Exam 2 REE4103 - Quiz Qs

A house has floor coverings that are 4 yrs old. Decorators in this area indicate that carpets of similar quality last about 10 yrs but typically go out of style after only 6. What is the value of carpet with a reproduction cost of $5,000?

$3,333.33 (4/6)(5000)

Consider a 10,000 sf strip shopping center that sold five years ago for $300,000 and then sold again recently for $345,000. The indicated average annual appreciation of the shopping center would be? $9,000 $45,000 -$45,000 -$9,000

$9,000

Residential sites are often valued using A price per square foot A price per animal unit month A price per room A price per cubic meter

A price per square foot

A 30-yr old building with an effective age of 20 years has a total life expectancy of 50 yrs. How much depreciation has occurred?

40%

A property sold for $125,000 in a cash sale. It was 12 yr old and had a site value of $30,000. The reproduction cost of the building improvements was $102,350. What is the amount of depreciation overall?

7.18%

A 5 yr-old property sold for $100,000 and has a site value of $20,000. If the replacement cost of the improvements was estimated at $125,000 what is the indicated annual depreciation rate (straight line-annual percentage)

7.2%

The market loss caused by depreciation in an older structure may be offset by all of the following except

It may be offset by a temporary scarcity relative to demand or by an improvement's historical or architectural significance

Which approach is usually the most applicable for appraising residences? Cost Sales Comparison. Income capitalization Cost and income capitalization

Sales Comparison.

Which approach would be best to use when appraising a 15-20 year old house? Cost Feasibility study Sales comparison Income capitalization

Sales comparison

Which of the following is the most reliable method for vacant land/site valuation?

Sales comparison

Entrepreneurial profit

Based on the economic concept of opportunity cost. It is the amount earned above and beyond what the entrepreneur would have earned if that person had chosen to invest time and money in some other enterprise.

For a property to be considered as a comparable: It must have sold within five years It must be a competitive property It must be an open market transaction Both (b) and (c)

Both (b) and (c)

Which of the following is NOT a type of depreciation:

Entrepreneurial loss

The subdivision development method in appraisal is used to estimate the value of vacant acreage that is ready to be subdivided. This method requires:

The study of sales of subdivided lots and the projection of land development costs.

Functional obsolescence is the difference

btwn what you have and what you should have

Items that must be considered in the valuation of land include

Water, mineral & air rights

The ground rent capitalization technique of site valuation

is used with a ground lease (when a landowner leases land to a tenant who agrees to erect a building on the land), the value of the ground lease is usually determined by dividing the ground rent by the appropriate capitalization rate derived from the market.

If an improvement suffers from a loss in value attributable to wear and tear from regular use, it is called

physical deterioration

Price per front foot is a physical unit of comparison not as accurate as price per acre rarely used in residential site analysis an accurate guide to site marketability

a physical unit of comparison

Ex of functional obsolescence do not include

anything external which involves conditions outside the property lines (cause by a flaw in the structure, materials, or design of an improvement with H&B use)

effective age refers to

apparent age, considering the physical condition and marketability of a structure

Indirect costs are _______ costs (administrative, professional fees, financing and interest, taxes, marketing, etc.)

soft

External or economic obsolescence can be caused by all of the following except

something from within the property lines aka functional obsolescence. Caused by negative externalities and factors outside the property

Improvements with incurable physical deterioration have depreciation that is _______ _________reproduction or replacement cost

less than

In the same market, a 12,000 sf shopping center with similar characteristics sold for $323,000 five years ago, and another 12,000 sf property sold last year for $365,000. What is the average annual change per unit (sf) for those comparable properties? $42,000 sf $10,500 sf $0.87 /sf $3.50 / sf

$0.87 /sf

Qualitative analysis is based on Adjusting the sale prices of comparables on a percentage basis "Inferior" or "superior" ratings Dollar ratios Price per square foot

"Inferior" or "superior" ratings

The land on which a 10 yr old house is located is valued at $28,000 and the reproduction cost of the dwelling is $92,000. Straight-line depreciation is 2%/yr, applied to the building only. If there is not other obsolescence, what is the indicated value of the property?

