UNIT 6: PROPERTY VALUATION UNIT QUIZ

Gladys is a widow who has been working hard to maintain her home as well as she can, but there's only so much she's able to do. It's just too much house for her and she's ready to move to a condo. As she prepares her home to sell, all of these could be considered curable physical deterioration except the A. basement wall starting to cave in B. carpet is stained and ripped. C. driveway pavement is cracked. D. paint on the siding is peeling.

A. All of these are curable deterioration except the problem with the foundation. The structure of the home itself should be intact for its entire useful life. It might be repairable, but the expense would be greater than the return.

The term "amenities," in reference to real property valuation, refers to the A. features, both tangible and intangible, that enhance the desirability of real estate. B. increase in the value of property, either due to a positive improvement of the area or elimination of negative factors. C. valuation placed on real property that is the basis for the amount of tax levied. D. value of real property, established for purposes of computing taxes.

A. Amenities, including a historically desirable location, preferred floor plan, or anything with value to a buyer, enhance the desirability of the real estate.

Which term is the process of joining several parcels of land into one larger parcel? A. assemblage B. plottage C. site D. situs

A. Assemblage is the joining of several parcels of land. Plottage is when the property is joined to increase value.

What is assessment value? A. The value the property taxes are based on B. The price the property actually sold for C. The theoretical price a property can bring D. The replacement cost of the property

A. Assessment deals with the value property taxes are based on.

Something is guaranteed to have value if A. effective demand, utility, scarcity, and transferability exist for the item. B. a huge advertising budget is created to market it. C. it is necessary to sustain life. D. physical, economic, social, and governmental factors influence it.

A. Demand, utility, scarcity, and value (think D U S T) are the features of value.

Which would most likely NOT be considered functional obsolescence? A. home with crumbling roof B. home with low ceilings C. home with steep, narrow stairs D. geodesic dome home in neighborhood of ranches

A. Functional obsolescence is a problem with the design of the structure itself. A roof can be replaced relatively easily; it's an example of physical deterioration.

Which of these would be considered functional obsolescence? A. a bedroom through bedroom floor plan B. a home fronting on a busy four-lane highway C. a home with broken furnace D. a home with severe structural damage to the foundation

A. Functional obsolescence is when a building is less desirable because of something inherent in the design of the structure.

Adding or subtracting to a comparable to develop an opinion of value is called A. an adjustment. B. capitalization. C. ranking. D. reconciliation.

A. It is often difficult to find properties that are the same as the subject property in all respects. Therefore, the sales comparison method provides a method of adjusting properties so that meaningful comparisons can be performed between the comparables and the subject property.

Which of these properties do you think is the best example of a piece of real estate being put to its highest and best use? A. a gas station near the off ramp of a busy highway B. an farm house in the middle of an industrial park C. a strip mall on a retail corridor with multiple vacancies D. a triple-decker parking garage in an area with plenty of free on-street parking

A. Of these, the gas station represents the best example of highest and best use. The other properties would most likely be able to put to a more lucrative use.

Which element should be considered part of the gross living area? A. a bedroom's walk-in closet B. a finished basement C. a garage D. an unheated sun porch

A. The American National Standards Institute guidelines include only heated, finished living areas above grade in the square footage for the gross living area.

Appraiser Julia is estimating the value of a small office building. Which method of income approach would she be most likely to use? A. capitalization rate B. gross rent multiplier C. Either would appropriate. D. Neither would be appropriate.

A. The capitalization rate is used for commercial property and some residential rental property.

Lori is tasked with deriving the value for a unique geodesic dome home in a resort community of A-frame cabins. Which approach could be considered the most reliable for valuation? A. cost approach B. income approach C. sales comparison approach D. All are equally reliable.

A. The cost approach is an objective method to provide an accurate value for replacing or reproducing buildings, especially new or or unique buildings with few comparable sales.

