National Topic Tester - Valuation & Market Analysis

All of the following terms are economic characteristics of land, except: Select one: A. Assemblage B. Scarcity C. Immobility D. Improvements

(elements of value) Immobility is a physical characteristic of land. All other choices are economic characteristics. The correct answer is: Immobility

Which of the following statements best describes the principle of highest and best use? Select one: A. Value created by, and maintained in proportion to, the use characterized by nearby real estate B. Property utilized in the most profitable manner C. Future performance, not past performance D. Property attains its highest value when homogeneously developed

(principles of value) The highest and best use of property is the legal use which will provide the greatest net income to the owner. It must also be a use that is feasible and customary. The correct answer is: Property utilized in the most profitable manner

When using the cost approach method, the appraiser subtracts the depreciation amount from the total value of a property. The appraiser would allow for depreciation of: Select one: A. Improvements only B. Land only C. Both land and improvements D. None of the above

(methods of estimating value) You can depreciate improvements, but you cannot depreciate land. The correct answer is: Improvements only

What is the economic characteristic which states that a person will purchase based on the expectation of a future benefit? Select one: A. Increasing returns B. Highest and best use C. Substitution D. Anticipation

(principles of value) Anticipation is when an investor purchases a property based on its future potential income. The correct answer is: Anticipation

Which of the following terms is a formal estimate of property value? Select one: A. BOV B. BPO C. Appraisal D. Both B and C

(nature of value) A broker opinion of value (BOV), or broker price opinion (BPO), is an informal estimate of market value based on comparable sales in the neighborhood. By contrast, an appraisal is a formal estimate or opinion of property value, performed by a state licensed or certified professional appraiser and supported by the presentation and analysis of detailed data. The correct answer is: Appraisal

If an appraiser tells you that a property "suffers from incurable depreciation," he would most likely be describing: Select one: A. Physical obsolescence B. Functional obsolescence C. Economic obsolescence D. None of the above

(principles of value) A property is "incurable" if it is not economical (or even possible) to fix the decrease in value. Physical and functional obsolescence MAY be incurable. Meanwhile, economic obsolescence is ALWAYS incurable since it is due to a factor outside of the property, which the owner has no control over. Therefore, economic obsolescence is the best answer. The correct answer is: Economic obsolescence

A property owner learns that a poisonous gas plant is going to be built next door. She appeals to a court to stop this construction. The basis for her appeal would be: Select one: A. Physical deterioration B. Functional obsolescence C. Economic obsolescence D. Environmental obsolescence

(principles of value) The gas plant would make the property less desirable and cause the value to decrease. External obsolescence (also known as economic obsolescence) is when changes in the surrounding environment make a property less attractive to individuals which, in turn, reduces its market value. The correct answer is: Economic obsolescence

Which of the following values is used to determine real property taxes? Select one: A. Market value B. Appraised value C. Assessed value D. All of the above

Which of the following values is used to determine real property taxes? Select one: A. Market value B. Appraised value C. Assessed value D. All of the above

The principle of substitution is used with the: Select one: A. Income approach B. Cost approach C. Market data approach D. Both B and C

(methods of estimating value) Substitution states that an informed buyer will pay no more for property than the cost to acquire equally desirable real estate. In other words, value is influenced by the cost to acquire an equal substitute. Substitution is the basis of the market data approach and the cost approach. Meanwhile, the income approach is based on the principle of anticipation. The correct answer is: Both B and C

Which of the following principles of value would a real estate salesperson consider first when preparing to do a CMA? Select one: A. The principle of conformity B. The principle of contribution C. The principle of substitution D. The principle of highest and best use

(methods of estimating value) While the CMA is based largely on the principle of substitution, the first step is to locate comparable properties. The best comparable properties are those with the same highest and best use. The salesperson would then examine comparables and make adjustments as necessary. The correct answer is: The principle of highest and best use

A property has been appraised, exposed to the market for a reasonable length of time. It finally sells. Who determines the market value of the property? Select one: A. Lender B. Buyer C. Appraiser D. Seller

(nature of value) It is the buyer that sets market value (what a ready, willing, able, and knowledgeable buyer will pay). Think of this as if it were an auction. It is the bidder (buyer) that sets the price. The correct answer is: Buyer

