Chapter 20 Valuation and Appraisal
80 A house and a lot were valued at $50,000; $40,000 for the building, $10,000 for the land. If the economic life of the building was 40 years,what was the value of the property after 14 years? $10,000 $24,000 $36,000 $40,000
$36,000
82 Depreciation can be attributed to economic obsolescence. functional obsolescence. physical deterioration. All of the above
All of the above
69 7O. Which of the following statements is true? Functional obsolescence is the result of factors within the property. Economic obsolescence is caused by factors outside the property. I only II only Both I and II Neither I nor II
Both I and II
77 Which of the following factors is considered in the estimation of depreciation? Economic obsolescence Physical deterioration I only II only Both I and II Neither I nor II
Both I and II
89 Which is {are} true about loss in value due to obsolescence? Extra-large load-bearing columns in a 30- year-old commercial building would represent incurable functional obsolescence. An unattractive storefront window would represent curable functional obsolescence. I only II only Both I and II Neither I nor II
Both I and II
41 A homogeneous community typically has what effect on real estate values? Causes real estate values to be stable Causes values to increase Causes values to decrease Builds an inherent instability into real estate values
Causes real estate values to be stable
38 If the cost of constructing houses is greater than their market value, what will occur in the short run? Costs will decrease. Construction will decrease. Market value will increase. The style of new housing will be changed to reflect the increased costs.
Construction will decrease.
8 An appraiser was hired to prepare a feasibility study for adding a swimming pool to a 24-unit apartment building. What basic principle of appraising would be used? Regression Contribution Competition Substitution
Contribution
74 Which of the following is correct? Economic life is normally longer than physical life. Economic life is normally shorter than physical life. Physical life is normally shorter than economic life. Residual life is normally longer than physical life.
Economic life is normally shorter than physical life.
78 There are three main causes of depreciation. Which one of these finds its origin in social sources which is the basis for the old axiom known in social circles, that 'more houses are torn down than fall down'? Economic obsolescence Functional obsolescence Straight-line depreciation Physical deterioration
Economic obsolescence
79 Which of the following types of depreciation would be most difficult to eliminate? Physical deterioration Functional obsolescence Physical depreciation Economic obsolescence
Economic obsolescence
88 What type of reduction in value is present when a hydrogen gas storage tank is located next to a property? Physical deterioration Economic obsolescence Functional obsolescence Demolition
Economic obsolescence
53 Which of the following best describes the function of a real estate appraiser? Estimates the loan value Determines price Estimates value Determines value
Estimates value
13 Which one of the following best describes the concept of highest and best use? Gross return Natural and legal use Greatest net return over a given period Homogeneous use
Greatest net return over a given period
96 Economic obsolescence involves which of the following? Street layout and access Zoning Effects of the elements and weather II only I and II only II and III only I, II and III
I and II only
39 The market value of a property is the highest price in terms of money which a property will bring in a competitive and open market. Among other conditions, which of the following must exist for a property to be considered sold at market value? Buyer and seller were typically motivated Payment must have been made in cash only Both parties were well informed and acted in their own best interest I and II only I and III only II and III only I, II and III
I and III only
15 The value of a piece of land is an estimate of the present worth of future benefits. includes a measure of past expenditures. I only II only Both I and II Neither I nor II
I only
91 A house which has only one bathroom, and that is located next to the kitchen, suffers from functional obsolescence. economic obsolescence. I only II only Both I and II Neither I nor II
I only
100 Which is the generally preferred appraisal approach for the valuation of land? The abstraction procedure Market data approach Anticipated use or development procedure Land residual technique
Market data approach
99 Which of the following conditions in a building would be referred to by an appraiser as an example of functional obsolescence? Worn carpeting Narrow hallways Blistered paint on the exterior Poor landscaping
Narrow hallways
48 Given an appraisal situation in which each of the three approaches to the final estimate of defined value can be used, the final step in the appraisal process should be to 'average' the three values to arrive at the actual value using the mean as the definition of average. accept the mid-point in the range of values as being the defined value. I only II only Both I and II Neither I nor II