An appraiser used various cost manuals and regional multipliers, as well as her own experience, to determine that it would cost $72 per square foot to replace the subject property. At 1,775 square feet, she determines it would cost $127,800 to rebuild the house. To find the value of the subject property, she must also factor in A. depreciation and land value. B. depreciation and inflation. C. inflation and labor costs. D. labor costs and land value.

A. The cost approach must also take into account the accrued depreciation as well as the value of land.

When looking at highest and best use, what is the primary consideration that the appraiser must take into account? A. What is the ideal building for the land if it were vacant? B. What is the most radical zoning change that the owner could try to get for the property? C. What is the best way to ensure value without tearing down the existing structures if at all possible? D. What is the best way to move the existing building to a new site?

A. The first step that an appraiser does when determining highest and best use is to estimate the value of land as if it were vacant and available for any permitted use.

Lot A is 350' x 200' and Lot B is 200' x 350'. Commercial lots on this street are selling for $500 per front foot. Which lot will sell for more? A. Lot A B. Lot B C. They'll sell for the same amount. D. Need more information.

A. The frontage is indicated by the first number. The lot with the greater frontage will sell for more, even though the lots are the same exact size, since that lot provides more exposure to the street.

A nice, well-kept house located in the heart of an all residential area, surrounded by other well-kept houses of similar style and value is an example of A. conformity. B. contribution. C. regression. D. substitution.

A. The principle of conformity says that a particular property achieves its maximum value when it's surrounded by properties that are similar in style and function. This actually goes for neighborhoods as well. Neighborhoods are more desirable when there's a general similarity in utility and value for all properties.

Comp #2 has four bedrooms; the subject property has five bedrooms. Through matched pair analysis, the appraiser has determined that a bedroom in that neighborhood is worth $6,000. What is the appropriate way to apply this information when performing the sales comparison approach to valuation? A. add $6,000 to Comp #2 value. B. subtract $6,000 from Comp #2 value. C. add $6,000 to the subject base. D. subtract $6,000 from the subject base.

A. When making adjustments such as this, you add the value of an extra feature to the comp's value.

An "arm's-length transaction" means that the transaction occurred A. between a buyer and a seller who have a close family relationship. B. under typical conditions where each of the parties were acting in their own best interests. C. when the buyer purchased the property sight-unseen. D. only after the seller made concessions for closing costs.

B. An arm's-length transaction is a typical transaction, for example, where the buyer and seller aren't related, are not acting under duress, granted for unusual payment concessions.

An increase in the value of property, either due to positive improvements in the area or elimination of negative factors, is called A. appraisal. B. appreciation. C. appurtenance. D. assignment.

B. Appreciation refers to an increase in the value of property (either due to positive improvements in the area, or elimination of negative factors).

Which would be considered external obsolescence? A. a bedroom through bedroom floor plan B. a home fronting on a busy four-lane highway C. a home with broken furnace D. a home with severe structural damage to the foundation

B. External obsolescence is when something outside the control of a property, in this case a highway, makes it less desirable and therefore decreases its value.

Harvey owns a large home in a nice neighborhood. His house, impeccably maintained, is at the upper limit of its value. After he retired, Harvey spent $28,000 building a new deck and greenhouse on the back of his property. Although he enjoyed the new features, they did not add anything to the value of his home. This is an example of the principle of A. conformity. B. contribution. C. regression. D. substitution.

B. In this case, the deck and greenhouse didn't add any value, so this is an example of the principle of contribution, which states that a specific feature added to a home is only worth what it actually contributes in value to a piece of property.

Market price is A. equal to market value. B. the amount, in dollars, actually paid for the property. C. the amount, in dollars, asked for by the seller. D. the amount, in dollars, that a property should bring on the open market.

B. Market price is what the property actually sold for, and it is highly likely this is different from the asking price (the price the seller asked for the property when it was first put on the market) or the offering price (the price the buyer first proposed to buy the property for).

The "subject property" best describes A. the property compared to the base B. the property for which the value is sought C. the property surrounding the base D. the property currently on the market

B. The appraiser does not consider properties on the market. The subject is the property for which an opinion of value is sought, also called the base.