The type of value that a local government assigns to a property is the: Select one: A. Market value B. Appraised value C. Assessed value D. CMA value

(nature of value) Market value is the most probable price that an item will bring in cash in an open and competitive market. Appraised value is an estimate of market value made by an appraiser. A CMA (comparative market analysis) is an informal estimate of market value by an individual who is not an appraiser. Meanwhile, assessed value is the value assigned by local government to calculate taxes. The correct answer is: Assessed value

Which of the following circumstances is an example of functional obsolescence? Select one: A. A house with a leaking water pipe B. Shutters that needed painting C. A house that isn't close to any elementary schools D. A house without indoor plumbing

(principles of value) A house without indoor plumbing would suffer from functional obsolescence. Leaking water pipes and shutters in need of paint are physical deterioration. Whether a house is near a particular elementary school may or may not be desirable. If negative, the elementary school would be economic obsolescence. The correct answer is: A house without indoor plumbing

A decline in property values after building an airport near a residential subdivision would be an example of: Select one: A. Economic obsolescence B. Physical depreciation C. Functional obsolescence D. None of the above

(principles of value) An airport that is near the subdivision would tend to depreciate nearby property values (due to noise, traffic, etc). This is an example of economic obsolescence because it's due to a condition outside of the property, which the owner has no control over. The correct answer is: Economic obsolescence

An owner builds a beautiful brick colonial house in a neighborhood of contemporary, single level houses. The owner lists his newly constructed house, but is unable to sell. This would be consistent with the appraisal principle of: Select one: A. Highest and best use B. Progression and regression C. Conformity D. Substitution

(principles of value) Due to the question's emphasis on the style of the house (rather than amenities or price), the best answer is conformity. We don't know whether the other houses have factors which would skew desirability up or down. However, the principle of conformity states that a property attains its highest value when it conforms to surrounding properties. In this situation, the inability to sell is probably because it does not match the style of the neighborhood. The correct answer is: Conformity

The period of time over which an income-prducing property gives benefit to its owner is called: Select one: A. Investment life B. Value life C. Physical life D. Economic life

(principles of value) Economic life (useful life) is the period of time over which an income-producing property is expected to remain economically profitable to its owner. Economic life is SHORTER than physical life. The correct answer is: Economic life

The construction of a new highway will divert traffic away from an area and cause a decline in property values. This is an example of which type of depreciation? Select one: A. Functional B. Physical C. Economic D. None of the above

(principles of value) External factors that affect property value are considered to be economic obsolescence. Economic obsolescence is always incurable because the owner has no control over matters outside of their property boundaries. The correct answer is: Economic

Lindon purchased a home in a Greenview neighborhood. He later finds out that an industrial site will be build right next to that neighborhood. The negative effect on neighborhood property values is called: Select one: A. Environmental deterioration B. External obsolescence C. Functional obsolescence D. Planned obsolescence

(principles of value) External obsolescence is a loss of value caused by outside factors that the owner cannot control (like environmental, social, or economic events). The correct answer is: External obsolescence

Jane decides to update the bathrooms before selling her home. By renovating the outdated bathroom fixtures, she has actually increased the value of her home. The outdated fixtures are an example of: Select one: A. Physical obsolescence -- curable B. Physical obsolescence -- incurable C. Functional obsolescence -- curable D. Functional obsolescence -- incurable

(principles of value) Functional obsolescence is the loss of value that a building suffers due to outdated design or materials. Such obsolescence is curable if the deficiency is economical to correct, and incurable if it is not economical to correct. This situation is a curable obsolescence since bathroom fixtures are relatively inexpensive and the property value increased after such improvements were made. The correct answer is: Functional obsolescence -- curable

One property has lower taxes, new fixtures, and conforms to the style of other properties in the neighborhood. Another nearby property does NOT have any of these benefits. The latter property would have: Select one: A. Economic desirability B. Functional desirability C. Economic obsolescence D. Functional obsolescence

(principles of value) Functional obsolescence occurs when an improvement loses value because it becomes functionally inadequate; this may be caused by poor design or merely the improvement's age. Because the second property has a poor design and/or lacks the improvements of the rest of the neighborhood, the appraised value will be reduced. The correct answer is: Functional obsolescence

