Valuation National Questions

In the cost approach, an appraiser uses which of the following?

An estimate of the building's replacement cost The answer is an estimate of the building's replacement cost. The building's replacement cost is an essential component of the cost approach, along with depreciation and land value. The owner's original cost of construction is not considered in the cost approach. The sales prices of similar properties are considered in the sales comparison approach. The property's assessed value is not used to determine its fair market value.

The term reconciliation refers to which of the following?

Analyzing and weighing the findings obtained by the different approaches to value to arrive at a final estimate of value The answer is analyzing and weighing the findings obtained by the different approaches to value to arrive at a final estimate of value. The three approaches to value typically produce three different values. An in-depth analysis of these values is required to determine the most valid, logical, and reliable approach to be used to provide the final value estimate. Determining depreciation, a loss of value due to any cause, is part of the process of the cost approach. The highest and best use of a property is the single most profitable use for that property. Determining highest and best use is only one of the factors considered in an appraisal prior to choosing an approach to value and reconciliation.

The income approach as used by an appraiser makes use of which of the following?

Capitalization The answer is capitalization. Capitalization is a method of estimating today the future value of an income stream. Depreciation is the loss of value for any reason. Appreciation is an increase of value. Equalization is used by tax assessors and is a process of adjusting the assessed rate in a taxing district to achieve more conformity with other tax districts.

A developer experiences success and good profits in a recent real estate project. What principle of value indicates that her experience will attract others to engage in similar projects in the same area?

Competition The answer is competition. Competition is the interaction of supply and demand, meaning that good profits tend to attract new activity and competition from other developers or investors. According to the principle of anticipation, a property's value is affected by the expectation that certain events will occur; for example, the value of a house may be negatively affected if rumors circulate that an adjacent property may be converted to commercial use in the near future. The principle of conformity means that the maximum value of a property is created when the property is in harmony with its neighborhood and surroundings. The highest and best use of a property is the use that will give the property its greatest current value.

Which approach to value would require the value of the land to be calculated separately from the value of the improvements?

Cost approach The answer is cost approach. The cost approach requires a separate estimated value for the land. Estimated replacement or reproduction cost less accrued depreciation plus estimated land value equals the estimated value by the cost approach. Neither the income approach nor the sales comparison approach calculates the value of land separately from the value of a property's improvements.

Which of the following is NOT considered by an appraiser using the income approach to value? A) Annual net operating income B) Capitalization rate C) Depreciation D) Annual gross income

Depreciation The answer is depreciation. Depreciation is one of the calculations used in the cost approach and not in the income approach. The capitalization rate and the annual net operating income (NOI) are factors used in the income approach to determine a property's value (NOI ÷ Rate = Value). Estimating the annual gross income of a property is the first step in the income approach to value.

An appraiser has been hired to prepare an appraisal on a property that includes an elegant old mansion that is now used entirely as an insurance company office. Which approach to value would the appraiser MOST rely on? A) Income approach B) Sales comparison approach C) Gross rent multiplier approach D) Replacement cost approach

Income approach The answer is income approach. The income approach is the most appropriate approach for income producing properties such as an office building, even if the building was once a residence. The gross rent multiplier is not an approach to value. It is a process of estimating the market value of income-producing residential property. The sales comparison approach and the replacement cost approach may be used by an appraiser to assist in determining an estimate a value, but these approaches are not as useful or precise as the income approach to that property. Their findings will be weighed less than those of the income approach in the appraiser's final reconciliation.

Which appraisal method uses a rate of investment return in estimating a property's value?

Income approach The answer is income approach. The income approach uses the rate of investment return, also known as the capitalization rate, to estimate a property's value. The value is determined by dividing the annual net income by the capitalization rate (NOI ÷ Rate = Value). The capitalization rate is not used in the cost approach or the income approach. The gross rent multiplier is a factor used in the income approach to estimate the value of five or more residential units, commercial, or industrial properties.

An appraiser asked to estimate the value of an existing strip shopping center would probably give the MOST weight to which approach to value? A) Gross rent multiplier method B) Income approach C) Sales comparison approach D) Cost approach

Income approach The answer is 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.

