RE6 "Appraisal"
When using the market data approach, an appraiser would make adjustments for? Select one: a. Location. b. Time. c. Financing. d. All of these choices.
The correct answer is: All of these choices. There could be adjustments for all of these choices.
Which of the following appraisal approaches would be considered most reliable when appraising a public library? Select one: a. Market Data b. Capitalization c. Income d. Cost
The correct answer is: Cost The cost approach would be most reliable since there would be little data on comparable sales or net income to use the other approaches. The cost approach is always used for special use properties, such as a library.
Which of the following appraisal approaches would be most appropriate for a public school? Select one: a. Market data. b. Cost. c. Capitalization. d. Gross rent multiplier.
The correct answer is: Cost. The Cost approach is generally used for "special purpose" property, such as a library, school, or fire station.
In which type of appraisal approach is replacement or reproduction cost used to estimate value of property? Select one: a. Market data (Sales comparison). b. Income. c. Cost. d. Gross rent multiplier.
The correct answer is: Cost. When an appraiser is using the COST approach, he or she calculates the costs of building, either by replacement (similar materials and amenities) or reproduction (an exact duplicate) of the subject property.
If an appraiser advises you "...this property suffers from incurable depreciation", what would he or she be describing? Select one: a. Physical obsolescence b. Functional obsolescence c. Economic obsolescence d. Generic obsolescence
The correct answer is: Economic obsolescence Depreciation can be described as anything that reduces the value of property. Physical and functional obsolescence relate directly to the subject property itself. Economic obsolescence is caused by factors outside the property, over which the owner has no control and is therefore incurable. Some forms of physical and functional obsolescence could be considered incurable due to the cost involved to correct the problem. Economic obsolescence is always incurable.
How would an appraiser normally appraise an office building? Select one: a. Abstraction. b. Cost. c. Income. d. Market Data.
The correct answer is: Income. An office building is income producing property and would therefore be appraised by the Income approach. The Cost approach is used for special use property (churches, schools, etc.). The Market Data approach is generally used for residential property.
When appraising new single family homes, the greatest reliance would be placed on which of the following? Select one: a. Market value and replacement cost b. Replacement cost and income c. Highest and best use and market value d. Replacement cost and capitalization
The correct answer is: Market value and replacement cost The market value (what other similar property sold for) determined from the market data approach and the replacement cost from the cost approach would be the most reliable values for determining the final estimate of value for newer homes.
Functional obsolescence might include? Select one: a. A worn carpet. b. No indoor plumbing. c. Noise from a nearby airport. d. None of these choices.
The correct answer is: No indoor plumbing. No indoor plumbing is an example of functional obsolescence.
In the capitalization approach, the appraiser considers all of the following EXCEPT: Select one: a. Price of the property. b. Rate of return on the investment. c. The estimated future income.
The correct answer is: Price of the property. The capitalization approach uses a capitalization rate (cap rate) which reflects both the rate of return ON and the return OF the investment. The estimated future net income of the property is divided by the cap rate to give an estimate of the present value of the property. The price of the property is not a factor.
The final step in the appraisal of an apartment building is: Select one: a. Capitalization. b. Reconciliation. c. Recapitalization. d. Summation.
The correct answer is: Reconciliation. The final step in ANY appraisal report is the reconciliation.
To properly calculate effective gross income on a 16-unit apartment building, the appraiser should allow for: Select one: a. The amount of property taxes b. The amount of income taxes paid c. Principal and interest paid on the mortgage d. Vacancy rate and bad debts
The correct answer is: Vacancy rate and bad debts The effective gross income is the potential gross income less only the vacancy losses and bad debts. All of the other choices are deducted when determining the net income.
If the capitalization rate is 8% and the yearly net income is $100,000, what is the selling price? Select one: a. $800,000 b. $1,250,000 c. $1,800,000 d. $2,000,000
The correct answer is: $1,250,000 $100,000 net income divided by a cap rate of 8% equals a value of $1,250,000.
The property being appraised has 4 bedrooms. The comparables in the area have only 3 bedrooms. Using the Market Data approach, how does the appraiser arrive at an estimate of value for the subject property? Select one: a. Deduct the value of a bedroom from the selling price of the subject property. b. Add the value of a bedroom to the selling price of the comparables. c. Adjust the selling price of the subject property by the difference of the salary of the owners of the properties. d. Deduct the value of a bedroom from the price paid for the property by the current owner.