For which property would you expect the cost approach method to be least useful? A. a new home in a relatively new subdivision B. an older home in a neighborhood with high turnover C. a school building D. a home with many unique features

B. The cost approach is best for properties that have little relevant market data. The sales comparison approach would probably be more useful for a home in an older neighborhood with high turnover than the cost approach.

The severe structural damage to a home's basement and foundation would cost $80,000 to repair, but would add only $20,000 to the value of the property. This would most likely be considered A. curable physical deterioration. B. incurable physical deterioration. C. curable functional obsolescence. D. incurable external obsolescence.

B. The cost to repair severe structural damage is not likely to be reflected in the property's value.

Using appraiser Jason's notations, determine the final estimate of value using the cost approach: Replacement Cost=$527,000; Deterioration=$116,000; Site value=$72,000 A. $411,000 B. $483,000 C. $571,000 D. 715,000

B. The formula for determining value using the cost approach is Reproduction/Replacement Cost - Accrued Depreciation + Site Value = Property Value.

An appraiser used the cost approach to determine a value of the subject property. Using his notes, determine the final estimate of value: Replacement Cost: $245,500; Deterioration: $9,750, Site value: $34,250 A. $201,500 B. $270,000 C. $288,700 D. $289,500

B. The formula for determining value using the cost approach is Reproduction/Replacement Cost - Accrued Depreciation + Site Value = Property Value.

A strip mall has a net operating income of $84,000. The capitalization rate in the area for similar properties is 12%. What is the value of the property? A. $184,800 B. $700,000 C. $940,800 D. $1,008,000

B. The formula for determining value using these figures is this: Income ($84,000) / Rate (12%) = Value ($700,000).

For which property would the gross rent multiplier method be appropriate? A. a single family home that is owner occupied B. a duplex C. a retail complex with three units D. an apartment building with five units

B. The gross rent multiplier method can be used only for residential rental property of one to four units. Only the duplex meets this criteria.

The value of an improvement is equal to A. the amount the owner adds to the selling price of the home when the improvement is made. B. what it actually contributes in value to that piece of real estate. C. only what the owner spent on the materials necessary to make the improvement. D. what it actually cost to make the improvement in both materials and labor.

B. The principle of contribution says that a particular item or feature of a property is only worth what it actually contributes in value to that piece of real estate.

The principle of substitution says that an informed buyer would pay ________ for the property than what the buyer would pay to obtain a similar one with the same benefits and utility. A. less B. no more C. more D. considerably less

B. The principle of substitution says that an informed buyer would pay no more for the property than what the buyer would pay to obtain a similar one with the same benefits and utility.

For which situation would the sales comparison approach be best? A. a commercial building in a residential neighborhood B. a condo in a complex with high turnover C. a recently constructed building with custom features D. a unique, octagon-shaped home in neighborhood of split levels

B. The sales comparison approach is not suitable for special purpose properties and other unusual or unique properties for which there are not recent sales data to analyze.

Adjusting properties involves A. changing the base to make it more like the comps. B. changing the comps to make them more like the base. C. always using comps that are exactly like the base. D. finding comps that sold for the same price.

B. The subject property is your base and each comparable is then compared to the subject. The subject never changes.

Comp #2 has a deck; the subject property does not have a deck. Through matched pair analysis, the appraiser has determined that a deck in that neighborhood is worth $3,000. What is the appropriate way to apply this information when performing the sales comparison approach to valuation? A. add $3,000 to Comp #2 value B. subtract $3,000 from Comp #2 value C. add $3,000 to the subject base D. subtract $3,000 from the subject base

B. When making adjustments, you subtract the value of an additional feature from the comp's value.

Amy is appraising a four-unit apartment building for a potential buyer. She determines that the building's four units should bring in $38,400 in annual rent. She also determined, based on evaluating similar properties in the area, that the GRM for the building should be about 108. What is Amy's estimate of value? A. $288,000 B. $345,600 C. $376,700 D. $460,800

B. You need to divide the total annual rent by 12 to find the monthly gross rent, then multiply by GRM: ($38,400 / 12) x 108 = $345,600

A new company has just opened in an area. There are not too many properties for sale yet, and no new construction taking place. Many people are moving into the area to take these new jobs. What type of market has been created? A. balanced market B. buyer's market C. seller's market D. trader's market

C. A seller's market occurs when the demand for houses is greater than the number of available houses. A buyer's market occurs when there are more houses than buyers.