$101,600

This Narrative Applies to the Next Question Comparable sale sold for $150,000 with down payment of $30,000 · Seller financed mortgage for a 30-year term @ 7% interest compounded monthly. · Homes in area are typically held for 30 years · Market derived interest rate is 9% compounded monthly. (Implicit in this method is the assumption that the difference between the market interest rate and the contract rate will remain constant for the entire 30 years) What is the adjusted sale price after taking into consideration financing terms? $107,615.52 $129,222.04 $99,222.04 $170,777.95 None of the above

$129,222.04

In the subject property's neighborhood, improved properties are selling for prices in a range of $140,000 to $160,000. Research reveals a typical land value-to-total property value ratio of 20%. What is the range of value for a similar site in this neighborhood? $14,000 to $16,000 $16,000 to $20,000 $22,000 to $25,000 $28,000 to $32,000

$28,000 to $32,000

The land on which a 10 yr old house is located is valued at $128,000 and the reproduction cost of the dwelling is $92,000. Straight-line depreciation is 2%/yr, applied to the building only. If there is not other obsolescence, what is the indicated value of the property?

$202,200

Based on the following cost estimates, what is the reproduction cost of a 2,350-sq.-ft. house with a 1,100-sq.-ft. basement, a 650-sq.-ft. attached garage, and a 300-sq.-ft. wood deck?· Above-grade residence cost = $77 per square foot; · Basement area cost = $18 per square foot; · Garage cost = $18 per square foot; · Wood deck = $11 per square foot $215,750 $212,450 $200,750 $180,950

$215,750

You are analyzing a sale in which the mathematical calculation of cash equivalency calls for a $10,000 downward adjustment. However, by use of several paired data sets, you find that the market only recognizes a $4,000 downward adjustment. What is the adjustment for financing? $4,000 $7,000 $10,000 $14,000

$4,000

This Narrative Applies to the Next Two (2) Questions Valuation assignment for the subject property is for both the building and land. · A Comparable Office Bldg owned and sold separately from its site (land), which is subject to a 99-year ground lease. · The comparable 80,000 sf bldg sold (separately from the land) for $4,000,000, or $50/sf. · Assume the annual ground rent is $150,000, which is consistent with the market · Market Land Capitalization rate is 11%. If no other adjustments were made except for the value of the land, what would be the final adjusted sales price of this comparable? $1,363,636 $4,000,000 $2,636,363.64 $5,363,636.36 None of the above

$5,363,636.36

This Narrative Applies to the Next Question Valuation assignment for the subject property is for both the building and land. · A Comparable Office Bldg owned and sold separately from its site (land), which is subject to a 99-year ground lease. · The comparable 80,000 sf bldg sold (separately from the land) for $4,000,000, or $50/sf. · Assume the annual ground rent is $250,000, which is consistent with the market · Market Land Capitalization rate is 11%. If no other adjustments were made except for the value of the land, what would be the final adjusted sales price of this comparable? $2,272,727.27 $4,000,000 $2,636,363.64 $6,272,727.27 None of the above

$6,272,727.27

You are asked to appraise a vacant building lot. The neighborhood is about 75% built up. Most lots in the area are from 55 to 65 feet wide; the lot under appraisal is 60 feet. Comparable sales indicate that lots are selling at $120 to $150 per front foot. What is a good estimate of the price range for this lot? $9,000 - $11,000 $7,200 to $9,000 $5,400 to $6,750 $6,600 to $11,250

$7,200 to $9,000

If the site represents 40% of the total value in a particular neighborhood, how much land value would be allocated from a $200,000 sale of a single family home? $120,000.00 $8,000.00 $80,000.00 $200,000.00

$80,000.00

The appropriate time adjustment is concluded to be an increase of 7% per year compounded. The time adjustment for a comparable sale that sold for $40,000, 2 years ago is: -5796 +$5,796 -2800 5600

+$5,796

Consider a corner vacant lot being appraised and two sales of vacant lots similar to the subject in most respects except for location. Comparable A, a corner lot with frontage on two streets, was sold for $12/sf. Comparable B, an interior lot with frontage on only one street, was sold for $9/sf. What is the adjustment for Comparable B? -25% +25% -33% +33%

+33%

The three principal methods of estimating depreciation are

- market extraction - age-life - breakdown

An improvements remaining economic life is

-its chronological age -its effective age -the future time span over which the improvements is expected to generate benefits -its effective age minus its chronological age -its effective age plus its chronological age

The owner of a two-acre commercial site insists that her property has appreciated by at least 5% per year since she bought it four years ago. As the appraiser, you are asked to factor this into the appraisal or refute her contention. Research in this market revealed the following sales and reseals of comparable properties: Date Price Annual Appreciation Rate 1 Price 1 month ago= $200,000 Price 3 years and 1 month ago= $195,000 % 2 Price 3 months ago= $195,000 Price 2 years and 4 months ago= $187,000 % 3 Price 1 month ago= $210,000 Price 2 years and 4 months ago= $210,000 % 4 Sale 2 months ago= $192,000 Sale 1 year ago= $187,000 % What is the average annualized reconciles appreciation rate on a straight- line basis? Use annual accounting. 1.53% .86% 2% 3.2%

