Valuation and Market Analysis
The primary survey line running east and west in the rectangular survey system is the
base line. The base lines run east and west in a rectangular survey system, while the principal meridians run north and south. Township lines run east and west; range lines run north and south. Sections are created through the intersection of these lines.
An appraiser is appraising a single-family residence, and notices an abandoned gas station next door. The appraiser would logically recommend which of the following:
A toxic waste report from the EPAA toxic waste report for a property may be demanded in instances where a gas station has been abandoned near the property. If the results of the report are depreciative to the property, this would be an example of Economic Obsolescence
When analyzing the income produced by a property, an appraiser is concerned with:
All of the other options are correct All of these are important factors to consider when calculating net income for capitalization purposes.
What is the best way to appraise a land site?
Allocation The allocation method (also called the abstraction or extraction method) is an appraisal method whereby the appraiser estimates the land value of any improved property by deducting or abstracting the value of any site improvements from the overall sales price of the property. The amount remaining is the estimated sales price or indicated value of the land.
What is a fee appraiser:
An independent appraiser who works on a fee basis A Fee Appraiser is a self-employed appraiser who charges a fee for each appraisal he conducts.
The effectiveness of the market data approach of appraising would be limited most by which of the following?
Economic conditions that rapidly change; Market Data is least reliable when there is rapid economic change to the market and/or the market is inactive. This approach functions around the idea of finding the price of similar properties to compare the target property to. Therefore if there is nothing to compare to, this aproach is useless.
The sheet metal that is used to protect a building from water seepage is called:
Flashing A flashing is a metal or plastic strip attached to the outside of the head or side jambs to provide a weather barrier, preventing leakage between the frame and the wall.
Which of the following is not a method of providing for depreciation?
Obsolescence Obsolescence causes depreciation, but is not a method for calculating it. "Providing for" is a common accounting term for referring to the inclusion of depreciation when determining the current value of an asset, like real estate.
The owners of the smaller model of houses in a neighborhood with larger homes may find that the values of their homes are affected by what principle?
Progression Under the principle of progression, the smaller homes in an area with larger homes will have their value increased. The principle of regression is the opposite of progression and states that the owners of larger homes in an area with smaller homes may find the values of their homes decrease. Competition is the interaction of supply and demand causing prices for property to rise or fall. Under the principle of contribution the law of increasing returns applies when money spent on improvements to a property produce an increase in income or value.
Which of the following is the best definition of a "commercial acre":
The building portion of an acre after deductions for streets, curbs and sidewalks. Commercial Acre: Also referred to as a Buildable Acre, this is the portion of land left that can be built minus the streets, sidewalks, curbs, etc.
When an appraiser contrasts the phrase reproduction costs and the phrase replacement cost; replacement would be more closely associated with which of the following concepts?
The present cost to replace the building with another building having the same utility The Replacement Cost of Improvements is the cost to replace an improvement with another improvement having the same utility.
Which of these is an example of external obsolescence?
Vacant, abandoned, and run-down buildings in an area External obsolescence, also known as economic obsolescence, is a factor that reduces the value of an improvement because of something external to the property itself. It's not about whether the house is outdated or not, but rather something outside of the home that is causing a lower value. It's usually something that cannot be cured.
A step used in the income approach to determine value is to
apply the capitalization rate. In the income approach to value, the capitalization rate is applied to the property's annual net operating income to arrive at the estimate of the property's value. Calculating reproduction costs, replacement costs, and depreciation are procedures used in the cost approach to value.
When using the cost approach to estimate the value of a residential dwelling, a listing broker SHOULD:
determine replacement value less depreciation The cost approach is an appraisal method where a property's value is estimated using the cost of the property plus cost of all improvements, minus depreciation.
The purpose of an appraisal is to
estimate the market value of a property. In an appraisal, the appraiser estimates the market value of the property. They do not determine the market price, which is the price for which the property actually sells, which may be higher or lower than the appraised value or estimated market value. An appraiser may determine the projected income of a property as part of the income approach. Earnest money and other contract considerations do not have an impact on the market value.
A house with outdated plumbing is suffering from
functional obsolescence. Outdated plumbing is an example of an outdated design feature that lessens the value of a property. The loss of value may be curable if the cost of replacing the plumbing would be offset by the anticipated increased value of the property. The plumbing is not a physical deterioration resulting from deferred maintenance. External depreciation refers to a condition that is not part of the property itself.
A smaller home is surrounded by larger, more expensive homes. The value of the smaller home will most likely
increase because of the larger, more expensive properties. Under the principle of conformity progression shows the value of a modest, less expensive home will increase if it is located among larger, fancier, more expensive properties. Under regression, a structure that is larger or more luxurious would tend to be valued in the same range of less lavish homes in a neighborhood of modest homes.
Appreciation would be best defined as
increase of value over time Appreciation is an increase in the value over time.