Neither I nor II
49 When analyzing the various approaches to estimating value, the income approach is the most important in site valuation. the approach that requires the gathering, recording and comparing of sales data for comparable sites is the cost approach. I only II only Both I and II Neither I nor II
Neither I nor II
50 The correlation process in appraisal is based on a standard mathematical formula. consists of averaging the cost, market, and income approaches. I only II only Both I and II Neither I nor II
Neither I nor II
56 The final step by the appraiser in establishing his final estimate of value is to reconcile the three indications of value obtained through the cost, income, and market data approaches. The final estimate of value is obtained by averaging the three individual indications of value. selecting the middle value. I only II only Both I and II Neither I nor II
Neither I nor II
60 What is effective age? The remaining economic life The actual age The remaining useful life None of these
None of these
36 Which of the following factors would have no effect in estimating the value of commercial property? The accessibility to major roads and railroads Income from property Original cost of the property Zoning
Original cost of the property
93 Which of the following might be classified as functional obsolescence? Exterior needs painting Property fronts on a busy expressway Property has a single-car garage Neighborhood is 50 years old
Property has a single-car garage
47 A qualified appraiser has received an assignment from a lending institution to appraise a property on which the lender intends to make a loan. Which of the following should affect the value estimate? The neighborhood in which the property is located The current Consumer Price Index {CPI} The amount of the intended loan Credit rating of the person applying for the loan
The neighborhood in which the property is located
35 An owner of a hardware store leased a building for 20 years at a flat rate of rental. After 10 years, the economic rent for the building has increased substantially over the contract rent. Which of the following is true? This would be an economic advantage to the lessor. This would be an economic advantage to the lessee. This would have no effect on either the lessor or the lessee. The lessee will most likely attempt to break the lease.
This would be an economic advantage to the lessee.
46 The things which usually increase the value of residential property, such as, a nice yard, beautiful trees, and pleasant neighbors, are known as tangibles. amenities. emptors. unilaterals.
amenities.
58 Reconciliation is choosing the highest value found by the three approaches to value. analyzing the results obtained by using the three approaches to value in order to determine the final estimate of value of a property. analyzing comparable properties and listing their amenities the same as averaging.
analyzing the results obtained by using the three approaches to value in order to determine the final estimate of value of a property.
10 Assume that the trend in architectural design is toward more contemporary styled homes. Because of this trend, a conservatively designed home will tend to decrease in value. increase in value. stay the same. stay the same and then appreciate.
decrease in value.
84 When a lump sum expenditure is required for overdue repairs, it is usually identified as physical obsolescence. functional obsolescence. deferred maintenance. building residual.
deferred maintenance.
63 The gradual decay or decline in value of property from all causes is called depreciation. accretion. alienation. reliction.
depreciation.
43 In real estate the word 'amenities' refers to changes or revisions in a contract. factors of convenience, location, beauty or utility. an increase of soil on a shore or river bank. crops that require annual planting.
factors of convenience, location, beauty or utility.
28 The most important factor needed to maintain the value of residential property is residents have a substantial income. homes in the area conform in size, age, condition, value and style. ratio of rentals to owner occupied homes be nearly equal. majority of the homes were purchased with low down payments.
homes in the area conform in size, age, condition, value and style.
92 Economic obsolescence should generally be considered to be curable. incurable. an outdated concept. only applicable in residential housing.
incurable.
51 To a real estate appraiser, correlation or reconciliation is comparing comparable properties and listing their features. obtained by using different approaches to value. deciding the highest value based on any method. estimating value by averaging various income approaches.
obtained by using different approaches to value.
75 Physical deterioration refers to eccentric design. changing function. obsolescence. ordinary wear and tear.
ordinary wear and tear.