An appraiser is assigned to appraise a house in an area with very few sales over the past year. One of the comparable properties she chooses is a home similar to the subject property. The house recently sold as a foreclosure property. When writing her appraisal report, what action will the appraiser take as a result of the foreclosed sale?

Make a positive adjustment to the sales price of the foreclosed home The answer is make a positive adjustment to the sales price of the foreclosed home. A foreclosed home usually will sell for less than fair market value. The appraiser will make a positive, upward adjustment to the sales price of the foreclosed home to compensate for the sale at less than market value. In the sales comparison approach, adjustments are made to the sales prices of comparable properties, never to the subject property.

The value of vacant land is most typically determined by what approach to value?

Market data The answer is market data. The market data or sales comparison approach is used to determine the value of land in the cost approach. The appraiser determines the value of the improvements based on replacement or reproduction, subtracts any depreciation then adds in the value of the land to give the final estimate of value.

Which of the following would be classified as external depreciation?

Poorly maintained properties in the neighborhood The answer is poorly maintained properties in the neighborhood. External depreciation is caused by factors not on the subject property, such as poorly maintained properties in the neighborhood. A leaky roof is an example of physical deterioration. A poorly designed floor plan is an example of functional obsolescence. Convenient access to schools and recreational facilities are examples of good features that may add to the desirability of a neighborhood.

The owners of the smaller model of houses in the neighborhood may find that the values of their homes are affected by what principle?

Progression The answer is 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.

A homeowner constructs an eight-bedroom brick house with a tennis court, a greenhouse, and an indoor pool in a neighborhood of modest two-bedroom and three-bedroom frame houses on narrow lots. The value of this house is MOST likely to be affected by what principle?

Regression The answer is regression. Larger lavish homes in a modest neighborhood will be drawn down in value by the modest, less lavish homes. Regression is the opposite of progression. Under progression, the value of a modest home would be higher if it were located among larger, fancier homes. The principle of substitution states value is determined by what the buyer can find to buy that is similar or equal to the property under consideration. The principle of contribution is used to determine the value of adding improvement to the property.

An appraiser using the GRM (gross rent multiplier) would consider which of following?

Rental income and market price The answer is rental income and market price. The GRM (gross rent multiplier) times the rental income will determine the properties market value or anticipated sales price. Comparables and adjustments are used in the sales comparison approach. Market value is what the GRM is determining, not market price which is the actual sale price. Capitalization and net operating income are used in the income approach.

The characteristics of value include which of the following?

Scarcity . The answer is scarcity. The characteristics of value (DUST) are: demand, utility, scarcity, and transferability. 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 the valuation of a large apartment complex, the MOST weight would be given to which approach to value? A) Sales comparison approach B) All approaches equally weighted C) Income approach D) Cost approach

The answer is income approach. The income approach is the primary approach used for income producing properties such as an apartment complex. The cost approach would most likely not be used due to the difficulty of determining a replacement or reproduction cost for the property. The sales comparison approach is most commonly used in the appraisal of single family residences. The process of reconciliation requires the appraiser to weigh which of the three approaches is most appropriate, as they do not have equal weight and may not be averaged together to determine a value.

When appraising a commercial property, the appraiser is MOST concerned with the A) income generated by the property. B) total debt service on the property. C) accrued depreciation on the property. D) sales prices of comparable properties.

The answer is the income generated by the property. The appraiser is most concerned with the income generated by the property in estimating the value of the property. Accrued depreciation is a factor used in the cost approach. The sales prices of comparable properties are used in the sales comparison approach, but finding comparable properties for commercial properties is often difficult. Debt service (mortgage payments) is not considered an operating expense deducted from annual operating expenses to determine the net operating income of a commercial property.

It is necessary to calculate a dollar value for depreciation when using which of the following?

The cost approach to value The answer is the cost approach to value. One of the components of the cost approach is the calculation of depreciation caused by wear and tear, functionality of items, or outside influences. The calculation is not used in the sales comparison or income approaches to value. A gross rent multiplier is used in the income approach to value for one-to-four residential rental properties.