The correct answer is: Add the value of a bedroom to the selling price of the comparables. Adjustments are ALWAYS made to the selling price of the comparables. In this case the value of a bedroom would be ADDED to the selling price of the comparable. Never make adjustments to the selling price of the subject property.
A poor floor plan in a home would be an example of: Select one: a. Curable physical depreciation. b. Incurable physical depreciation. c. Curable functional obsolescence. d. Incurable functional obsolescence.
The correct answer is: Incurable functional obsolescence. A poor floor plan in a home is functional obsolescence and considered incurable because of the expense involved to correct the situation.
Which of the following best describes the gross rent multiplier? Select one: a. The GRM is also referred to as a "cap" rate. b. It is a factor derived by dividing the sales price of a property by monthly rental income. c. Calculating the GRM is the final step used to estimate value when using the cost approach. d. GRM is used to compute depreciation.
The correct answer is: It is a factor derived by dividing the sales price of a property by monthly rental income. To obtain the GRM you divide the value of the property by the gross monthly rental income. Generally used with residential properties. The GIM (Gross Income Multiplier) is derived by dividing the value of the property by the Gross ANNUAL rental income, generally used with commercial properties.
The actual amount of money paid for a particular parcel of real estate is said to be that property's: Select one: a. Value. b. Price. c. Market value. d. Settlement value.
The correct answer is: Price. The actual amount of money paid for a particular parcel of real estate is said to be that property's price.
The appraiser's final estimate of value is accomplished by: Select one: a. Averaging the values obtained by the approaches used b. Reconciling the approaches used c. Giving the most weight to the market data approach d. Using a weighted factor for labor and materials costs in the area of the country
The correct answer is: Reconciling the approaches used The appraiser must reconcile the estimated values obtained by the various approaches used. This is done to obtain the final estimated value of the property.
A professional appraiser would establish his fee based on: Select one: a. A percentage of the estimated value b. The appraiser's costs and time involved c. Local custom for making appraisals d. Fees allotted by the American Institute of Real Estate Appraisers
The correct answer is: The appraiser's costs and time involved An appraiser bases the appraisal fee on the time and difficulty of the appraisal and the cost to the appraiser for making the appraisal. Appraisal fees are NEVER based on a percentage of the value of the property.
The value of real property is affected by which of the following? Select one: a. Real estate taxes b. The cost of financing c. Government regulations and zoning d. All of the above
The correct answer is: All of the above Real estate taxes, the cost of financing and government regulations and zoning would all affect the value of real property.
Using the reproduction method in the Cost approach to appraisal is NOT a good indication of value for which of the following types of property? Select one: a. A new office building. b. An old residence. c. A public library. d. A new single family residence.
The correct answer is: An old residence. The reproduction method is best utilized in NEW construction or special use property. Using the reproduction method for an older single family residence would reflect a gross over estimation of value. Remember, reproduction method is based on an exact duplication of the property.
Which of the following is charged with the responsibility of estimating value? Select one: a. Lenders. b. Appraisers. c. Buyers. d. Sellers.
The correct answer is: Appraisers. A sellers opinion of value is much different than that of a prospective buyer. The appraiser acts as a neutral party and based on experience and education is the one that estimates value.
Which of the following values is used to establish real property taxes? Select one: a. Insured. b. Appraised. c. Sales price. d. Assessed.
The correct answer is: Assessed. Tax computations are based on the assessed value of the property, which is determined by the city/county tax assessors office.
The appraised value of a quality single-family residence would probably NOT take into consideration which of the following: Select one: a. Projected rental income b. The location of the property c. The floor plan of the house d. The sales price of the house across the street
The correct answer is: Projected rental income The appraiser would place most emphasis on the market data (comparable sales) approach which is based on using the recent selling price of similar properties in the area. More than likely a quality single family residence is not intended to be used as rental income property. Remember the primary determination of value is LOCATION and the SIZE of the house...the number and size of the rooms would also be a factor.
Two real estate developers are working on similar but competing commercial developments. Both projects are finished at approximately the same time. Which of the following would most likely characterize the reasons that one succeeds while the other fails? Select one: a. Supply and demand. b. Situs. c. Plottage value. d. Nonhomogeneity.
