zoning, similar preferences of neighbors, etc.

When a property's highest and best use is in a stage of transition, which of the following actions is required of the appraiser? • Consider interim use • Ignore interim use • Consider interim use only if it results in a higher value • Consider interim use only if it results in a lower value

• Consider interim use Explanation: The interim use of the property, regardless of its effect on value, should be considered by the appraiser.

When using the income approach, what is the initial step the appraiser must take in reconstructing an operating statement? • Estimate gross income. • Estimate operating expenses. • Estimate net operating income. • Select an appropriate capitalization rate.

• Estimate gross income. Explanation: The first step necessary in the income approach to value is to calculate estimated gross income, which is defined as the amount of income generated if all the space is rented all of the time.

At a minimum, how long must an appraiser retain his or her work file after preparation of the appraisal report? • No minimum time is set • One year • Two years • Five years

• Five years Explanation: Work files must, as a minimum, be retained for five years after preparation of the appraisal report.

What term would apply to a lease that requires the lessor to pay all operating expenses associated with the real estate? • Index lease • Gross lease • Net lease • Pass through lease

• Gross lease Explanation: If the lessor has to pay the expenses, it is a gross lease. If the lessee (tenant) pays the expenses, it is a net lease. The term passthrough is sometimes used to refer to passing through expenses to a tenant.

What term is used to describe the value to a typical investor? • Market value • Investment value • Sale value • Use value

• Market value Explanation: Market value is the value to a typical investor, whereas investment value is the value to a specific investor.

Which of the following types of legal description methods is NOT commonly found in urban or metropolitan areas? • Metes-and-bounds • Recorded plat • Lot-and-block • Monuments

• Monuments Explanation: The monuments method of legally describing land is often found in older descriptions in rural or nonurban areas where the land has not been platted for development. Such a method is not common in urban areas. In some jurisdictions the monuments method, if it is the only one being used, will not be accepted as having sufficiently described the land.

Building measurements gathered by an appraiser are an example of which of the following types of data? • General data • Secondary data • Primary data • Improvement cost data

• Primary data Explanation: Primary data are gathered by the appraiser, whereas secondary data are gathered by another party and available to the appraiser through published sources.

Which of the following calculations is NOT needed to use the band of investment technique? • Reversion • Loan-to-value ratio • Equity dividend rate • Mortgage constant

• Reversion Explanation: The band of investment technique does not explicitly consider the reversion (sale) of the property. It is simply a weighted average of the equity dividend rate and mortgage constant. The loan-to-value ratio is used for the weighting.

In the sales comparison approach to value, physical units of comparison are often used to adjust for which of the following conditions? • Location • Scenic view • Size • Surrounding land uses

• Size Explanation: Of these four choices, size of the comparables is the only factor that could be adjusted using physical units of comparison.

In appraising a house, the appraiser finds that comparable A is similar to the subject property and sold for $90,000. Comparable B is also similar except it has one additional bedroom and sold for $98,000. In regard to the extra bedroom, what adjustment is made? • Add $8,000 to the subject property. • Add $8,000 to the comparable. • Subtract $8,000 from the subject property. • Subtract $8,000 from the comparable.

• Subtract $8,000 from the comparable. Explanation: The differences or units of comparison are always added to or subtracted from the comparables and not from the subject property.

Which of the following explanations applies to the term base rent? • The actual rent specified in a lease • The minimum rent payable under a percentage lease • The typical rent paid for comparable properties • The minimum rent multiplied by an index to find the actual rent in an index lease

• The minimum rent payable under a percentage lease Explanation: The base rent is the minimum rent payable under a percentage lease. Base rent and percentage rent typically are used in retail leases where the tenant pays a base rent plus a percent of sales.

Curable physical deterioration is measured by: • applying the ratio of effective age to estimated total physical life to the reproduction or replacement cost of each component. • calculating the cost of restoring a component to new or reasonably new condition, i.e., the cost to cure. • calculating the cost of installing the modern component minus the remaining value of the existing component. • calculating the reproduction cost of the item minus any physical deterioration already charged, plus the cost to install a normally adequate or standard item.

• calculating the cost of restoring a component to new or reasonably new condition, i.e., the cost to cure. Explanation: Curable physical deterioration refers to items of deferred maintenance. Therefore the depreciation equals the cost to restore the item to a new or reasonably new condition.

Numerous methods and techniques are used to estimate replacement or reproduction cost. The method that measures the total square footage or cubic footage of a building and then multiplies this total by a current cost per square foot or cubic foot factor is known as the: • quantity survey method. • unit-in-place method. • comparative unit method. • price index method.

• comparative unit method. Explanation: The comparative unit method is a common way in which replacement cost is estimated. For example, a house with 2,000 square feet located in an area where similar construction costs $90 per square foot would have an estimated replacement cost of 2,000 x $90, or $180,000. The other choices in this problem are all ways by which replacement or reproduction costs can be estimated.

An interest rate that incorporates the effects of discount points is referred to as a(n): • discount rate. • effective rate. • internal rate of return. • financial management rate of return.

• effective rate. Explanation: The effective rate can be calculated by finding the internal rate of return of the actual cash flows in a loan schedule. Payments are based on the full amount loaned. However, the amount of money received includes the financing costs. The effective rate will be higher than the interest rate on loans with financing costs. If no financing costs are involved, the effective rate will equal the interest rate.

The difference between a particular building's actual layout and the building's ideal layout is referred to as: • physical disfiguration. • functional obsolescence. • locational obsolescence. • economic obsolescence.

• functional obsolescence. Explanation: Functional obsolescence can be the result of numerous occurrences including the layout of the building. For example, a house with a poorly designed floor plan suffers from functional obsolescence.

The highest and best use of a parcel of land is that use that will result in the: • highest building value. • highest occupancy rate of the building. • highest present value of the property. • lowest total investment.

• highest present value of the property. Explanation: Highest and best use is defined as that legal use of a parcel of land which, when capitalized, will generate the greatest net present value of income.

The proximity of a parcel of land to a supporting land use is referred to as: • location quotient. • linkage. • highest and best use. • land efficiency.

• linkage. Explanation: Linkage refers to the location, as measured in time and distance, of a particular parcel of land to supporting land uses.

A mortgage in which the lender receives a portion of the income and/or reversion is referred to as a: • blanket mortgage. • participation mortgage. • wraparound mortgage. • convertible mortgage.

• participation mortgage. Explanation: Participation mortgages are also known as equity participation loans, participations, or equity kickers. The loan may be structured in a number of different ways. Typically the lender will receive a percentage of one or more of the following: potential gross income, net operating income, cash flow after debt service, and/or a portion of total sale proceeds or appreciation in property value.

The estimated period of time over which improvements continue to contribute to property value is known as the: • total physical life. • remaining economic life. • remaining physical life. • total useful life.

• remaining economic life. Explanation: Remaining economic life is the estimated number of remaining years of usefulness of a structure or component. The economic age may differ from the actual age.

In using the cost approach to value, the cost method in which the appraiser groups the cost of a building into major components such as the foundation, walls, and heating is referred to as the: • square-foot method. • unit-in-place method. • quantity survey method. • index method.

• unit-in-place method. Explanation: The unit-in-place method of estimating cost is a common means of deriving an estimate of replacement or reproduction costs. This method involves grouping the major functional parts of the structure and estimating the appropriate cost of each.