Change, contribution, and substitution are some of the basic principles that affect what aspect of real estate?

Value The answer is 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.

Personal property includes all of the following EXCEPT

a custom built-in bookcase. The answer is a custom built-in bookcase. The key word is built-in since the bookcase is attached it is real property. Chairs, emblements, and trade fixtures are all examples of personal property.

An example of functional obsolescence is

a five-bedroom home with one bathroom. The answer is a five-bedroom home with one bathroom. Obsolescence is a loss of value. Functional obsolescence results from outmoded or unacceptable physical features in a property. A five-bedroom home with only one bath is an example of functional obsolescence. Chipping paint and other deferred maintenance are examples of physical deterioration, which may be repaired or cured by repainting or other maintenance. Unattractive curb appeal and a decrease in the area's population are examples of external obsolescence, items which will not be easily cured by spending more on the property itself.

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. The answer is 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.

Reconciliation is BEST described as A) comparing similar properties and identifying their amenities. B) analyzing the findings obtained from the three approaches to value. C) selecting the highest value given by the three approaches to value. D) determining the final estimate of value by selecting the best value from the three approaches.

analyzing the findings obtained from the three approaches to value. The answer is analyzing the findings obtained from the three approaches to value. Reconciliation is analyzing the findings obtained from the three approaches to value and deciding how much weight to give to each approach. A final value is estimated from the results of the analysis and the judgment of the appraiser. Comparable properties are used to estimate a value in the sales comparison approach. Reconciliation is a process of weighing the findings from the approaches to value and the reliability of the data each approach offers for the type of property appraised. Averaging is never used in any step of the appraisal process.

A step used in the income approach to determine value is to

apply the capitalization rate. The answer is 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.

A divorce attorney hires a broker to determine the value of the property the couple owns. The broker will most likely prepare a(n)

broker's price opinion. The answer is broker's price opinion. A broker price opinion (BPO) is a broker's opinion of the value of a particular property, often in the form of a competitive market analysis. The BPO may not be labeled an appraisal, which may only be conducted by a state licensed or certified appraiser. The sales comparison approach is used in both the BPO and an appraisal. The cost approach is used when conducting an appraisal.

The principle of appraising, which states that the maximum value is achieved when the property is in harmony with its surroundings, is the principle of

conformity The answer is conformity. The principle of conformity means that maximum value is realized if the use of land conforms to existing neighborhood standards. The principle of competition is the interaction of supply and demand, as excess profits tend to attract competition. The principle of contribution states that the value of any part of a property is measured by the effect of that part on the value of the entire property. The highest and best use of a property is the use that will give the property its greatest current value.

A homeowner constructs a five-bedroom, brick house with a tennis court and a pool in a neighborhood of modest two-bedroom and three-bedroom frame houses on narrow lots. The value of the five-bedroom house is MOST likely to be affected by the principle of A) substitution. B) progression. C) conformity. D) contribution.

conformity. The answer is conformity. Under the principle of conformity regression states the larger, more lavish home with a pool would tend to be valued in the same range as the modest homes on narrow lots existing in the same neighborhood. Under the principle of progression, the value of a modest, less expensive home will increase if it is located among larger, fancier, more expensive properties. Substitution states a property that offers the same attributes for the least amount will sell first. Contribution determines the value improvements bring to a property.

All of the following are steps in the appraisal process EXCEPT A) gathering specific data on the subject property. B) gathering general data for the area of the subject property. C) considering the seller's estimate of the property's value. D) reconciling the data collected by the approaches used for the subject property.

considering the seller's estimate of the property's value. The answer is considering the seller's estimate of the property's value. The opinions of a seller as to the value of the property are often not an accurate estimate of value, as the seller's opinion could be based on emotion rather than objective reasoning. In estimating the property's value, the appraiser will gather data on the area of the property and data on the subject property. The appraiser will apply the approach or approaches to value appropriate for the type of property being appraised and will reconcile the data from the approaches to find a final estimate of value.