It would be unethical for an appraiser to A. appraise a property in which she has a disclosed interest. B. ask for payment in advance. C. base her payment on a percentage of the appraised value. D. refuse to make a commercial appraisal because she has only residential experience.

C. According to USPAP, the standard of ethics and performance for appraisers, an appraiser must never base the cost of the appraisal on the derived value of the property.

An appraisal is valid only on its effective date because of the A. cost savings for the client—a higher price could buy an effective date range. B. principle of Appraiser Income Maximization. C. principle of change. D. simplicity report model being used by the appraiser.

C. Change constantly happens, influencing value. As such, an appraisal is valid only on its effective date.

Which is NOT an accepted appraisal approach? A. cost approach B. income approach C. highest and best use approach D. sales comparison approach

C. Determining the highest and best use is something that may be considered in every appraisal approach; it is not a recognized appraisal approach in and of itself.

The house has a storm cellar accessible only from a door and steps in the back yard. This might best be considered an example of A. an amenity. B. eminent domain. C. functional obsolescence. D. physical depreciation.

C. Functional obsolescence occurs when a building is less desirable because of something inherent in the design of the structure.

Market value can best be defined as a property's A. appraised value for property tax purposes. B. listing price. C. most probable selling price. D. most recent selling price.

C. Market value is the theoretical price that a piece of real estate is most likely to bring in a typical transaction.

Which of the following would NOT be depreciated? A. an abandoned building B. a residential property used as a rental C. unimproved land D. a 2700 sq. ft. commercial building

C. Only improvements are depreciated, not land.

A duplex recently sold for $200,000. It brings in monthly rental income of $900 per unit. The expenses for this property run $8,000 per year. What is the GRM for this duplex? A. 88.89 B. 106.67 C. 111.11 D. 222.22

C. The GRM does not take expenses into consideration.

A commercial property has a first year gross operating income of $64,000 and expenses of $12,000. If the capitalization rate for similar properties in the same area is 8%, what is the estimate of value? A. $416,000 B. $533,333 C. $650,000 D. $768,000

C. The formula for determining value using these figures is this: Net Operating Income ($64,000 - $12,000 = $52,000) ÷ Rate (8%) = Value ($650,000). Remember IRV.

Appraiser Jack has been contracted to determine the value of a large apartment building for a potential investor. Which appraisal method is probably the most useful for this situation? A. competitive market analysis B. cost approach C. income approach D. sales comparison approach

C. The income approach is a valuable appraisal method when determining the value of investment property.

Which appraisal approach is LEAST useful for a special purpose property? A. cost approach B. income approach C. sales comparison approach D. All are equally reliable.

C. The sales comparison approach is not suitable for special purpose properties, such as schools, churches, etc., and other unusual or unique properties for which there are not recent sales data to analyze.

The theory of progression indicates that the value of the "worst" property in a given area is A. equal to the other properties in the area. B. lowered by the other properties in the area. C. raised by the other properties in the area. D. unaffected by the other properties in the area.

C. The theory of progression says that the value of a run-down property can benefit from being in a good area among well-kept properties. People will pay more for the rundown property, anticipating that they can recoup their investment by fixing it up.

The life cycle of a neighborhood occurs in four stages. What is the order of the four stages? A. decline, stability, growth, and revitalization B. growth, decline, revitalization, and stability C. growth, stability, decline, and revitalization D. revitalization, stability, decline, and growth

C. There must be growth first, then stability when there are enough homes for buyers. Decline would happen when jobs leave an area. The government may offer tax abatement to stimulate revitalization.