The correct answer is: Situs. The most likely explanation is due to the "situs" of the properties. The term "situs" essentially means "location."
The use of a capitalization rate is most suitable for estimating the value of which type of property? Select one: a. A single family home which has been owner-occupied for ten years. b. A building which is being converted to a public art gallery. c. A building leased to a theater chain. d. A cooperative development.
The correct answer is: A building leased to a theater chain. The capitalization rate is used in the Income or Capitalization approach which is used for income-producing or commercial properties and the theater would apply to that classification.
Which of the following is an example of functional obsolescence? Select one: a. A house with a leaking water pipe b. Shutters that needed painting c. A house that is not near an elementary school d. A house without indoor plumbing
The correct answer is: A house without indoor plumbing A house without indoor plumbing would suffer from functional obsolescence. Leaking water pipes or shutters in need of paint would be physical deterioration and a house not near an elementary school would be desired by some families. If anything, this would be economic obsolescence.
Which of the following best describes the principle of "highest and best use"? Select one: a. Value created by and maintained in proportion to the use characterized by the neighborhood b. A property that is utilized in the manner most profitable at the time that the value is estimated c. No material thing remains static, it is the future, not the past, that is of prime importance d. A property attains its highest value when it is homogeneously developed
The correct answer is: A property that is utilized in the manner most profitable at the time that the value is estimated The definition of highest and best use is "a property that is utilized in the manner most profitable at the time that the value is estimated."
When appraising property located on a corner lot, the appraiser would consider all of the following, EXCEPT Select one: a. Comparables. b. Highest and best use. c. Acquisition cost. d. Zoning and deed restrictions.
The correct answer is: Acquisition cost. Acquisition cost is not a reliable value indicator - especially if the property was purchased years ago.
Which of the following statements is/are true? Select one: a. Replacement cost means that the property is replaced by one with similar utility b. Reproduction cost means that the property is replaced by one that is identical to the subject property c. Using the cost approach tends to set the upper limits of value d. All of the above
The correct answer is: All of the above Using the cost approach to appraisal, replacement cost is the cost to build a structure with similar utility and amenities. Reproduction cost is the cost of building an exact replica of the subject property. Any time that the cost approach is used (either replacement or reproduction) the value will be in the upper end of the value scale.
The value of a property, as determined by a competent appraiser, is considered to be which of the following? Select one: a. The actual value b. An estimate of value c. The assessed value d. The market price
The correct answer is: An estimate of value Regardless of how competent the appraiser is, the value established is only an estimate or opinion of value. Granted, it is the estimate established by a professional whose job it is to estimate values using proven professional methods.
Once a property has been appraised, then exposed to the market for a reasonable length of time and finally sells, who has determined the value of the property? Select one: a. Lender. b. Buyer. c. Appraiser. d. Seller.
The correct answer is: Buyer. It is the buyer that sets the value. That which a ready, willing, able and knowledgeable buyer will pay. Think of this as if it were an auction. It is the bidder (buyer) that sets the price.
The period of time over which a property gives benefit to its owner is called: Select one: a. Investment duration b. Value duration c. Physical Life d. Economic Life
The correct answer is: Economic Life The period of time over which a property gives a return to the owner over and above the return due to the land, is the economic life. Economic life is SHORTER than physical life.
The construction of a new highway will divert traffic away from an area and causes a decline in property values. This is an example of which type of depreciation? Select one: a. Functional obsolescence, incurable. b. Physical deterioration, curable. c. Economic obsolescence, curable. d. Economic obsolescence, incurable.
The correct answer is: Economic obsolescence, incurable. Factors outside the property that affect value are considered to be economic obsolescence. Economic obsolescence is always incurable because the owner has no control over the matter.
Utilization of a property in the manner most profitable to the owner at the time the value is estimated is called: Select one: a. Economic life b. Highest and best use c. Principle of conformity d. Reconciliation process
The correct answer is: Highest and best use When property is used so as to give the greatest return to the owner, it is used at its highest and best use.
Which of the following is usually contained in an appraisal report? Select one: a. Original cost of the property. b. Recommended listing price. c. Highest and best use of the property. d. Best financing for the property.
