Chapter 12

17. In appraising a single-purpose building, such as a church, the most reliable approach to an indication of its value would generally be the A. cost approach. B. market data approach. C. income approach. D. Both A and B.

A. A church is one kind of property which is appraised frequently with the cost method because few properties of this sort change hands on the open market.

31. When appraising a property, comparable properties are those which A. can be adjusted to reasonably match the subject. B. are identical to the subject. C. will close the same date as the subject. D. have sold within the past week.

A. A good definition. The process used by the appraiser involves comparing the subject property, the property being appraised, with similar properties (comparables) that have sold recently

1. The power of a good or service to command other goods or services in exchange is A. value. B. economic perfection. C. utility. D. need.

A. A standard definition of value.

30. Adjustments made in utilizing the market data approach are made to the A. comparable properties. B. subject property. C. Both A and B. D. Neither A nor B.

A. Adjustments are never made to the subject property; always to the comparable.

14. In the comparison approach to appraisal, after adjustments are made for each comparable, the result is A. the adjusted market value. B. an absolute value. C. a SWAG. D. the market price.

A. After making adjustments to each comparable property, the appraiser arrives at ; adjusted market value.

38. A four bedroom house has only one bathroom. Identify the type depreciation described and determine whether or not it is curable. A. Functional, probably incurable. B. Physical, incurable. C. Physical, curable. D. Economic, curable.

A. Functional, probably incurable.

12. When figuring square footage of a house for appraisal purposes, use A. outside measurements. B. inside measurements. C. Both A and B. D. Neither A nor B.

A. The buildings inside measurements are used for determining room size, but the buildings outside measurements are used to calculate square footage.

20. Which of the following items would not be relevant in the appraisal of an older type property? A. The original cost. B. Current reproduction cost. C. An estimate of accrued depreciation. D. Recent selling prices of comparable properties in the neighborhood.

A. The original cost has virtually nothing to do with the current value of older property. The market data approach usually accurately reflects the value of older property.

28. Homogeneity A. creates stability in values. B. increases values. C. decreases value. D. has no effect on value.

A. The value of an individual property is influenced by its surroundings. Homogeneous implies similarity but not monotonous conformance.

42. In appraisal, comparable properties are those which A. can be adjusted to reasonably match the subject. B. are exactly like the subject. C. Both A and B. D. Neither A nor B.

A. can be adjusted to reasonably match the subject

53. If you were asked to appraise property that had no monthly income and there were no comparables in your market, you would probably use the A. cost approach. B. income approach. C. declining balance method. D. market comparison approach.

A. cost approach.

52. Replacement cost is the A. cost of building a property of equivalent utility with modern materials. B. cost of building an exact replica of the subject. C. original cost adjusted for inflation. D. cost of purchasing an equally desirable property.

A. cost of building a property of equivalent utility with modern materials.

51. The value of a piece of land A. is an estimate of the present worth of future benefits. B. includes a measure of past expenditures. C. Both A and B. D. Neither A nor B.

A. is an estimate of the present worth of future benefits.

24. You are appraising a 20-year-old apartment house. When this building was constructed, the neighborhood was exclusively residential. Today, scattered industrial uses are found in the area. This is an example of A. functional obsolescence. B. economic obsolescence. C. physical deterioration. D. psychological obsolescence.

B. Economic obsolescence is loss in value due to external causes outside the property itself, usually incurable.

36. Plaster on the ceiling of an apartment is cracked and in some places pieces have fallen. Identify the type depreciation described and determine whether or not it is curable. A. Physical, incurable. B. Physical, curable. C. Economic, incurable. D. Functional, probably incurable.

B. Physical, curable.

6. A neighborhood which maintains high property values because of its similar but not identical architectural styles is benefiting from the principle of A. change. B. conformity. C. substitution. D. progression.

B. Residences that do not conform to the design, type of construction, condition and maintenance, etc. of other homes in the neighborhood generally suffer some degree of loss in value. An over-improvement or under-improvement indicates lack of conformity and usually suffers some degree of loss in value.

39. Which of the following is true? A. Appraising is an exact science. B. Since appraising is an art rather than a science, the credibility of an appraisal report depends upon the experience and training of the appraiser. C. The cost approach is the most reliable. D. Both A and C.

B. Since appraising is an art rather than a science, the credibility of an appraisal report depends upon the experience and training of the appraiser.

18. The rate of return that an investor expects to earn on invested money is the A. effective gross income. B. capitalization rate. C. quantity return. D. net operating income.