1.53%

Adjustments for financing terms compensate for A comparable that sold with financing below the current market rate A comparable that sold with financing terms that were different than the terms defined in the appraisal report A comparable that sold with financing provided by a commercial bank A comparable that sold with cash to the seller

A comparable that sold with financing terms that were different than the terms defined in the appraisal report

Comparative analysis is A general term used to describe the process by which qualitative or quantitative techniques are used to derive a value opinion in the sales comparison approach The tool used in the cost approach to estimate depreciation to the buildings A tool used to convert income to value in the income approach A term used to describe levels that support construction costs

A general term used to describe the process by which qualitative or quantitative techniques are used to derive a value opinion in the sales comparison approach

Which of the following best illustrates curable functional obsolescence?

A narrow, short car port that can be enlarged at a low cost.

Physical deterioration refers to:

A reduction in the utility of improvements resulting from an impairment of physical condition and is commonly divided into curable and incurable components

Accrued depreciation can be defined in appraisal terms as

A total loss of value from all causes

Which of the following tends to set the upper limit of value? A. Replacement cost new of the improvements plus the market value of the land. B. Market data approach C. Income approach D. Gross rent multiplier

A. Replacement cost new of the improvements plus the market value of the land.

Adjustments for the property rights conveyed, financing, conditions of sale, and the date of sale are often made to the _______________ of the comparable property. Unit price Actual sale price Square foot price Gross income multiplier

Actual sale price

The land valuation technique that relies on an analysis of ratios of land value to property value is Allocation Extraction Interpolation Land residual

Allocation

A ratio of land value to property value is extracted from comparable sales and applied to the sale price of the subject property to arrive at the land value describes which of the following terms?

Allocation method

economic/external obsolescence in a residence does NOT result from

An outdated kitchen

When there is little or no recent land sales data, which technique may the appraiser use to estimate land value?

Anything but sales comparison?

Units of comparison Rates are difficult to estimate Classifications are difficult to estimate Are items that represent a breakdown of the price based on a significant variable Are the characteristics that cause the prices paid for real estate to vary

Are items that represent a breakdown of the price based on a significant variable

Property sale prices Are negotiated by appraisers Are negotiated between buyers and sellers Are set by brokers Are opinions

Are negotiated between buyers and sellers

The current reproduction cost A. Includes all items at their historical cost when they were installed new B. Includes all items at today's prices and with modern materials, including none of the deficiencies caused by changes in building techniques C. Includes the estimated cost of all items as of the effective date of appraisal with materials as they were installed D. Includes long-lived items only

C. Includes the estimated cost of all items as of the effective date of appraisal with materials as they were installed

In which approach to value must a separate site value be distinguished from the cost of the improvements.

Cost approach

Which principle of value best affirms that the maximum value of property generally cannot exceed the cost of its replacement

Cost approach

In the cost approach __________ is deducted after estimating the cost to reproduce an existing structure

Depreciation

Depreciation is defined as the difference between the:

Difference between the contributory value of an improvement and its cost at the time of appraisal

Depreciation is:

Difference between the contributory value of an improvement and its cost at the time of appraisal

Cost index trending is Estimating current cost based on the original cost extended to the effective date Estimating the reproduction cost of an improvement based on an extraction from a new property sale Estimating the cost of an improvement based on rent Estimating the reproduction cost of an improvement based on statistical inference from grouped data of sales of existing properties

Estimating current cost based on the original cost extended to the effective date

In analyzing obsolescence, the test of curability of a component in a building is whether the cost to cure is no greater than the

Expected increase in value

An estimate of the depreciated cost of the improvements is deducted from the total sale price of the property to arrive at the land value describes which of the following terms?

Extraction method

If the land has improvements on it, the land must be valued by the:

Extraction method / Highest and Best use

Estimation of accrued depreciation and obsolescence does NOT involve

Financial structure

A comparable sale included the seller taking back a purchase-money mortgage at 3% under the market rate for 10 years. The appraisal was based on the cash-equivalent market value. The adjustment for this factor would be called a Financing terms adjustment Conditions of sale adjustment Expenditures made immediately after purchase adjustment Real property rights conveyed adjustment

Financing terms adjustment

To estimate its market value, the land under an improved property is best compared to sales of vacant land that Have the same or similar highest and best use Have the same type of building on them (after the sale) Show the maximum value for the subject property Show the minimum value for the subject property

Have the same or similar highest and best use

To estimate its market value, the land under an improved property is best compared to sales of vacant land that Have the same or similar highest and best use Have the same type of building on them (after the sale) Show the maximum value for the subject property Show the minimum value for the subject property