22 You had a commercial lot which was too small to build on profitably, but you acquire adjoining properties to create a larger holding and to create an overall greater value. This process is plottage. accession. unearned increment. None of the above
plottage.
26 Market value is the price a willing seller will accept and a willing purchaser will pay. cost of lot plus cost of building. cost of lot and the capitalized value of the improvements. determined by an appraiser.
the price a willing seller will accept and a willing purchaser will pay. Market value is the price a willing seller will accept and a willing buyer will pay.
17 If the rezoning of a property results in the sudden increase of its value, this increase would be known as unearned increment. aggregate value. assemblage value. plottage.
unearned increment.
30 Highest and best use is defined as property purchased for owner use and occupancy. use which will yield the highest present value. exclusive residential hill top or "view" lots. property used for churches, schools, and hospitals.
use which will yield the highest present value.
59 The contractual (lease) rental agreement on a property requires the tenant to pay $400 per month with the rent to be adjusted each April 1st according to the cost of living index. The cost of living index when the agreement was made was 122.8. It is time to adjust the rent, and neither the landlord nor tenant agree on what it should be. As you are holding forth as an expert in property value matters, the tenant asks you to compute the proper total rent per month for the coming year based upon the present cost of living index of 125.8. You respond that the proper rent should be __________ . $388.00 $390.46 $409.77 $412.00
"409.77 To solve this problem, divide the present cost of living index with the former cost of living index (125.8 ÷ 122.8 = 1.02442). Then, multiply the resulting number with the former rent amount to determine the new rent amount ($400 × 1.02442 = $409.768 = $409.77)"
33 Which of the following statements is correct? Contract rent is the actual rent received. Economic rent refers to the income shown on the income statement prepared for net income taxes. Economic rent refers only to the market rent for property not used for its highest use. Typically, economic rent lags behind contract rent.
Contract rent is the actual rent received.
14 Which of the following is not a characteristic of value? Utility Scarcity Transferability Cost
Cost
12 Which of the following tends to lower property values? Neighborhood conformity Deed restrictions Transferability Deferred maintenance
Deferred maintenance
5 Which best describes the highest and best use of property? The use that will produce the highest net income. The use that will produce the highest gross income. I only II only Both I and II Neither I nor II
I only
90 Which of the following types of depreciation may be curable? Economic obsolescence Physical deterioration Functional obsolescence I only III only I and II only II and III only
II and III only
97 Which of the following represents obsolescence? A leaking roof A rusted boiler Loss in value due to neighborhood changes 1 only II only III only I, II and III
III only
37 In which of the following situations is it most likely that a single-family home will hold its value? Where that home is located in a neighborhood where: There is a similarity of social-economic status of the owners. There is a mixture of average quality and good quality homes. The number of rented homes is approximately equal to the number of owner-occupied homes. Financing permitting no downpayments is available to home purchasers.
There is a similarity of social-economic status of the owners.
76 The term 'depreciation' refers to costs incurred to modernize a building. the value of real estate after the expiration of its useful life. a loss of value in real estate due to any cause. the capitalized value of rent losses.
a loss of value in real estate due to any cause.
2 A well done appraisal, including consideration of all available data, completed by an appraiser of much experience and good judgment, is best defined as a scientifically determined value. an opinion. legal value. the market value.
an opinion.
62 The term depreciation is best defined as loss in value due to physical wear and tear. physical deterioration. any cause. functional obsolescence.
any cause.
9 A 'real estate appraisal' is an estimate of value based upon replacement costs. based upon analysis of facts as of a specific date. derived from income data covering at least the preceding six months. derived from average tax assessments covering the past five years.
based upon analysis of facts as of a specific date.
34 In a properly developed community, values are upheld by conformity to land use objectives. minimum use of land. blocking freeway access. lack of deed restrictions.
conformity to land use objectives.
20 To realize the maximum value of property, a reasonable degree of sociological and economic homogeneity is necessary, but it should not become monotonously uniform. In real estate, this concept is called the principle of progression. contribution. conformity. correlation.
conformity.