The objective value of a property is closest to:
market value. Objective value is what a reasonable person ends up paying for a property
All of the following are characteristics of value EXCEPT
obsolescence. To have value, a property must have monetary worth based on the desirability of the property. Obsolescence is not a desirable trait and, therefore, takes away from the desirability of the property and the demand for the property. Demand, transferability, scarcity, and utility are all characteristics of a property's value (remembered by the acronym STUD or DUST). Demand is the need or desire for ownership supported by the financial means to satisfy the need. Transferability refers to the relative ease with which ownership rights are transferred from one owner to another. Scarcity means that there is a limited supply of property. Utility refers to the property's usefulness for its intended purposes.
When demand for a commodity decreases and supply increases,
price tends to fall.
The income approach to value would be MOST important in the appraisal of a
shopping center. The income approach would be used to estimate the value of income-producing properties, such as shopping centers and office buildings. The sales comparison approach or the cost approach may be used to determine the value of other types of properties.
Reconciliation is an appraisal term used to describe
the appraiser's analysis and weighing of the findings of all three appraisal approaches Reconciliation is the process used by the appraiser in determining how much weight should be given to each of the three approaches to value, if any. After considering all the data, the appraiser will estimate a final indication of value. Reconciliation does not mean taking the average of the estimates of value from the approaches; averaging is not used in any part of the appraisal process. It does not determine a highest value, but the fair market value of the property. Determining the capitalization rate is involved in the income approach to value.
The market price of a parcel of real estate is
the price it sells for. Market price of a parcel of real estate is the price that it actually sells for, the sales price. The market value is the property's listing price. The assessed value is the value set by a taxing authority, usually a county, to determine the taxes on the property.
A township contains
36 sections. Each section is 1 square mile. Each township is 6 miles square and contains 36 square miles, so a township contains 36 sections. Each section is 1 square mile, or 640 acres. The 36 square miles of a township are 23,040 acres.
An appraiser examines a building that is 25 years-old. Because of superior upkeep, it has the condition of an 11 year-old building. The appraiser may use the 11 year-old age as the:
Effective age Effective age is the age of a property based upon its condition, not its actual age. In a situation like this, the appraiser can use "11 years old" as the effective age of the building.
The characteristics of value include which of the following?
Scarcity The characteristics of value (STUD) are: scarcity, transferability, utility and demand . Scarcity means that there is a limited supply of similar properties. Competition is the interaction of supply and demand causing prices for property to rise or fall. The economic principle of anticipation states that value is created by the expectation that certain events will occur affecting the value of a property. Balance refers to the amount remaining after certain mathematical calculations have been completed.
In computing the square footage of a single family home, an appraiser measures the external dimensions of the gross living area, which includes all of the following EXCEPT
a patio. To compute the square footage of a single family home, the external dimensions of the building are measured. A garage, porch, patio, or unfinished areas are not used when computing the square footage of a property. Unfinished areas are included in another section of an appraisal report.
The appraisal approach most likely to be used in valuing a public library building would be:
cost. The cost method is most often used for buildings where actual income or comparative commercial value are unavailable--such as schools and libraries.
In the cost approach to value, the appraiser makes use of the
estimated current replacement cost of the building. The cost approach is a real estate valuation method that surmises that the price a buyer should pay for a piece of property should equal the cost to build an equivalent building. In cost approach appraisal, the market price for the property is equal to the cost of land plus cost of construction, less depreciation.
Economic, environmental, and external obsolescence refer to
factors outside of the property lines that affect the property's value. Lack of maintenance and ordinary wear and tear are marks of physical deterioration. Outdated items and outdated technology indicate functional obsolescence in a property. Obsolescence that is economically feasible to correct is curable obsolescence.
When estimating the value of property using the cost approach, all of the following are considered by an appraiser EXCEPT:
loss of value due to uncollected delinquent rent. Loss of value due to uncollected delinquent rent is a factor in determining a property's effective gross income in the income approach to value. An outdated heating system, the quality of original materials and workmanship, and traffic noise are considered in the cost approach in determining the depreciation of a property due to deterioration or obsolescence.
A recorded subdivision plat is used in the:
lot and block system. Lot and block is the "final" survey of property being readied for development and identifies each individual parcel in a subdivision.
Rents have gone up in the area. The principle that BEST describes this increase is
supply and demand Under the concept of supply and demand, if demand decreases and supply remains the same, the supply becomes more valuable. Fewer rental properties will produce higher rents. The principle of substitution says that the maximum value of a property tends to be how much it would cost to purchase an equally desirable substitute property. The principle of contribution is used to determine if improvements will increase or decrease the value of the real property. Conformity is the appraisal principle that holds that the greater the similarity among properties in an area, the better the properties will hold their value.
When evaluating the data in a neighborhood market survey, a residential property manager will be most concerned with
trends in population composition. Population composition is the description of a population according to characteristics such as age and sex. These data are often compared over time using population pyramids.
The relationship between a property and a prospective purchaser is known as:
value. Value can also be described as the relationship between a property and a prospective purchaser. The most probable price a property should bring in a competitive and open market under all conditions requisite to a fair sale (market value).