Have the same or similar highest and best use

In the cost approach, the valuation of land involves the principle of: conformity Contribution Highest and Best use variable proportions

Highest and Best use

Comparable sales that require no adjustment to the subject are usually sales: Within two years Of properties equal in square footage In the same neighborhood In new developments with nearly identical properties

In new developments with nearly identical properties

A large home built in an area of small cottages is an example of:

Incurable superadequacy

The subdivision development analysis technique is More accurate than a well-prepared sales comparison analysis Less accurate than the allocation method Is very applicable when the main criteria of value is the number of lots that can be developed out of a parcel of land Is not an accepted technique for the valuation of land

Is very applicable when the main criteria of value is the number of lots that can be developed out of a parcel of land

Curable physical deterioration is

Items (deferred maintenance) that a prudent purchaser would anticipate correcting immediately upon acquisition of the property

Land is always valued considering Its highest and best use as improved. Its highest and best use as though vacant. The improvements thereon The likelihood of conversion to commercial zoning

Its highest and best use as though vacant.

In estimating the value of a commercial lot, which of the following methods would most likely be used, if there are no direct comparables?

Land residual/direct capitalization

In a market value appraisal assignment, the appraiser found prices were increasing at about 3% per year compounded annually. The appraiser found several comparable sales but they were not very recent transactions. She decided to make an adjustment to compensate for price increases in this market. These adjustments are called Financing terms adjustments Conditions of sale adjustments Market conditions adjustments Real property rights conveyed adjustments

Market conditions adjustments

When reconciling the adjusted sales price of comparables, the greatest emphasis should be given to: The average The median The mode None of the above

None of the above

When an appraiser researches the market directly with participants and the data has not been previously collected, it is called Secondary data Primary data Useful data Quantitative data

Primary data

The preferred sequence of adjustment is Property rights, conditions of sale, expenditures after sale, financing, market conditions, and physical attributes Property conditions, financing, conditions of sale, expenditures after sale, market conditions, and physical attributes Property rights, conditions of sale, physical attributes, expenditures after sale, financing, and market conditions Property rights, financing, conditions of sale, expenditures after purchase, market conditions, and physical attributes

Property rights, financing, conditions of sale, expenditures after purchase, market conditions, and physical attributes

Land prices are analyzed and adjusted in the sales comparison process. These adjustments may involve

Sale prices from comparables - quantitative (% & $) - qualitative (trend analysis, relative comparision, ranking analysis) - Transactional adj. -→ Property adj.

Replacement cost new refers to the cost of...

Replacing the subject with one that has equivalent utility but is built with modern materials and to current standards of design and function

Which of the following are recognized methods for valuing vacant land?

Sales Comparison

Land can be valued by Sales comparison, allocation, extraction, and abstraction Sales comparison, land residual, ground rent capitalization, and determination Sales comparison, land residual, allocation, and extraction Highest and best use, sales comparison, and asset management

Sales comparison, land residual, allocation, and extraction

Standard land valuation techniques include:

Sales comparison, land residual, allocation, and extraction

Physical units of comparison are a substitute for adjusting for: Location Terms of financing Age Size

Size

An open market transaction would not be one: Listed for at least 30 days Listed on a multiple listing service Advertised in local newspapers Sold to a relative

Sold to a relative

In the cost approach, the valuation of land involves the principle of:

Substitution

The principle of _____________ states that a buyer will not pay more for a site than for another equally desirable one: Anticipation Imbalance Substitution Balance

Substitution

A very expensive features that is not recognized in the market at its physically depreciated cost because it is too nice has

Superadequacy

Current listings that have been exposed to the market for a reasonable time Tell the appraiser what the subject's market value cannot exceed Tell the appraiser what the subject's market value is Tell the appraiser what the subject's value in use is Tell the appraiser what the subject's investment value

Tell the appraiser what the subject's market value cannot exceed

A conditions of sale adjustment reflects A. The difference in the market on the effective date of the appraisal and the dates of sale of the comparables B. The differences between the motivations of the seller and buyer on the date of sale of a comparable and the typical motivation of buyers and sellers as described in the definition of value C. The differences in the sale prices of properties that sold for cash and the ones that sold with financing D. The differences in sale prices of properties that sold from non-related parties

The differences between the motivations of the seller and buyer on the date of sale of a comparable and the typical motivation of buyers and sellers as described in the definition of value

A market conditions adjustment is applied in some situations because Financing terms have altered prices The market has changed since the comparable property sold It allows the appraiser more flexibility in the indication of value All real estate values increase on a regular basis