Using a property in the most profitable manner is called the: Select one: A. Economic life B. Highest and best use C. Principle of conformity D. Reconciliation process

(principles of value) Highest and best use is when property is utilized to provide the greatest return to the owner. The correct answer is: Highest and best use

Physical depreciation most commonly refers to: Select one: A. Obsolescence B. Wear and tear C. Out of date design D. Property over 15 years old

(principles of value) Physical depreciation (deterioration) means "wear and tear," or physical damage to the property through use. Obsolescence (functional or economic) refers to other types of depreciation. The correct answer is: Wear and tear

Dan and Dirk are developers. Each have each completed new residential developments in Acme County. Dan and Dirk are also brothers, and each develops a similar plot of land. What could best explain why Dan's development sells out before Dirk's? Select one: A. Situs B. Uniqueness C. Reputation D. Style

(principles of value) Situs, or area preference, is the most important economic characteristic of land. This can often explain why two physically similar parcels of real estate have different economic values. The correct answer is: Situs

For a property to hold value, it must hold which four elements? Select one: A. Title; Time; Interest; Possession B. Anticipation; Regression; Conformity; Substitution C. Possession; Control; Excludability; Disposability D. Demand; Utility; Transferability; Scarcity

(elements of value) Regardless of its purpose, an item has some value if it satisfies the following four essential elements: Demand (desire to buy and an ability to pay); Utility (item satisfies a human need or desire, like shelter, income, or recreation); Scarcity (limited in supply--as supply diminishes, value increases); and Transferability (ablility to transfer from one owner to another). The correct answer is: Demand; Utility; Transferability; Scarcity

Which of the following factors would have the LEAST affect on an appraisal? Select one: A. The real estate market B. Income to be derived from the property C. Location of the property D. Livelihood of the prospective buyer

(elements of value) The livelihood (the means by which a person makes a living) would have the least affect on the appraisal. What the buyer does for a living has absolutely no bearing on value. However, the real estate market, location, and income to be derived from the property all have considerable influence on the appraisal. The correct answer is: Livelihood of the prospective buyer

Real estate salespersons often prepare a CMA when making listing price recommendations. Which principle is a CMA primarily based upon? Select one: A. The principle of conformity B. The principle of contribution C. The principle of substitution D. The principle of highest and best use

(methods of estimating value) A CMA, or competitive market analysis, is based on the valuation principle of substitution. This states that an informed buyer will pay no more for property than the cost to acquire an equally desirable piece of real estate. The correct answer is: The principle of substitution

When a salesperson or broker does a CMA, he could be doing any of the following services, EXCEPT: Select one: A. Helping a seller set a reasonable price B. Providing an appraisal of value C. Obtaining information about prices of similar properties D. Helping a potential buyer locate suitable property

(methods of estimating value) An appraisal is a professional estimate of market value by a licensed appraiser. A CMA is NOT an appraisal, but rather, an informal estimation of value by someone who is NOT an appraiser. The correct answer is: Providing an appraisal of value

In anticipation of selling his home, an owner has central air conditioning installed. How would an appraiser best determine the value of the property after installation? Select one: A. By making a comparison B. By adding the cost to the unimproved value C. By adding the cost to the depreciated value D. Both B and C

(methods of estimating value) Because this is residential property, the appraiser will use the market data approach and compare the subject property to other houses in the area with central air conditioning. The correct answer is: By making a comparison

Which pair is the most appropriate means of estimating value? Select one: A. Bob's house -- Cost approach B. The Raymond Civic Center -- Income approach C. Rookie Apartments -- Market data approach D. Valley View Mall - Income approach The correct answer is: Valley View Mall - Income approach

(methods of estimating value) Bob's house is best suited to the market data approach. The Raymond Civic Center is best suited to the cost approach. Rookie Apartments is best suited to the income approach. The Valley View Mall is best suited to the income approach. The correct answer is: Valley View Mall - Income approach

Seeing that a property is in need of a really good paint job, an appraiser would say that the property suffers from: Select one: A. Neglect B. Economic obsolescence C. Functional obsolescence D. Physical deterioration