In the income approach, all of the following are considered when calculating net operating income EXCEPT

debt service. The answer is debt service. Debt service (mortgage payments of principal and interest) is not included in calculating net operating income. Management fees, real estate taxes, cost of utilities, insurance, and other costs to maintain the property are all considered in determining a property's operating expenses.

All of the following factors would be important in comparing properties under the sales comparison approach to value EXCEPT A) differences in original cost. B) differences in appearance and condition. C) differences in size of the improvements and land. D) differences in dates of sale.

differences in original cost. The answer is differences in original cost. None of the approaches to appraisal considers the original (historical) cost of a property. The other three factors would be relevant to the sales comparison approach-sometimes called the market data approach.

To find the value of a property, if the net operating income and the capitalization rate are known, an appraiser using the income approach to value would

divide the net operating income by the capitalization rate. The answer is divide the net operating income by the capitalization rate. To find the value, the net operating income (NOI) is divided by the capitalization rate. Remember the IRV formula: Income divided by Rate or Value. In the income approach, I ( NOI) ÷ R (capitalization rate) = Value. If an appraiser knows the NOI and the value of the property, the capitalization rate may be found: NOI ÷ value = capitalization rate. If the appraiser knows the capitalization rate and the value of the property, the NOI can be calculated: value × rate = NOI.

The ability of a community to attract income and business is known as the community's

economic base. The answer is economic base. The economic base measures the ability of a community to attract business and income. Life cycle refers to the expected useful lifetime of equipment or property. Market value is the most probable price a property would bring in an arm's-length transaction under normal conditions on the open market. A zoning plan determines the types of improvements permitted on specific properties in a community.

Capitalization is a mathematical process by which annual net operating income is used to

estimate present value. The answer is estimate present value. Capitalization converts the net operating income (NOI) into an indication of value in the income approach to determine the current or present market value. An appraiser estimates the return on investment an investor would demand for the property being appraised. An appraiser will determine replacement costs, reproduction costs, and depreciation for a property when using the cost approach to value. The effective gross income is estimated by deducting an appropriate amount for vacancy and rent loss in an income-producing property.

The purpose of an appraisal is to

estimate the market value of a property. The answer is 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.

In the cost approach to value, the appraiser makes use of the

estimated replacement cost of the building. The answer is estimated replacement cost of the building. The cost approach is used to estimate the replacement or reproduction cost of the building. Estimated replacement or reproduction cost less accrued depreciation plus estimated land value equals the estimated value by the cost approach. The owner's original purchase cost is not used in any approach to value since the process is determining current value. The sale of similar buildings is used in the sales comparison approach. Assessed value is used only by taxing authorities never in determining market value.

An appraiser is responsible for

estimating value. An appraiser is estimating value. The appraiser does not make or determine value. After the appraiser completes the analysis and considers all the data, an estimate of value will be provided. An appraisal is an official estimate of value.

The sales comparison approach to value is MOST important when estimating the value of a(n) A) existing residence. B) hotel. C) retail location. D) apartment building.

existing residence. The answer is existing residence. The sales comparison approach arrives at an estimate of value by comparing the existing residence with recently sold comparable properties. This approach is normally considered the most reliable in appraising single-family homes to the large number of current sales. To find an estimate of value for an apartment building, retail location, or hotel, an appraiser would normally rely on the income approach to value for each of these income-producing properties.

Rising mortgage rates are an example of

external obsolescence. The answer is external obsolescence. Factors outside the property boundary lines that affect a property's value are examples of external obsolescence. Rising mortgage interest rates is an example of external obsolescence. Functional obsolescence occurs when a property has outmoded or unacceptable physical or design features that are no longer considered desirable by purchasers. Physical deterioration of a property may be curable or incurable; a curable item is economically feasible and would result in value equal to or exceeding the cost of repairs. An item is incurable if its correction would not be economically feasible or create a comparable value to the building.

Economic, environmental, and external obsolescence refer to

factors outside of the property lines that affect the property's value. The answer is 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.