The correct answer is: Highest and best use of the property. The highest and best use of a property will usually be included in the appraisal report. Highest and best use is based on zoning requirements, conformity, feasibility, etc.
Which of the following is NOT an economic characteristic of land? Select one: a. Scarcity. b. Immobility. c. Ability to be improved. d. Situs (location).
The correct answer is: Immobility. Immobility is a physical characteristic of land, not an economic characteristic. Land does not move.
The principle of substitution is most centrally used in appraisal: Select one: a. In the Income approach b. When the shape of the lot is irregular c. In the Cost approach d. In the Market Data approach
The correct answer is: In the Market Data approach Substitution is the "core" basis of the market data approach to appraisal...also called Sales Comparison approach.
The cost of utilities, the expense of professional management and the cost to replace worn out appliances and furniture are used in which appraisal approach? Select one: a. Market data b. Comparables c. Income d. Cost
The correct answer is: Income The question is describing income producing property and these would be considered operating expenses. Expenses are used to arrive at the NET INCOME of a property. The net income, divided by the capitalization rate gives the estimated value of the property using the Income Approach.
Basing present value on future income is the basis of which approach to appraisal? Select one: a. Cost approach. b. Income approach. c. Market data approach. d. Replacement Approach.
The correct answer is: Income approach. This is a good definition of the income or capitalization approach.
The three (3) approaches used in the appraisal of real property are: Select one: a. Replacement; market data; cost b. Income; cost; market data c. Capitalization; replacement; cost d. Reproduction; market data; income
The correct answer is: Income; cost; market data The three (3) approaches used by an appraiser to estimate the value of real property are the income or capitalization approach, the cost approach (using either replacement or reproduction costs) and the comparable sales or market data approach.
A seller listed property for sale. There were a limited number of houses available in the area. There were also a great number of buyers interested in purchasing homes in that area. What would MOST LIKELY happen to the value of the seller's property? Select one: a. It would increase in value b. It would decrease in value c. The value would stay the same but the property would sell faster d. There is not enough information given to determine a value change
The correct answer is: It would increase in value (A) With lots of buyers and very few properties available, the demand for existing houses would be great therefore driving up values. (B) The value would increase, not decrease in a seller's market. (C) The property would probably sell faster but also increase in value. (D) Don't ever pick not enough information given.
Which of the following factors would have the LEAST effect on an appraisal? Select one: a. The real estate market, in general. b. Income to be derived from the property. c. Location of the property. d. Livelihood of the prospective buyer.
The correct answer is: Livelihood of the prospective buyer. The livelihood (the means how a person makes a living) would have the least effect on the appraisal. What the buyer does has absolutely no bearing on value. The location of the property, in all approaches, would have considerable effect on the appraisal.
The most important factor influencing the value of real estate is? Select one: a. Availability of loan money. b. Condition of the property. c. Reputation of the builder. d. Location of the property.
The correct answer is: Location of the property. The location of the property is usually the most important factor in determining the value of the property.
Which of the following describes market value? Select one: a. Assessed valuation b. Listing price c. Reproduction cost less depreciation d. Most probable selling price
The correct answer is: Most probable selling price Market value is the price that an informed buyer would pay to an informed seller if the property had been exposed to the market for a reasonable time and neither was under abnormal pressure to buy or sell.
The part of the appraisal report that addresses issues of zoning, schools, and shopping is called the: Select one: a. Competitive (Comparative) market analysis b. Capitalization analysis c. Useful life analysis d. Neighborhood analysis
The correct answer is: Neighborhood analysis All of the items mentioned in the stem of the question would be included in the appraiser's neighborhood analysis.
Recognizing that property has experienced growth, stability and decline would be included in which part of an appraisal? Select one: a. Site analysis b. Neighborhood analysis c. Highest and best use narrative d. Gross rent multiplier computation
The correct answer is: Neighborhood analysis The fact that property has undergone the economic changes of growth, stability and decline would be included in the neighborhood analysis included in the appraisal report.
To find the value of real property using the Income approach, which of the following would be divided by the capitalization rate? Select one: a. Gross income b. Effective gross income c. Net income d. None of the above
The correct answer is: Net income To find the value of the property, the appraiser would divide the NET INCOME by the capitalization rate.