(methods of estimating value) For appraisal purposes, depreciation is divided into three categories: physical deterioration, functional obsolescence, and economic obsolescence. The need to paint would technically (and most accurately) be classified as deferred maintenance, which is a form of physical deterioration. Physical deterioration includes settled foundations, cracking walls, leaking roofs, peeling paint, or any loss of physical integrity, including termite damage. The correct answer is: Physical deterioration

When estimating the value of a 20-year old house, an appraiser would place the greatest emphasis on: Select one: A. Market data approach B. Income approach C. Capitalization approach D. Both B and C

(methods of estimating value) For residential properties, appraisers usually give the most weight to recent comparable sales (market data approach). The income capitalization approach is used for valuation of income-producing properties, like apartment buildings, office buildings, shopping centers, and industrial parks. The correct answer is: Market data approach

Which method would an appraiser most likely use in estimating the value of an office building? Select one: A. Comparative market analysis B. Cost approach C. Income approach D. Market data approach

(methods of estimating value) Like other income-producing properties, an office building is primarily valued by determining the return on one's investment. Such a property would therefore be appraised by the income approach. The cost approach is performed for special use property (like churches, schools, etc). The market data approach is generally used for residential property. The correct answer is: Income approach

An appraiser is estimating the value of a house. The sellers want to list for $370,000 since it has 4 bedrooms, 3 bathrooms, and a pool. A comparable property recently sold for $350,000 (with 3 bedrooms, 3 bathrooms, and a sun room). In the adjustment process, the appraiser estimates that an extra bedroom is worth $45,000, the pool is worth $4,000, and the sun room is worth $17,000. What is the adjusted sales price of the subject property? Select one: A. $338,000 B. $382,000 C. $402,000 D. None of the above

(methods of estimating value) Remember that adjustments are made to the comparable properties, not to the subject property. The correct answer is: None of the above

When appraising a public library, which of the following appraisal approaches would be considered most reliable? Select one: A. Market data B. Capitalization C. Income D. Cost

(methods of estimating value) Since there would be few comparable sales for a special use property (market data) and no net income (income approach), the cost approach is the most reliable method. The cost approach is always used for any special use or historically significant properties. The correct answer is: Cost

A comparable for a property has a pool and sun roof, but the subject property does not. The price of the: Select one: A. Subject property will be adjusted higher B. Subject property will be adjusted lower C. Comparable property will be adjusted higher D. Comparable property will be adjusted lower

(methods of estimating value) The adjustment process, or comparison process, is accomplished by adjusting the comparable sales prices based on their differences from the subject property. The price of the subject property isn't determined until the reconciliation stage, where the appraiser weighs all of the data according to his own knowledge and experience. The correct answer is: Comparable property will be adjusted lower

Martha is preparing a CMA for a house that has a in-ground pool in the backyard. She located a comparable house down the street, which recently sold for $430,000. Unfortunately, it does not have an in-ground pool. If the value of the pool is $22,000, which of the following adjustments would she need to make? Select one: A. Subtract $22,000 from the subject property B. Subtract $22,000 from the comparable C. Add $22,000 to the subject property D. Add $22,000 to the comparable

(methods of estimating value) The adjustment process, or comparison process, is accomplished by adjusting the sales price of comparables for differences with the subject property. The correct answer is: Add $22,000 to the comparable

What provides the best estimate of a property's value? Select one: A. The amount a lender is willing to lend B. A formal appraisal C. A comparative market analysis D. The market data approach

(methods of estimating value) The amount of money a lender is willing to lend is based on many factors, which may include economic factors independent of the property. A comparative market analysis is, at best, an educated guess of the market value of a property. A formal appraisal is performed by a licensed appraiser who develops his opinion based on experience, education, and an analysis of the subject property. Therefore, of the choices listed, an appraisal is likely to produce the best estimate of a property's value. The correct answer is: A formal appraisal

What information would an appraiser use if he were appraising a house built in 1935? Select one: A. Consumer price index for 1935 with annual adjustments B. Current construction costs adjusted by the CPI index C. Replacement or reproduction cost D. Actual costs of construction in 1935

(methods of estimating value) The appraiser would normally use the market data approach to estimate value based on comparable sales. However, market data is not an answer choice. Of the choices given, only replacement or reproduction cost would be appropriate. Additionally, figures from 1935 have little relevance today. The correct answer is: Replacement or reproduction cost