The appraised value of a residence with four bedrooms and one bathroom would probably be reduced because of

functional obsolescence. The answer is functional obsolescence. Functional obsolescence exists when a property has outmoded or unacceptable physical or design features. A four-bedroom home with one bath is not desirable for buyers. External obsolescence exists due to economic, environmental, or social forces outside a property. Physical deterioration refers to a loss of value because a property has not been maintained property (deferred maintenance).

A house has outdated electric and plumbing this is an example of

functional obsolescence. The answer is functional obsolescence. Outdated electrical or plumbing , or floor plans that no longer fit the norm are considered to be functional obsolescence.

A house with outmoded plumbing is suffering from

functional obsolescence. The answer is functional obsolescence. Outmoded 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 home with its kitchen next to the master bedroom would be considered

functionally obsolete. The answer is functionally obsolete. A kitchen adjacent to the master bedroom is considered functionally obsolete. The kitchen could be converted to a family room, provided there was adequate space in the house for the kitchen elsewhere. This conversion would be considered curable obsolescence if the cost did not exceed the increased value of the property. A property may be economically obsolete due to environmental, social, or economic forces outside of the property, such as a deteriorating neighborhood.

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. The answer is 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.

All of the following terms are associated with the economic characterizes of real estate EXCEPT A) improvements. B) area preference. C) license. D) permanence of the investment.

license The answer is license. A license is the permission to use another's property and is not an economic characteristic of property. Permanence of the investment refers to the labor and capital used for an investment. Area preference refers to the location of the property. Improvements are additions to a property to enhance its value.

An appraiser has been employed to estimate the market value of a parcel of vacant land. The resulting appraisal report would NOT include reference to the A) listed price of the parcel. B) physical dimensions of the parcel. C) highest and best use of the parcel. D) most probable price the parcel will bring.

listed price of the parcel. The answer is the listed price of the parcel. The listed price of the parcel is the price that the owner wants for the property. It may or may not be a realistic price or reflect the fair market value of the property. Highest and best use, the most probable price the parcel will bring, and the physical dimensions of the parcel are all applicable to the analysis by the appraiser in determining the market value of the parcel.

From the reproduction or replacement cost of a building, the appraiser deducts depreciation, which represents the

loss of value due to any cause. The answer is loss of value due to any cause. Depreciation is loss of value from any cause. Some examples of such causes are physical deterioration (wearing out and/or deferred maintenance), economic (external) obsolescence, and functional obsolescence (lack of modernity). Remodeling and modernization costs may increase value by reducing the effects of deterioration and obsolescence, making a property more desirable and acceptable to buyers. Depreciation occurs over the economic life of a structure, the period during which it is expected to remain useful for its original intended purpose.

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. The answer is 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.

The term depreciation refers to the

loss of value in real estate from any cause. The answer is loss of value in real estate from any cause. The term ''depreciation'' refers to the loss of value in real estate from any cause either on the property or off the property, or a combination of the two.

The listing or asking price of a property in the marketplace is its

market value. The answer is market value. Market value is what a property should sell for in an arm's-length transaction between informed parties, neither of which is under undue pressure, and the property has been exposed to the market for a reasonable length of time. The intrinsic value of a property is the result of a person's individual preferences for a given geographic area over other less desirable areas. The subjective value is what a person perceives the value to be based on the benefits to that person. The book value, used for income tax purposes, refers to the value of the property after factoring in the depreciation on the property.

All of the following are characteristics of value EXCEPT A) transferability. B) obsolescence. C) scarcity. D) utility.

obsolescence. The answer is 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 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.

Defined as a loss in value from any cause, depreciation is generally divided into three categories. The loss of value due to the normal wear and tear on a property is called

physical deterioration. The answer is physical deterioration. Physical deterioration is the loss of value based on the physical wear and tear on the property. It can be either curable or incurable deterioration. External and economic obsolescence are a reduction in a property's value caused by factors of the property itself. Functional obsolescence is a loss in value due to such factors as outmoded or unacceptable features of the property itself.

Wear and tear on a property is best defined as

physical deterioration. The answer is physical deterioration. Wear and tear, which is typically curable is also known as physical deterioration.