Which of the following is incurable depreciation? Select one: a. A kitchen with outdated appliances. b. A poorly designed floor plan. c. Noxious odors from a nearby chemical plant. d. A leaking roof.
The correct answer is: Noxious odors from a nearby chemical plant.
In determining total square footage of a dwelling, the appraiser would consider: Select one: a. Outside dimensions. b. Inside dimensions. c. Price per square foot. d. Basement dimensions.
The correct answer is: Outside dimensions. When you see an ad or notice that the house is 3,500 sq. ft., the reference is based on outside dimensions.
A building badly in need of cleaning, painting and minor repairs is an example of: Select one: a. Physical deterioration - curable. b. Physical deterioration - incurable. c. Functional obsolescence - curable. d. Functional obsolescence - incurable.
The correct answer is: Physical deterioration - curable. The condition of the property described in the stem of the question is physical deterioration and would be considered as curable.
Finding a property is in need of a really good paint job, an appraiser would say that the property suffers from: Select one: a. Neglect. b. Economic obsolescence. c. Functional obsolescence. d. Physical deterioration.
The correct answer is: Physical deterioration. Neglect, yes, but the need for painting would be classified as deferred maintenance which is a form of physical deterioration.
A developer buys a parcel of land that adjoins his property. As a result, the land appreciates in value because the development will be more cost effective. The increased value of the property is referred to as the: Select one: a. Plottage increment. b. Contingent increment. c. Functional increment. d. Economic increment.
The correct answer is: Plottage increment. Plottage increment is the incremental increase in the value of land by assembling two or more parcels into one parcel.
Sophie and William build a home at a cost of $250,000 in a neighborhood where the other properties are valued in the $125,000 price range. Their home will tend to decrease in value and the others tend to increase in value. This is an example of the appraisal principle of: Select one: a. Plottage and assemblage b. Progression and regression c. Increasing and diminishing returns d. Supply and demand
The correct answer is: Progression and regression This situation is an application of the theory of progression and regression. Increasing and diminishing returns applies when the owner makes improvements to the property that cost more than the value that is added to the property.
When a salesperson or broker does a Comparative Market Analysis (CMA), he or she could be doing any of the following, EXCEPT: Select one: a. Helping a seller set a reasonable price b. Providing an appraisal of value c. Obtaining information about the price of similar properties d. Assisting a potential buyer to locate a suitable property
The correct answer is: Providing an appraisal of value A CMA is NOT an appraisal. An appraisal is a statement of value, made by a licensed appraiser usually for the purpose of supporting a loan for real property. Salespersons and brokers are not qualified to give an appraisal.
If an appraiser uses the Cost approach when appraising a property, she or he will consider: Select one: a. Replacement cost b. Estimated monthly rent c. Market data d. Income
The correct answer is: Replacement cost In the Cost approach, the appraiser will either consider the replacement cost (replacement with equal usefulness and amenities) or reproduction cost (to create an exact duplicate of the subject property). Answers B and D would be used in the Income or Capitalization approach and C is the Market Data approach.
An appraiser would use which of the following information if she or he was appraising a house built in 1935? Select one: a. Consumer Price Index for 1935 with annual adjustments b. Current construction costs adjusted by the CPI index c. Replacement or reproduction cost d. Actual cost of construction in 1935
The correct answer is: Replacement or reproduction cost Normally, the appraiser would use the Market Data approach and estimate value based on sales of other comparable housing. Market Data is not a choice here and of the choices given only replacement or reproduction cost would be appropriate. 1935 figures have little relevance today.
Which would NOT be used in the capitalization approach? Select one: a. Gross income b. Operating expenses c. Reproduction cost d. Allowance for vacancy
The correct answer is: Reproduction cost (C) Reproduction cost is used in the cost approach, not the capitalization approach. (A) Gross income, (B) operating expenses and (D) allowance for vacancy are all used in the capitalization approach.
An appraiser is preparing an appraisal. Included in the appraisal report are several statistical charts detailing the traffic count. For which type of property is this type of information most important? Select one: a. Offices. b. Apartments. c. Retail stores. d. Industrial warehouses.
The correct answer is: Retail stores. Retail stores would be interested in the amount of traffic that passes by their location.