B. The capitalization rate ratio is: Net Operating Income over Sale Price.

7. An appraiser was hired to prepare a feasibility study for a 24-unit apartment building in which the owner was considering putting in a swimming pool. What basic principle of appraising would be used? A. Regression. B. Contribution. C. Competition. D. Substitution.

B. The effect of value of one component is dependent on its contribution to the sale.

48. Capitalization is the process by which the estimated future annual net income is used as the basis to A. determine value. B. estimate value. C. establish depreciation. D. calculate potential tax liability.

B. estimate value.

19. The forces beyond the control of the property owner that affect the value of the property are called A. approaches to value. B. externalities. C. increasing and decreasing returns. D. depreciation.

B. externalities.

41. The direct sales comparison approach to appraising may be unreliable in a(n) A. period of hyper-inflation. B. inactive market. C. "bedroom community:" D. are where there is new construction.

B. inactive market.

47.The economic value of situs is directly related to A. cost. B. location. C. method of calculating depreciation. D. reproduction cost.

B. location.

49. When using the cost approach to value, an appraiser would consider all of the following items EXCEPT the A. reproduction or replacement cost. B. price the seller paid for the property. C. value of the land parcel. D. depreciation from all sources.

B. price the seller paid for the property.

40. To arrive at the estimate of value of property in an old neighborhood, an appraiser would rely more heavily on an estimate that A. figures cost to rebuild, less depreciation, plus land. B. reviewed similar or comparable properties in the same area that have sold recently. C. processed income flow to value. D. none of these.

B. reviewed similar or comparable properties in the same area that have sold recently.

23. When changing tastes and standards cause an existing house to lose value, there is A. physical deterioration. B. economic obsolescence. C. functional obsolescence. D. sociological deterioration.

C. A typical cause of incurable loss in value due to functional obsolescence.

37. A chain store has been enjoying a good business. A new expressway cuts off access to the store. Identify the type depreciation described and determine whether or not it is curable. A. Physical, incurable. B. Economic, curable. C. Economic, incurable. D. Functional, curable.

C. Economic, incurable.

35. Obsolescence in real property has two forms, functional and economic. With regard to these forms, which is true? I. Functional obsolescence is the result of factors within the property itself. II. Economic obsolescence is caused by factors outside the property. A. I only. B. II only. C. Both I and II. D. Neither I nor II.

C. Functional and economic obsolescence generally deplete a building long before the building itself is physically worn out.

10. The principle of value that reflects the fact that the present use of a property may be different from its use ten years from now is the principle of A. competition. B. substitution. C. change. D. conformity.

C. Nothing remains static. Changes in physical and economic conditions as well as the actions of buyers and sellers generally continue.

22. Physical deterioration results from A. action of the elements. B. normal wear and tear. C. Both A and B. D. Neither A nor B.

C. The most common causes of physical depreciation, usually curable.

15. An appraiser who is using the comparison method to appraise a single-family residence would never use the selling price of which of the following? A. A similar home tat sold over six months ago. B. A similar home that sold recently but is located in another neighborhood. C. A similar home that was sold by owners who were forced to sell at any price because of financial difficulties. D. A home of similar size, situated on a corner lot.

C. The price of a home sold under pressure is not a valid comparison factor. Adjustments can be made for time lapses, for another neighborhood and to the quality of lots with reasonable accuracy.

11. The first thing appraisers should know in undertaking an appraisal is A. how they are to be paid. B. the selling price of the property. C. the purpose of the appraisal. D. what property has sold for recently in the area.

C. The purpose of the appraisal is significant because it affects the choice of method and selection of data. For instance, an appraisal of the same property for the fire insurance and one for investment purposes will result in different estimates of value.

13. Which of the following should have no influence on an appraisal compensation? A. The complexity of the appraisal. B. The time required to make the appraisal. C. The value estimated in the appraisal. D. The expenses of the appraiser.

C. The time spent, the complexity of the appraisal and expenses incurred, are legitimate factors in determining an appraisal fee.

26.Value is described as which of the following? A. The utility of an object in satisfying a person's need. B. The worth of an object in exchange. C. Both A and B. D. Neither A nor B.

C. Value is the "worth" of something. It includes utility, but may be affected by many other factors.

33. It is accurate to say that it is better to use the reproduction cost approach on a new building instead of an older one because A. land values change so rapidly. B. local codes change over the years. C. it is easier to estimate depreciation. D. it is too difficult to put a price on historical value.

C. With no accrued depreciation, the reproduction cost method is appropriate.

50. The loss in property value because of the lack of sufficient parking facilities in a four bedroom home would be called A. physical deterioration. B. physical obsolescence. C. functional obsolescence. D. external obsolescence.