It would be perfectly ethical for an appraiser to do which of the following:
Appraise a property in which the appraiser has an interest, provided the appraiser first discloses his interest An appraiser is allowed to appraise property for a company in which he has an interest so long as he discloses this interest in his Appraisal Report.
An appraiser was contracted to determine the value of a large apartment building for a potential investor client. Which appraisal method is the MOST useful for this type of property?
Income approach The Income Approach is one of three major groups of methodologies, called valuation approaches, used by appraisers. It is particularly common in commercial real estate appraisal and in business appraisal. The fundamental math is similar to the methods used for financial valuation, securities analysis, or bond pricing.
An appraiser asked to estimate the value of an existing strip shopping center would probably give the MOST weight to which approach to value?
Income approach The income approach will have the most weight in the analysis of income-producing property. The sales comparison approach will have the most weight in the analysis of single-family residential property. The cost approach may be used as one approach to appraising income property, but the income approach will be given the most weight by the appraiser. The gross rent multiplier method is used in the income approach but to determine value of residential income property.
The position of a building on its site in relationship to its surroundings is normally referred to as its:
Orientation. Orientation refers to a building's positioning on its site.
The capitalization rate on a property reflects which of these factors?
Risk of the investment Capitalization rate is a real estate valuation measure used to compare different real estate investments. Although there are many variations, a cap rate is often calculated as the ratio between the net operating income produced by an asset and the original capital cost or alternatively its current market value.
When an appraiser is considering the economic life and the physical life of a building, the economic life is usually:
Shorter The economic life is the length of time during which a piece of property may be put to profitable use. Usually less than its physical life.
An appraiser is using the market data approach comparing the prices of comparable properties to the subject property. If the comparable properties have a feature that is not present in the subject property, the value of that feature will be:
Subtracted from the sales price of the comparables; When comparing two properties you need to deduct for features of the comparable. For example, if one property has pool and the other does not, you must subtract the value of the pool.
Which of these principles states that "a person will not pay more for one property than he or she would for another that's equally desirable?"
The principle of substitution. The principle of substitution is at the heart of real estate pricing and competitive market analysis.
Change, contribution, and substitution are some of the basic principles that affect what aspect of real estate?
Value Change, contribution, and substitution all affect value�"the most probable price a property will bring. Change relates to the reality that nothing is constant and variations in various aspects of a property will affect its value. Contribution means that the value of any part of property is measured by how it affects the value of the whole property. Substitution says that the maximum value of a property tends to be determined by how much it would cost to purchase an equally desirable substitute property. Depreciation is a loss of value for any reason. Under the principle of supply and demand, when supply increases the value decreases and when demand increases, the value increases.
The Rose family owns a home in a semi-rural area, which is about five years old. Recently announced plans for a new regional airport will place their home directly in line with a main runway ending 1 mile before their home. If the airport is constructed, will this diminish the value of the Rose home?
Yes, because of economic obsolescence. Economic obsolescence occurs when factors unrelated to the property itself and outside of the owner's control diminish its value. A quick way to judge whether or not a property has become economically obsolete is to analyze whether, under the new circumstances, the location would still be chosen as a home site and, if yes, at what value compared with the current property.
An appraiser conducting an appraisal of a single-family home discovers that the subject home has one more bedroom than any of the three comparable properties the appraiser wants to use in the appraisal. To account for the extra bedroom, the appraiser will
add the value of the bedroom to the sales price of each comparable. Adjustments are made only to comparable properties never the subject. If the comparable is better than the subject or has a feature that is present in a comparable but not in the subject, the value of the amenity is subtracted from the sales price of the comparable. If the subject is better than, the value of the amenity is added.
Mrs. Jones, an appraiser, is appraising a single family residence for which she has located six closely comparable properties, all sold within the past six months. The subject property is rented for $500 per month. It is a custom-built home, approximately three years old. Mrs. Jones would probably give the most weight in her final estimate of value to which of the following appraisal methods?
market data approach Market data would be used because it is the most reliable indicator of a home's true value. Since it is a single family residence rather than a multi-unit investment property, the fact that it is rented, as well as the amount of rent, is irrelevant to the calculations.
A formal estimate of a property's market value, based on established methods and using a licensed professional, is performed by a
real estate appraiser. Although brokers, counselors, and inspectors also look closely at a specific property, only a licensed appraiser is qualified to produce a formal opinion of value�"an appraisal. State and federal laws require licensure and classification of real property appraisers based on their education and experience.
A state certified appraiser is conducting an appraisal of a library building surrounded by several acres of land belonging to the property. In determining the value of the land itself, the appraiser will most likely use the
sales comparison approach An appraiser will most likely use the sales comparison approach to determine the value of the land. They may use the cost approach to arrive at an opinion of value for the library building itself. The reproduction cost and the replacement cost are incorporated within the cost approach to value. An appraiser uses the income approach to value for income-producing properties, such as a multi-unit apartment building.