A person is offered $100,000 for his condominium. Other condos with similar amenities and utilities are selling for $100,000. This is an example of: Select one: a. Competition b. Change c. Contribution d. Substitution
The correct answer is: Substitution The principle of substitution indicates that the value of a replaceable property tends to be indicated by the value of equally desirable substitute properties.
The Market Data approach is based on which of the following appraisal principles? Select one: a. Substitution b. Competition c. Anticipation d. Conformity
The correct answer is: Substitution When using the Market Data approach, the appraiser looks at other similar properties and substitutes (on paper) the differences between the comparable and the subject property.
A buyer looked at four similar houses for sale in the same neighborhood. The buyer purchased the house with the lowest asking price. The buyer's decision is an example of which appraisal principle? Select one: a. Highest and best use. b. Contribution. c. Supply and demand. d. Substitution.
The correct answer is: Substitution. The principle of substitution states that the value of property tends to be indicated by the value of an equally desirable property. If the properties were equally desirable, the buyer would select the one with the lowest price.
A builder sold the first house in a new subdivision for $132,500 and sold the last house, which was the same model as the first one sold, for $165,000. This is an example of what principle of appraisal? Select one: a. Diminishing returns. b. Progression and regression. c. Caveat emptor. d. Supply and demand.
The correct answer is: Supply and demand. This is the basic ECONOMIC principle of supply and demand and is a principle of appraisal. As the supply decreases, the prices go up.
Which of the following is an example of economic obsolescence in a 6-unit apartment building? Select one: a. Outdated plumbing fixtures b. Leaking roof c. The building is located on a one-way street d. Lack of on-premises parking facilities for tenants
The correct answer is: The building is located on a one-way street Lack of parking and outdated fixtures are examples of functional obsolescence. A leaking roof is a form of physical deterioration. The one-way street is outside the property and is considered to be economic obsolescence.
When an appraiser is using the Market Data approach on a residential property, the appraiser would be LEAST likely to use which of the following? Select one: a. The type of financing used to sell other homes in the neighborhood b. The dates on which other homes in the neighborhood sold c. The cost of nails, shingles, floor joists and paint on the subject property d. The size, shape and topography of the lot of the subject property
The correct answer is: The cost of nails, shingles, floor joists and paint on the subject property The appraiser would be least likely to use the cost of nails, shingles, etc. These items would be used in the cost approach, NOT the market data approach.
Which of the following is used to estimate value using a comparison between gross monthly rents and the selling price? Select one: a. Monthly rental rates b. The gross rent multiplier c. The date of tax increases d. Profits
The correct answer is: The gross rent multiplier If you compare the selling price of a property with the gross rental income, you develop a factor called the gross rent multiplier. By applying that same factor to the gross rent of another property, you arrive at a "crude" estimate of value for the second property. It is a very simple method to estimate value, but it is also highly inaccurate.
Which of the following is true regarding the useful life of a property? Select one: a. The physical life of a property can NOT be extended by superior maintenance b. The physical life is generally greater than the economic life c. The economic life is generally greater than the physical life d. The physical life is equal to the number of years the property is economically viable
The correct answer is: The physical life is generally greater than the economic life A property will usually survive "physically" longer than it will be able to function "economically" since styles change. Superior maintenance will keep a property physically sound much longer than a property which is not kept up (A). The economic life is generally LESS than the physical life (C). It is the "economic" life (not the physical) (D) that is equal to the number of years a property will be economically viable.
The capitalization approach to value used by appraisers is: Select one: a. A future income statement b. The present value based on present and future income c. The actual cost of the property d. The same as GRM (gross rent multiplier)
The correct answer is: The present value based on present and future income The capitalization or income approach is an estimate of the present and the future income that the property is likely to produce.
Value is best described as? Select one: a. The price paid by the owner for the property. b. The present worth of future benefits. c. The assessed valuation. d. Whatever the market will bear.
The correct answer is: The present worth of future benefits. Of the given choices, the statement "the present value of future benefits" best describes value.
The appraiser should NOT consider which of the following in making his or her appraisal? Select one: a. The presence or lack of curbs, gutters and sidewalks. b. The prevailing winds in the area. c. The elevation of the lot. d. The racial make-up of the neighborhood.