In general, when the supply of a certain commodity increases

price tends to drop. The answer is prices tend to drop. According to the principle of supply and demand, if demand is constant and supply increases, sellers of the commodity compete with each other by lowering prices. Prices tend to rise if the demand for the commodity increases while the supply remains the same.

When the supply decreases while demand remains the same

price tends to rise. The answer is price tends to rise. Under the laws of supply and demand, if supply of a commodity decreases with demand remaining the same or increasing, the price of a commodity increases. Prices tend to drop if the demand for the commodity decreases while the supply remains the same or increases.

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. The answer is 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.

An appraiser determines that the cost approach is the most reliable approach in determining the value of an older government building. In estimating the value, the appraiser will MOST likely start by determining the A) reproduction cost. B) gross rent multiplier. C) replacement cost. D) gross effective income.

replacement cost. The answer is the replacement cost. Replacement cost new is the cost to construct an improvement similar to the subject property, using current construction methods and materials, but not necessarily an exact duplicate. Replacement cost new is more frequently used in appraising older structures because it eliminates obsolete features and takes advantage of current construction materials and techniques. Reproduction cost is the construction cost at current prices of an exact duplicate of the improvement, including both the benefits and the drawbacks of the property. The gross rent multiplier and gross effective income are used in the income approach to value.

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. .The answer is 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.

The prices of homes currently on the market included in a competitive market analysis assist a seller's agent in

setting a listing price with the seller in competition with similar properties currently on the market. The answer is setting a listing price with the seller in competition with similar properties currently on the market. A competitive market analysis (CMA) consists of information about three types of properties similar to the subject property: prices of homes recently sold, the current listing prices of homes on the market, and the prices of homes in expired listings. The prices of currently listed homes assist the agent in setting with the seller a listing price in competition with similar properties currently on the market. An analysis of properties already closed would establish what other buyers were willing to pay for similar properties, and a review of expired listings would help the agent know what buyers have not been willing to pay for similar properties. A seller's agent representing only the seller would not advise a buyer on what to offer for the property. A buyer's agent could use the prices of currently listed homes and the prices of homes recently sold to reassure buyers that their offers are in line with the prices of similar properties in the neighborhood.

The income approach to value would be MOST important in the appraisal of a

shopping center. The answer is 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.

An appraiser conducting an appraisal of a single-family residence notes that the subject home does not have an attached garage. Three of the comparables the appraiser chooses include attached, finished garages. To account for the garage that is present in each comparable, but not in the subject property, the appraiser will

subtract the value of an attached garage from the sales price for each comparable. The answer is subtract the value of an attached garage from the sales price for 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.

Rents have gone up in the area. The principle that BEST describes this increase is A) conformity. B) substitution. C) contribution. D) supply and demand.

supply and demand. The answer 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.

An appraisal differs from a competitive market analysis conducted by a broker in that an appraisal is based on an analysis of properties

that have actually sold. The answer is that have actually sold. An appraisal is based on the analysis of properties that have actually sold. A competitive market analysis (CMA) features properties similar to the subject property in location, size, and amenities. A CMA includes analysis of properties currently on the market; those properties currently listed that compete for buyers with the subject property; properties that have actually sold (recently closed properties); and properties whose listings have expired.

Reconciliation is an appraisal term used to describe

the appraiser's analysis and weighing of the findings of all three appraisal approaches. The answer is 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 value of a parcel of real estate is

the most probable price it should bring. The answer is the most probable price it should bring. An appraisal estimates the market value—the price a property would most probably bring. The amount of money actually paid for a property is the market price, which may or may not equal the market value. An estimate of a property's future benefits may be used by an appraiser as part of the income approach to value. The value of a property without improvements consists of the value of the land itself.

The market price of a parcel of real estate is

the price it sells for. The answer 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.

The physical characteristic of real estate that means that every parcel of land is different is known as

uniqueness. The answer is uniqueness. Uniqueness is the concept that no two parcels of property are exactly the same or in the same location. An individual parcel has no substitute because each is unique. Immobility means that the geographic location of a parcel of land can never be changed. Indestructibility means that land is durable and cannot be destroyed. Scarcity is an economic characteristic of land, meaning that when the supply of land is limited, the price of the land increases.