VALUATION, MARKET ANALYSIS, APPRAISAL
A property valued at $325,000 appreciates 3% each succeeding year. What is its value after three years?
$355,136.27 $325,000 x .03 = $9,750 $325,000 + $9,750 =$334,750 = 1st year appreciation $334,750 x .03 = $10,042.50 $334,750 + $10,042.50 = $344,792.50 = 2nd year appreciation $344,792.50 x .03 = $10,343.775 $344,792.50 + $10,343.775 = $355,136.27 = 3rd year appreciation
Latisha and Toby have sold their home for $122,000. They paid $68,500 in 2008, and added central air conditioning costing $12,000 in 2010, and a small bathroom costing $7,500 in 2011. What is their adjusted basis in the home?
$88,000 $68,500 cost + $12,000 pool + $7,500 bathroom = $88,000 adjusted basis
Jerome's office building produces a net annual operating income of $140,000. If Jerome paid $1,166,666 for the property, what rate of return is he receiving on the investment?
12 % $140,000 ÷ $1,166,666 = .12 =12%
The area of a lot with front footage of 100 ft. and depth of 150 ft. is
15,000 sq. ft. 100 ft x 150 ft. = 15,000 ft. (An acre is 43,560 square feet).
An appraisal performed by a licensed or certified appraiser is required for all real estate-related financial transactions except those in which the transaction value is
250,000 or less Properties that have a transaction value of $250,000 or less even though they are a federally related (lender financed transaction) do not require that an appraisal be performed on the property according to federal law.
What is the difference between the sales comparison approach and the comparative market analysis in valuing property?
Adjustments are generally made only when using the sales comparison approach The comparative market analysis is generally used by real estate agents to find a listing price for a property. The salesperson comparison approach is an approach to value used by appraisers as one method of valuing residential property. Although similar to the comparative market analysis, the sales comparison approach adjusts comparables to match the subject. This method is generally not performed for a comparative market analysis.
Helen has received her appraiser trainee license. Which laws, codes, and regulations apply to her as she performs appraisals under the supervision of a certified general appraiser?
All of the answers shown
Property taxes may be deducted from which types of property?
All types of property
Which type of value would be most relevant to a city or county budget official?
Assessed value
Which appraisal approach to value depends most heavily upon replacement value?
Cost The cost approach depends on the replacement or reproduction value of a property. The income approach is based on the income-producing capacity of a property.
Which of the following is NOT a federal category of appraisal licensure?
FDIC Certified Real Property Appraiser
Which of the following is TRUE of housing demand in a single-family residential market analysis?
If financing terms are not favorable, housing demand will decrease even though incomes increase
Which of the following is FALSE regarding investment in vacant land?
Land investment is seldom profitable Land investment can be as profitable as other investments. Disadvantages of land investment include the fact that unimproved land cannot be depreciated for tax purposes, money must be invested in approvals when the land is developed, and generally, the investor must wait longer than other types of investments for profits.
The name of the listing system available to real estate agents or subagents is the
MLS
For income tax purposes for a business, which of the following is NOT a deductible expense for a business property?
Mortgage principal Advertising, utility costs, and insurance may all qualify as deductible expenses for a business property for tax purposes. Mortgage principal is not tax deductible although mortgage interest is tax deductible.
Miranda, a Certified General Appraiser, is asked to appraise a property that has ramps, widened doorways, lowered counters, and other accommodations for the disabled. How should she state this information in the appraisal report?
Not draw an unsupported conclusion that the features either enhance or detract from the property If Miranda draws an unsupported conclusion that the ramps, widened doorways, and other accommodations for the disabled either enhance or detract from the property, she may be violating fair housing laws.
Which of the following is NOT a method by which equity builds up in an investment property?
Obtaining a second mortgage on the property
Which appraisal approach to value is the MOST applicable approach for appraising single-family residential properties?
Sales comparison The most applicable approach for appraising single-family residential properties is the sales comparison approach. The sales comparison approach to value takes other very similar properties and adjusts their value to come up with a value for the subject property. The cost and income approaches to value are used to value other types of properties.
A property will probably NOT sell for market value under which of the following conditions?
The buyer and seller are related to each other A property will probably NOT sell for market value if the buyer and seller are related to one another. The sale should be an arms-length transaction in which the buyer and seller are not related in any way-personally or professionally.
Carlotta and Sam buy a second home for vacation purposes only. Their purchase exemplifies which type of value?
Value in use Value in use is based on the property's usefulness to an investor and not necessarily for its market value. Investment value is the amount of return on a certain dollar investment a property will produce.
In an analysis of highest and best use, the appraiser would NOT consider which of the following?
Value in use Value in use is the uniqueness of a particular property to an owner and is not considered in highest and best use studies. Possible use considers the physical characteristics of the property. Permissible use is the use that is legally available for the land. Feasible use refers to the physical characteristics of the property and the legal controls that make land appropriate for the market, neighborhood, and economic conditions. These three items are all part of a highest and best use analysis.