57 Analyzing the separate value estimates obtained by using the three approaches to value in order to determine the final estimate of value of a property is called data reduction. correlation or reconciliation. averaging. simulating.
correlation or reconciliation.
64 Assume that the trend in architectural design is toward more contemporary styled homes. Because of this trend, a conservatively designed home will tend to decrease in value more rapidly than the more contemporary styled home. decrease in value less rapidly than the more contemporary styled home. stay about the same in value as the contemporary styled home. stay about the same in value as the contemporary styled home; and then start appreciating in value.
decrease in value more rapidly than the more contemporary styled home.
71 A decrease in value brought about by deterioration through ordinary wear and tear, action of the elements, or functional or economic obsolescence is called defeasance. accretion. loss. depreciation.
depreciation.
25 If the demand for houses remains constant, whereas the supply of housing increases, the value should increase. remains the same, the value should increase. remains the same, the value should decrease. diminishes, the value should increase.
diminishes, the value should increase.
66 The period of time through which a property gives benefits to its owner is best described as investment duration. physical life. value duration. economic life.
economic life.
68 The useful life of a building, or period of time after which the income provided by it is not sufficient to warrant its maintenance, is called recapture limits. reversion limit. investment duration. economic life.
economic life.
72 The period over which a property may be profitably utilized is called its economic life. amortized life. income life. profit life.
economic life.
73 The time period in which a building produces sufficient income to justify its continued use is customarily called capital investment period. earning period. productive life. economic life.
economic life.
98 The period in which it is profitable to operate a commercial building is an amortization period. a period of depreciation. economic life. a functional life.
economic life.
87 Charlie bought into a new subdivision located near the airport. The airport got federal and state approval to redirect the flight path of incoming planes over the new subdivision. The effect of the change is known as physical obsolescence. nominal obsolescence. functional obsolescence. economic obsolescence.
economic obsolescence.
94 Depreciation is a loss of value from several possible causes. The cause of depreciation most difficult to eliminate is physical deterioration. functional obsolescence. physical depreciation. economic obsolescence.
economic obsolescence.
83 Two of the three principal causes of depreciation are physical and functional. The third is economic life. economic. accrued age. exterior deterioration.
economic.
70 The term 'depreciation' refers to loss in value due to all of the following EXCEPT physical wear and tear. functional obsolescence. economic obsolescence. effective age.
effective age.
95 Economic obsolescence involves all of the following EXCEPT zoning. street layout and access. effects of the elements and the weather. uses on abutting property.
effects of the elements and the weather.
42 Amenities are changes or revisions in a contract. factors of convenience, location, beauty, or utility. properties that have few comparables. properties similar to the subject property.
factors of convenience, location, beauty, or utility.
44 Amenities are changes or revision in a contract. factors of convenience, location, beauty, or utility. payments received in satisfaction of injuries. not considered by appraisers.
factors of convenience, location, beauty, or utility.
45 You are employed to select land to be used for an industrial site. You would be least concerned with location. sub-soil. topography. fertility.
fertility.
11 In a real estate analysis one should be more interested in future economic life of the improvements. chronological age of the improvements. effective age of the improvements. remaining physical life of the improvements.
future economic life of the improvements.
23 The development of a parcel of property to its greatest net income-producing potential reflects the principle of substitution. highest and best use. anticipation. market value.
highest and best use.
4 Smith owns an older home on a corner lot. A professional appraiser advised him that considerably more income could be obtained if the house were torn down and a different improvement placed upon the lot. This illustrates the principle of regression. supply and demand. substitution. highest and best use.
highest and best use.
40 Highest and best use is concerned with all of the following EXCEPT net yield to owner. interest rate on investment loans. relationship to regional development. utility of surrounding area.
interest rate on investment loans.