Which homes should an appraiser consider when finding comps? A. homes currently listed for sale in the market B. homes where the listing agreements have expired C. homes that have sold recently in the subject's area D. homes that were taken off the market

C. When an appraiser is looking for comps, he or she will only look at homes that have sold recently.

A run-down house in a good neighborhood A. benefits from the principle of regression. B. is hurt by the principle of regression. C. benefits from the principle of progression. D. is hurt by the principle of progression.

C. When the value of a property is helped up by the other properties in an area, this is known as the principle of progression.

In which of the following cases would you expect market price to equal market value? A. The parties to the sale were related. B. The sale was a foreclosure. C. The sale was made with an anticipation of a change in zoning. D. The sale was an arm's-length transaction.

D. A typical transaction, also called an arm's-length transaction, means that the transaction occurred under typical conditions in the marketplace where each of the parties were acting in their own best interests.

Which statement best describes the nature of appraisals? A. An appraisal can always determine market price. B. An appraisal is completely subjective in defining market value. C. An appraisal is completely objective. D. An appraisal is only an opinion of value supported by objective data.

D. An appraisal is a professional opinion of the value of property in the marketplace based on gathered data and the appraiser's experience.

When performing the sales comparison approach, comparable sales should be A. competitive listings. B. on the same street. C. special sale properties. D. very similar in most respects.

D. Comparable sales should be very similar in most respects.

An example of external obsolescence would be A. peeling paint on a home's exterior. B. an outdated floor plan. C. a basement that leaks. D. location in a declining neighborhood.

D. External obsolescence (or economic obsolescence) occurs when something outside the control of a property makes is it less desirable.

Which home suffers from external obsolescence? A. Home A allows access to the basement only from outside of the home. B. Home B has only a detached one-car garage. C. Home C has a crumbling foundation. D. Home D is less than 500 yards from the county dump.

D. External obsolescence occurs when something outside the control of a property makes is it less desirable. The factors causing the obsolescence may be economic, environmental, or due to location.

If an industrial building needs a sprinkler system at a cost of $30,000, and if this will result in an increase in value $40,000, the depreciation is referred to as A. incurable external obsolescence. B. incurable physical deterioration. C. incurable functional obsolescence. D. curable functional obsolescence.

D. The condition is curable because the cost of repair is less than the value that will be added to the property.

Steve and Jana bought an empty lot on a quiet street of small, 40-year-old ranch homes. On the lot, they built a luxurious two-story, 3,500 square foot home. A year later when they put their home on the market, its value will likely be held down by the other homes in the neighborhood. This is an example of the principle of A. anticipation. B. balance. C. progression. D. regression.

D. The principle of regression states that the value of the "best" home in a neighborhood is lower than what it might be in a comparable neighborhood.

Marcie is considering two nearly identical properties on neighboring streets, each with the same benefits and utilities. However, Property A is selling for $198,000 and Property B is selling for $190,000. Which principle indicates that Marcie, as an informed buyer, would likely be willing to pay no more for Property A than for Property B? A. anticipation B. conformity C. contribution D. substitution

D. The principle of substitution says that an informed buyer will not pay more for a property than a comparable substitute. Although each property is said to be unique, there's a point beyond which a buyer won't go for a particular property.

The accepted standards of ethics and appraisal practice are known as A. AQB. B. CMA. C. URAL. D. USPAP.

D. The rules in the Uniform Standards of Professional Appraisal Practice (USPAP) are recognized throughout the United States as the accepted standards of ethics and appraisal practice.

Appraiser Anna determines that the 3-unit rental property she's appraising should take in $600 each month in rent per unit. She estimates a vacancy loss of $1,800 per year. She also determines that the GRM should be about 121. What is Anna's estimate of value? A. $72,600 B. $145,200 C. $199,650 D. $217,800

D. Vacancy loss is not considered when using the gross rent multiplier.