The market has changed since the comparable property sold

Economic life refers to

The period over which improvements to real estate contribute to the value of the property

All of the following are cost estimation methods except

Unit-breakdown

Which method of estimating cost considers each building component, as installed, including the material and labor? Comparative-unit, also known as price per square foot Unit-in-place Quality survey Contractor trending

Unit-in-place

Short-lived items refers to:

a building component with an expected remaining economic life that is shorter than the remaining economics life of the entire structure

A house built in 1965 and appraised in 1994 should have

a chronological (actual) age of 29 yrs

A property sold recently for $78,000. The site value is $14,000. The building has an effective age estimate of 21 yrs and the estimated replacement cost is $95,000. What is the indicated avg annual depreciation rate? a) rate b) depreciated value of improvements c) total depreciation in dollars

a) 1.10% b) 87k-14k= 73k c) 95k-73k= 22k

All of the following are accepted classifications of accrued depreciation for appraisal purposes EXCEPT

accounting allocation

reproduction cost new - improvement's current market value

accrued depreciation

A building that is too large for the neighborhood is an example of functional obsolescence in the form of overimprovement. Another example of functional obsolescence is: a sound building with a worn-out heating system an awkwardly shaped floor plan in an office building a residence abutting a new freeway an older building with modernized elevators

an awkwardly shaped floor plan in an office building

The effective age of a building will probably exceed its actual age when:

an inadequate maintenance program has been used

What is NOT an example of functional obsolescence? a. Massive cornices b. Hole in the roof c. Out-dated kitchen d. One-car garage

b. Hole in the roof

Functional obsolescence attributed to a property may result from:

changes in popular taste

The cost approach is not useful for checking value approaches estimating the value of new property appraising older homes in an active market appraising institutional or special-use properties

checking value approaches

The cost of plumbing, heating, elevators, and similar building components may represent a smaller proportion of total costs when these components are installed in a large building than in a smaller one. This may be reflected in the

comparative-unit method

To be used as comparables, land sales must be

competitive and open market transactions

Historical costs of construction for an improvement totaled $100,000 in January 1998. To update the original cost amounts to a more recent date is an example of

cost index (trending?)

External or economic obsolescence is normally NOT

curable by the owner, the landlord, or the tenant

In appraisal, accrued depreciation is really an estimate of

diminished utility

The period of time over which improvements contribute to property value is called

economic life

An example of a superadequacy is

excess ceiling height, high end finish in class C office, warehouse with 60% office space with a market that prefers 25%

A residential property that is adjacent to an active and very noisy railroad corridor probably suffers from

external obsolescence

Reproduction or replacement cost includes all of the following except direct or hard costs direct or soft costs fixed and variable expenses of operations elevator shafts

fixed and variable expenses of operations

Direct costs are:

hard costs - labor and material

The cost approach is most applicable when the property being appraised

has new improvements that represent the highest and best use

Typically, land is appraised by the:

highest and best use as vacant

The sales comparison approach of appraising land is difficult in older built-up neighborhoods because:

older homes can have a lot of depreciation, it is better to use a method like the cost approach when there is good data for measuring depreciation

The basis of the comparative-unit method of estimating reproduction cost is

price / sf

The most detailed, complex, costly and time-consuming method of cost estimation is the: quantity survey unit-in-place comparative-unit method unit breakdown

quantity survey

Curable functional obsolescence is the

results of either a deficiency or an excess

In calculating depreciation, a limitation of the age-life method is that it

tends to ignore physical deterioration

Entrepreneurial incentive is:

the amount an entrepreneur expects to receive as compensation for coordinating and taking on the risks of a project, the same thing as entrepreneurial profit

In one step of the land residual technique, the building capitalization rate is applied to the known building value to estimate

the amount of annual net income needed to support the value of the building

Book depreciation refers to

the amount of capital recapture written off an owner's books

Reproduction cost

the cost new of an exact replica of the subject

Reproduction cost is

the cost new of an exact replica of the subject

The cost approach is based on the assumption that: the cost to produce a building plus the cost of the site are an indicator of its value. the cost to produce a building is often more than its value. there is little relationship between cost and value. none of the above.

the cost to produce a building plus the cost of the site are an indicator of its value.

A defect is considered curable if

the curable item is one that can easily and economically be restored or replaced, resulting in an immediate increase in appraised value

In the cost approach the site is valued as if it were:

the highest and best use of the site as though vacant and is relatively new

The cost estimates used in appraisal typically reflect

the improvements of the property (quantity; inventory of used//depending on which method of cost estimating reflects how detailed it is)

Useful life is

the period over which a building may be profitably

The period over which a building may be profitability used is its

useful life