The correct answer is: The racial make-up of the neighborhood. The physical characteristics of the area and the property would be considerations when making the appraisal, but never the racial composition of the area. Including this type of information would be a violation of Fair Housing Laws.
When the appraiser prepares a site analysis, which of the following is INCORRECT? Select one: a. Topographic factors are important for farm valuation. b. Commercial properties are influenced by corner location more than residential properties. c. The wider the lot, the greater the value of the lot. d. The cost and availability of utilities are a part of site analysis.
The correct answer is: The wider the lot, the greater the value of the lot. Topographic factors are important for agricultural land. Commercial properties are influenced by corner lots since these locations offer greater visibility. The availability of utilities is always an important factor in a site analysis. The width of a lot might be a factor for retail properties, but the question was not limited to retail properties.
The Market Data Approach to value is normally used in estimating the value of: Select one: a. An oil refinery b. A hotel c. A gas station d. Vacant land
The correct answer is: Vacant land Market Data (Sales Comparison) would be used to estimate the value of vacant land...the others would probably use the Income or Cost approach.
Physical depreciation most commonly refers to: Select one: a. Obsolescence b. Wear and tear c. Outmoded design d. Property over 15 years old
The correct answer is: Wear and tear Physical depreciation (deterioration) means "wear and tear" or physical damage to the property through use. Obsolescence either functional or economic, refers to other types of depreciation.
A large city lost a big industry to another city. Large job losses were incurred as a result of losing the big industry. House prices in the area would most likely: Select one: a. be increased b. be decreased c. have no change d. be impossible to determine given the information
The correct answer is: be decreased People go where jobs go. A loss in jobs would lead to a decrease in the demand for housing which would lead to a decrease in value as well (B). (A) says just the opposite, (C) is incorrect as the change would be a decrease and (D) is also incorrect as job loss does have an effect on housing prices.
Normal wear and tear on a property would be considered: Select one: a. functional obsolescence b. economic obsolescence c. physical deterioration d. external obsolescence
The correct answer is: physical deterioration (C) Normal wear and tear would be physical deterioration, which is normally caused by deferred maintenance. (A) Functional obsolescence is when a property does not function the way modern properties do, such as a home with an outhouse. (B) Economic obsolescence and (D) external obsolescence mean the same thing - a property has problems that are outside the property lines, such as a home next door to a factory.
An owner, in anticipation of selling his home, has central air conditioning installed. How would you determine the value of the property after the installation was complete? Select one: a. By comparing it to other houses in the area that have central air b. By adding the cost of the installation to the unimproved value c. By determining additional rental income derived from the improvement d. By adding the cost of installation to the depreciated value of the property
The correct answer is: By comparing it to other houses in the area that have central air Because this is residential property, the appraiser will use the market data approach or sales data to compare the subject property to other houses in the area that have central air conditioning.
The best approach for appraising a 20-year old residence is: Select one: a. Amortization b. Capitalization c. Cost approach d. Comparable sales
The correct answer is: Comparable sales The best approach for appraising a 20-year old residence would be the comparable sales (market data) approach in which recent sales of property, similar to the property being appraised, are compared.
An owner builds a beautiful brick colonial house on a lot located in a neighborhood of only very contemporary, single level, mostly glass homes. The owner puts his newly constructed house on the market and is unable to sell it. This is an example of the appraisal principle of: Select one: a. Highest and best use b. Progression and regression c. Conformity d. Substitution
The correct answer is: Conformity Conformity states that if all houses in an area are alike the values will be somewhat similar. Regardless of how beautiful or costly the house is people do not like to be different.
In which appraisal approach is a separate value established for the land? Select one: a. Market Data b. Gross rent multiplier c. Income d. Cost
The correct answer is: Cost In the Cost approach, the appraiser accumulates all the costs associated with the improvements, deducts for depreciation and then adds the value of the land. Remember the value of the land is NEVER depreciated.
What does an appraiser do FIRST, when given an assignment to appraise real property? Select one: a. Prepares the reconciliation b. Does a correlation study c. Inspects the property d. Defines the problem
The correct answer is: Defines the problem Defining the problem (determining the purpose of the appraisal) is the first step in any appraisal process. The next step could be inspection of the property and the neighborhood analysis. The last steps are the correlation and the reconciliation.