Tax depreciation means
a deductible allowance from net income of property when arriving at taxable income
When writing an appraisal report, the appraiser must consider
all of the answers shown
A Certified General Real Property Appraiser, with regard to federally regulated or insured properties, can appraise
all types of real property
Zev and Tiffany recently had an appraisal performed on their property which they will put up for sale shortly. They wish to have an exact sales price for the property. What will they receive from the appraiser?
an estimate An appraisal is an estimate or opinion only. There is no such thing as the legal value of a property nor does an appraisal address the amount a seller will accept. Book value is a value derived through accounting methods.
An appraisal is best defined as
an unbiased estimate of value
The economic principle that underlies the income approach to value is
anticipation The principle of anticipation is based on expectations or hopes of the future benefits of ownership. This is the underlying principle of the income approach as the appraiser attempts to analyze both current and future income of a property. The principle of contribution states that each portion of a property contributes to the property's ability to produce income.
A valuation of the subject property for sales purposes is best described by the term
appraisal
A value estimate of real property is a(n)
appraisal of a single-family home
Expired listings
are properties that were not sold during the term of their listing
A physical force that affects real estate value is
climate The only physical force in the choice of answers is climate. Plottage is the combining of two or more parcels of land into one tract that has more value than the total value of the individual parcels. Zoning regulations are laws enacted by local government.
In order to arrive at the gross monthly rent multiplier, two essential components must be extracted from the market. The components are
comparable sales price and its economic rent The rental income for the property and the comparable sales price are the two elements that are used to derive the gross rent multiplier.
In a residential appraisal report, adjustments may be made to the
comparables to make them like the subject In using the sales comparison approach to value, the appraiser makes adjustments to the comparable properties to make them like the subject. These comparables are selected because they closely, but usually not exactly, resemble the subject property.
Topography is defined as the
configuration of the surface of the land Topography is defined as the physical features and contours of land. How a property situates on a plot of land or how a subdivision is designed depends a great deal on the natural topography of the land.
In trying to decide whether or not to add an additional room to an existing home, the owners, Jan and Tom, weigh the future resale value of the home compared to what they must spend to build the addition. Their analysis represents the economic value principle of
contribution The principle of contribution states the each portion of a property contributes to the property's ability to produce income. The principle of conformity states that general conformity among properties in a neighborhood produces maximum value for these properties.
The appraisal approach to value that considers the price to reproduce a property when it was new is the
cost approach
Properties such as school, hospitals, and government office buildings are generally appraised using the
cost approach Because there are few, if any, comparables and the properties are not income-producing, the cost approach is generally used to appraise schools, hospitals, and office buildings.
The appraisal approach to value that considers the price to reproduce a property when it was new is the
cost approach The appraisal approach to value that considers the cost to reproduce a property when it was new is the cost approach to value. The income approach and appraisal by capitalization are the same and used for income-producing properties. The sales comparison approach uses comparables that are similar to the subject. These approaches do not consider the reproduction price.
In the construction of a property, if time schedules are not met or other construction problems occur, which the following would most likely apply? The
cost may exceed the market value
Unfortunately, Gary's investment property is not yielding income equal to the investment. The economic principle behind Gary's misfortune could be
decreasing returns
The first step in the appraisal process is to
define the purpose of the appraisal Although all of choices are steps in the appraisal process, the first step is to define the purpose of the appraisal and the type of value estimate. Reconciling the data, arriving at a value estimate, and preparing the written appraisal report are later steps in the appraisal process.
A value analysis that does not necessarily produce an estimate of value can be best defined as a(n)
evaluation
When analyzing data for a comparative market analysis, Tammy, a real estate agent, should not use
expired listings over six months old
Depreciation of real property may be defined as loss of value
from any cause Depreciation of real property is a loss of value from any cause. Economic obsolescence is a loss in value caused by events such as changes in surrounding land use patterns and failure to adhere to the principle of highest and best use. This can be one cause of property depreciation.
A measurement meaning one foot wide along a property frontage is called a(n)
front foot A front foot is defined as a linear foot of property frontage on a street or highway. A fixture is personal property that has become real property by having been permanently attached to real property. An acre is a measurement for a plot of land containing 43,560 square feet.
If a seller has one bathroom instead of the market standard of two bathrooms in a two-story residential property, the loss in value is considered
functional obsolescence
In the sale of a real estate investment, the taxpayer is taxed on the
gain or profit
Income received without deducting expenses is known as
gross income The result of deducting operating expenses is net operating income. Debt service is mortgage and interest payments. Mortgage principal is the amount owed on the mortgage. Gross income is income received without deducting expenses.
The plottage value of land refers to the
increase in value created by combining two or more sites to produce a larger lot with greater utility
Surveyors' and appraisers' fees in relation to the development of a property are called
indirect costs Surveyors and appraisers fees in relation to property development are indirect costs. Hard or direct costs are costs for labor and materials. Impact fees are made to the municipality by a developer for infrastructure and other requirements.