C. functional obsolescence.

46. With the cost approach to value, the most common method of cost estimation is the A. quantity survey method. B. unit-in-Mace method. C. square-foot method. D. index method.

C. square-foot method.

principle of A. progression. B. assemblage. C. change. D. regression.

D. A property may decrease in value by being in a neighborhood with properties of lesser value.

16. The principal factors for which adjustment must be made in using the market data approach include A. location and physical features. B. date of sale. C. terms and conditions of sale. D. All of the above.

D. Adjustments to the comparable should be made to each of these factors.

4. The elements necessary for property to possess value include A. demand. B. utility. C. transferability. D. All of the above.

D. All of these elements must be present.

21. All of the following are correct statements concerning depreciation, EXCEPT A. a loss of value from any cause. B. the subject of wear and tear on investment property or property used in a trade of business. C. includes all of the influences that reduce the value of a property below its replacement cost new. D. always concerned with intrinsic value and not concerned with factors outside.

D. An appraisal must always be objective.

27. All of the following are correct statements concerning depreciation except A. a loss of value from any cause. B. the subject of wear and tear on investment property or property used in a trade or business. C. includes all of the influences that reduce the value of a property below its replacement cost new. D. always concerned with the intrinsic factors of property, never with the outside factors.

D. An appraisal must always be objective.

34. Depreciation may occur from A. economic obsolescence found in the neighborhood where a property is located. B. loss of functionality due to the basic construction techniques used in a building. C. loss in value due to anything affecting the property and the area around it. D. all of the above.

D. Depreciation is the loss from the upper limit of value from any cause.

3. Which of the following types of depreciation is always incurable? A. Physical deterioration. B. Physical obsolescence. C. Functional obsolescence. D. External obsolescence.

D. External obsolescence

9. Highest and best use is A. single-family property zoned for industrial use. B. property purchased for owner use. C. the use which the purchaser intends when the property is purchased. D. the reasonable, possible, and probable use of the property that will yield the highest return on investment.

D. Highest and best use of the land is that which, at the date of the appraisal, is legal (zoning) and will yield the highest net return (money) in the foreseeable future.

2. Market price is the A. true market value. B. price at public sale. C. price asked for the property on an open market. D. amount, in terms of money, paid for the property.

D. Market price is the actual amount of money paid.

29. Quality appraisals require expertise and experience. Anyone who works as an appraiser is required to A. hold an active Oklahoma sales or broker's license. B. have a minimum of six months training under a recognized senior appraiser. C. be an active and certified member of any one of the recognized appraisal societies. D. do none of the above.

D. Oklahoma law makes no requirement for being an appraiser.

45. The decision as to what the highest and best use to which a particular property could he put is determined by which of the following? A. What similar building lots are being sold for. B. How tall a building the neighborhood would warrant. C. What use would presently produce the largest net income. D. That use which would produce the greatest amount of amenities or net income in future years.

D. That use which would produce the greatest amount of amenities or net income in future years.

25. Quality appraisals require expertise and experience. Anyone who works as an appraiser is required to A. hold an active Oklahoma real estate broker's license. B. have a minimum of six months training under a recognized senior appraiser. C. be an active and certified member of any one of the recognized appraisal societies. D. do none of the above.

D. The Oklahoma Real Estate License Code does not cover appraising. State licensing of certification is required for real estate transactions involving federal agencies.

32. The usefulness of the cost approach may be limited if the subject is A. a new structure. B. in an inactive market. C. proposed construction. D. an old structure with many functional deficiencies.

D. The cost approach is useful for new and proposed construction. Without comparables, cost may be the only viable approach.

5. The statement that no prudent person would pay more for a parcel of real property than the price of a reasonably close alternative which is available without undue delay, refers to the principle of A. balance. B. competition. C. conformity. D. substitution.

D. The value of real property is generally influenced by the cost of acquiring a substitute (comparable) property. When two or more commodities of similar utility are available, the one with the lower price generally will receive the greater demand. People generally do not pay more for a property than the cost of buying land and building a similar residence.

43. "The value of the best property in a neighborhood will he adversely affected by the proximity of substantially less valuable property:" This is an element of the principle of A. balance. B. contribution. C. anticipation. D. progression-regression.

D. progression-regression.

44. A builder developed a subdivision in which the demand for homes was great. The last lot in the subdivision was sold for a much higher price than the first lot purchased in the area. This example illustrates the principle of A. highest and best use. B. substitution. C. conformity. D. supply and demand.

D. supply and demand.