A home that has severely peeling paint would be an example of which of the following? Select one: a. Correlation b. Obsolescence c. Depreciation d. Capitalization
The correct answer is: Depreciation Peeling paint is an example of physical deterioration because of deferred maintenance.
A home located in an area where there are factories with much smoke and dust experiences: Select one: a. Physical deterioration b. Economic obsolescence c. Locational obsolescence d. Functional obsolescence
The correct answer is: Economic obsolescence Smoke and dust are factors outside the property itself. Any factors OUTSIDE the property are considered to be economic obsolescence....sometimes called external obsolescence.
An appraiser, compiling a neighborhood analysis, would NOT include information about which of the following: Select one: a. Price range of similar housing b. Traffic patterns c. Ethnic characteristics of the residents d. Conformity in the style of housing
The correct answer is: Ethnic characteristics of the residents Price ranges of similar housing, traffic patterns and conformity of housing are all important to an appraiser and all would be included in the neighborhood analysis. If the ethnic characteristics were included, the appraiser would be held in violation of Fair Housing laws. The ethnic characteristics of the area are not a factor in estimating value.
Three similar houses in the same subdivision are placed on the market at the same time. According to the law of supply and demand, which house will sell for the least amount of money assuming demand remains constant. Select one: a. First. b. Second. c. Third. d. All would sell for the same price.
The correct answer is: First. The law of supply and demand implies that while the supply is high, prices will be lower, so the first house to sell will be the lowest. The third house to sell, because the supply is low, will bring the highest price, even though the houses are similar.
Outdated bathroom fixtures are an example of: Select one: a. Physical obsolescence - curable b. Physical obsolescence - incurable c. Functional obsolescence - curable d. Functional obsolescence - incurable
The correct answer is: Functional obsolescence - curable Outdated fixtures are a form of functional obsolescence - curable.
Which of the following statements is a true statement? Select one: a. Physical life is generally longer than economic life. b. Physical life is generally shorter than economic life. c. Physical and economic life are generally the same. d. It is impossible to tell.
The correct answer is: Physical life is generally longer than economic life. The physical life of a building is generally longer than its economic life. Think of the little shop located in what was once the business center of town. When a new shopping center is built, the customers go to the new center. The structure of the little shop may still be very good, but it has no business. The economic life has passed.
There is a geometric theorem that states "the whole is equal to the sum of its parts." In real estate there is a theorem that states, "the whole can be GREATER than the sum of its parts." This is an example of the principle of: Select one: a. Plottage b. Depreciation c. Accretion d. Progression
The correct answer is: Plottage In the principle of plottage, when 2 or more properties are merged (assembled) together, generally, the resulting value will be greater than the sum of the values of each property individually.
When appraising an office building using the capitalization approach, all of the following would be considered EXCEPT: Select one: a. Operating expenses. b. Reproduction cost. c. Vacancy allowance. d. Estimated gross income.
The correct answer is: Reproduction cost. The reproduction cost (cost to build an exact replica of the subject property) would be used in the cost approach, NOT the capitalization approach (income approach).
The cost approach method of appraisal is most appropriate for? Select one: a. Older homes. b. Single-family detached houses. c. Multi-family structures. d. Special use property.
The correct answer is: Special use property. Special use properties are most often appraised by the cost approach.
Which of the following principles of value would a real estate salesperson consider first when doing a CMA (competitive market analysis)? Select one: a. The principle of conformity. b. The principle of contribution. c. The principle of substitution. d. The principle of highest and best use.
The correct answer is: The principle of conformity. An appraiser might look to highest and best use first, but a real estate salesperson would notice and look at how the subject property conforms with other property in the neighborhood.
When determining effective gross income, an appraiser subtracts which of the following from gross income? Select one: a. Vacancy rates and bad debts. b. Management costs. c. Maintenance, utilities and taxes. d. All of these choices.
The correct answer is: Vacancy rates and bad debts. Potential gross income less vacancy losses (including bad debts) results in the effective gross income.
An appraiser would most likely use the capitalization approach for? Select one: a. An owner occupied dwelling. b. A public library. c. A restaurant that is currently rented. d. Vacant land.
The correct answer is: A restaurant that is currently rented. A restaurant that is currently rented is an income property which would mean that the appraiser would most likely use the capitalization (income) approach to appraisal.