The expression for the value of a particular property to a given investor is
investment value
All of the following are elements of the income approach to value EXCEPT it
is a type of sales comparison approach The income approach to value is based on the principal of anticipation; that is, the prediction of future benefits or earnings. The approach looks for the potential gross income of the property and includes an estimate of the net operating income of property. The sales comparison approach is not used to value income-producing properties.
Which of the following regarding the price of a property is TRUE? Price
is not always equivalent to the market value of the property
Highest and best use
is the most perfect use that will bring the highest rate of return
One of the most important aspects of marketing a property is
knowing the competition and adjusting pricing and marketing accordingly
G was able to use a minimal amount of personal funds and a substantial amount of borrowed funds to purchase a four-family apartment building. G had a great deal of
leverage G did have good fortune, but the use of other people's money is called leverage. The example does not discuss G's cash flow. Depreciation is an accounting concept that deducts certain monies from net income of property when arriving at taxable income.
Seller Suzanne and real estate broker Jamison agree upon a price to market Suzanne's property. This price is called the
listing price
A study of the supply and demand conditions in a specific area for a specific product or service is referred to as
market analysis
The major difference between market price and market value is
market price is what the property sells for while market value is what the sales price should be to a typical buyer
A valid adjustment for an appraisal report
must be supported with data from the market
Which effect would be created from a seller's market?
new construction offering more choices to the buyer
Rent roll refers to which of the following? The
number of rental units that are currently occupied multiplied by the rental amount per unit
A social characteristic to analyze value for an appraisal report is
population growth
An economic factor that will decrease when excess competition occurs is
profit The profit on real property will decrease when competition occurs because there will be more housing choices on the market which tend to drive prices down. The principle of contribution states the each portion of a property contributes to the property's ability to produce income.
A site is most profitably used if it
provides the highest cash to the land
The percentage of income per dollar amount earned that an investor receives back on an investment is called the
rate of return The rate of return is the percentage of income that the investor receives back on an investment. The loan-to-value ratio compares a lender's loan amount to the property value. The time value of money calculates the value of an asset in the past, present or future. Interest is payment for the use of another's money.
Anthony, a Certified General Appraiser, has received an assignment to conduct a mass appraisal on a housing development in a low-income community that has a significant minority population. The lender tells Anthony that the valuation should be on the low side as compared with other similar developments. Anthony should
refuse the assignment
The appraisal approach most closely related to a comparative market analysis is the
sales comparison approach Because both the comparative market analysis and the CMA compare properties that are similar to the subject, the CMA is most closely related to the sales comparison approach.
While preparing the comparative market analysis, sales agent, Emily, should NOT consider
similar properties being built
Typically, when pricing a property, a real estate agent should not use comparables that date back more than
six months
In the sales comparison approach, if the comparable property has two bathrooms and the subject property has only one, the appraiser must
subtract a certain amount from the comparable If the comparable has an item that is better than the subject property, the appraiser must subtract a certain dollar amount from the comparable. Although properties are not exactly like the subject, the appraiser can still use them in the appraisal.
A benefit of tax depreciation is
tax deduction
Reproduction cost as compared to replacement cost is
the cost to produce an exact duplicate of a building while replacement cost does not produce an exact duplicate Reproduction cost and replacement cost may both be analyzed in the cost approach to value. The cost to produce an exact duplicate is the reproduction cost. The cost to produce a similar property is the replacement cost. Neither one is more or less accurate than the other. It depends on the property being appraised.
An arm's length transaction means that
the parties are not related as relatives, friends, or business associates
Why is the economic principle of substitution important to performing an appraisal? It is the basis for
the sales comparison approach The principle of substitution states that all other things being equal, a buyer will purchase a property among other similar properties that are offered at the lowest price. An appraiser uses this principle in comparing properties to one another to arrive at a value for the subject property using the sales comparison approach. The principle of conformity states that general conformity among properties in a neighborhood produces maximum value for these properties.
Accrued depreciation is
the total loss in value to a property over a period of time
The highest and best use of a property is defined as
the use that will produce the highest present value The present use, the market value, and the use that best suits the neighborhood, do not necessarily define highest and best use. It is the feasible use that will produce the highest present value.
In any real estate investment, the expenses and mortgage costs may well exceed the returns if the investor
uses too much leverage The use of borrowed funds is called leverage. The investor will want to put the least possible amount down and obtain the lowest possible available interest rate over the longest period. This allows the investor to accumulate the maximum amount of real estate with the minimum amount of personal funds. However, for the investor expecting a cash flow, the expenses and mortgage costs may well exceed the returns if too much leverage is used.
A difference between valuation and evaluation is
valuation is an actual determination of a probable price; evaluation does not result in an estimate of value
The principal of anticipation states that
value is the present worth of all prospective future benefits