29 Of those listed below, which expression best defines the 'highest and best use' of land? That use which: is in compliance with zoning and deed restrictions. produces the highest total gross annual income. tends to allow the least degree of physical depreciation. is most likely to produce the greatest net return over a given period of time.
is most likely to produce the greatest net return over a given period of time.
27 The amount of money which would be paid by a buyer to a seller for property; both buyer and seller being ready, willing, and able to act and both being fully informed, represents that property's exchange value. tax value. market value equalized value.
market value
52 An appraiser gives his appraisal as of a given time period. of a specific date. to the economic conditions surrounding the real property at that time. a determination of value.
of a specific date.
61 Deferred maintenance is the amount of depreciation of all kinds which has accrued to a building. maintenance needed to cure functional obsolescence. part of physical deterioration which can be restored by repairs and maintenance. maintenance, which because of tax reasons, has been postponed until the beginning of the next calendar year.
part of physical deterioration which can be restored by repairs and maintenance.
85 Loss of value due to deferred maintenance is called physical depreciation. inherent obsolescence. functional obsolescence. economic depreciation.
physical depreciation.
65 When a property has suffered reduction in value due to dry rot and termite damage, appraisers will refer to such reduction as functional obsolescence. economic obsolescence. residual loss. physical deterioration.
physical deterioration.
7 The addition to total property value produced by an additional property component is considered to have resulted from the highest and best use. principle of substitution. principle of anticipation. principle of contribution.
principle of contribution.
6 Certain economic principles are of considerable importance in the valuation of real estate. The principle that "no prudent man would pay more for a product than that for which he could buy a reasonable duplicate, allowing for no undue 'delay' is known as the principle of balance. principle of competition. principle of conformity. principle of substitution.
principle of substitution.
1 A property at its highest and best use will conform to all land-use regulations. produce the greatest net income over a period of time. perform a socially valuable service to a community. not contain any form of functional obsolescence.
produce the greatest net income over a period of time.
3 As a concept of value, the highest and best use is the use that contributes to the best interest of the community. complies with zoning and deed restrictions. produces the highest gross income. produces the greatest net return on the investment.
produces the greatest net return on the investment.
19 Construction of homes costing $90,000 in an area of homes valued at $40,000 would affect the lesser value homes in accordance with the principle of regression. substitution. progression. conformity.
progression.
31 Demand is one of the elements that help determine value. In order for demand to be effective, it must be implemented by highest and best use. location. purchasing power. amenities.
purchasing power.
32 The income that is ascribable to land under its highest and best use is referred to as contract rent. excess rent. investment rent. purchasing power.
purchasing power.
55 The analysis of alternative conclusions to arrive at a final value estimate is referred to as an addenda. an analysis of data. reconciliation. the market approach.
reconciliation.
18 If a person constructed a high quality home costing $100,000 in a neighborhood where other homes were valued at $50,000, there would be an immediate loss in value. This type of loss in value is called, in appraisal terminology regression. contribution. progression. scarcity.
regression.
24 The value of the best property in the neighborhood will be adversely affected by the presence of comparatively substandard property in the same neighborhood. This is a statement relating to value and is known as the principle of balance. contribution. regression. progression.
regression.
21 If effective demand for real property in an area remains about the same, over time, the market price will tend to rise when supply increases. fall when supply decreases. rise when supply remains the same. rise when supply decreases.
rise when supply decreases.
81 Compared to physical life, economic life is usually longer. shorter. the same. Shorter or longer depending on the type of improvements. "
shorter.
54 Reconciliation is an appraisal term used to describe the appraiser's determination of a property's highest value. an average of real estate values for properties similar to the one being appraised. the appraiser's analysis and comparison of the results of each approach. the method used to determine a property's most appropriate capitalization rate.
the appraiser's analysis and comparison of the results of each approach.
67 Physical deterioration most closely means obsolescence. wear and tear. reversion. recapture.
wear and tear.
86 In connection with depreciation, the word 'deterioration' most nearly means economic obsolescence. functional obsolescence. wear and tear. loss in value from any cause.
wear and tear.