What would the appraisal of a single-family residence probably NOT take into consideration? Select one: A. The potential rental income B. The location of the property C. The floor plan of the house D. The sales price of the house across the street

(methods of estimating value) The appraiser would place most emphasis on the market data (comparable sales) approach, which is based on the recent selling price of similar properties in the area. More likely than not, a single-family home would not be intended as a rental income property. Remember that the primary determination of value is situs, or "LOCATION, LOCATION, LOCATION". The correct answer is: The potential rental income

In the capitalization approach, the appraiser considers all of the following factors, EXCEPT: Select one: A. Price of the subject property B. Rate of return on the investment C. Amount of return on the investment D. Estimated future net income

(methods of estimating value) The capitalization approach uses a capitalization rate (cap rate), which reflects the rate of return on the investment. With this approach, the present property value is calculated by taking the estimated future net income (amount of return) and dividing it by the chosen cap rate (rate of return). The price of the subject property is not a factor, although the appraiser will use the price of comparable properties when determining an acceptable cap rate. The correct answer is: Price of the subject property

To properly calculate the effective gross income (EGI) on a 16 unit apartment building, the appraiser should allow for: Select one: A. The amount of property taxes B. The amount of income tax paid C. Principal and interest paid on the mortgage D. Vacancy rate and collection loss

(methods of estimating value) The effective gross income (EGI) is the total potential gross income minus the predicted vacancy rates and collection losses (unpaid rents). Property taxes, income taxes, and principal and interest paid on a mortgage represent expenses, NOT effective gross income. The correct answer is: Vacancy rate and collection loss

The final step in appraising an apartment building is: Select one: A. Capitalization B. Reconciliation C. Re-capitalization D. Re-capitalization

(methods of estimating value) The final step in ANY appraisal report is reconciliation. Through reconciliation, the appraiser analyzes the conclusions from his value estimations (if possible, from all 3 methods of valuation) and determines the appropriate value of the appraised property. The correct answer is: Reconciliation

Which of the following items would normally be contained in an appraisal for a parcel of real property? Select one: A. The income of the prospective buyer B. The highest and best use C. The price the owner paid for the property D. None of the above

(methods of estimating value) The highest and best use of the property is included in an appraisal report. After gathering data pertinent to the appraisal report, the appraiser determines the use (which may be different from current use) that gives the subject property its greatest value at the time of the appraisal. The correct answer is: The highest and best use

The capitalization approach is considered to be: Select one: A. A statement of future income B. The present value of property based on present and future income C. The actual cost of the property D. Another name for the GRM (Gross Rent Multiplier)

(methods of estimating value) The income (capitalization) approach is used to calculate the estimated present value of a property through its estimated present and future earnings. A future income statement has nothing to do with the value of the property. The correct answer is: The present value of property based on present and future income

A property is valued using the income approach to valuation. If the capitalization rate remains the same, but the NOI increases, will the property value be affected? Select one: A. Yes, the property value will decrease B. No, the property value will remain the same C. Yes, the property value will increase D. There is not enough information to choose an answer

(methods of estimating value) The income approach is based on the present worth of any future income that a property may produce. The income approach formula is: net operating income / capitalization rate = property value. If the numerator (NOI) is increased, then the overall answer will increase as well. The correct answer is: Yes, the property value will increase

Which method of valuation is the best choice when appraising a 25 unit apartment building? Select one: A. Income approach B. Market data approach C. Cost approach D. Comparable approach

(methods of estimating value) The income approach is best suited to value income-producing property (like an apartment building). The correct answer is: Income approach

An appraiser is estimating the value of a house. The sellers want to list for $370,000 since it has 4 bedrooms, 3 bathrooms, and a pool. A comparable property recently sold for $350,000 (with 3 bedrooms, 3 bathrooms, and a sun room). In the adjustment process, the appraiser estimates that an extra bedroom is worth $45,000, the pool is worth $4,000, and the sun room is worth $17,000. What is the adjusted sales price of the comparable property? Select one: A. $318,000 B. $338,000 C. $382,000 D. $402,000

(methods of estimating value) The purpose of adjustment is to compensate for a subject property being more or less valuable than its comparables. If a comparable property has inferior amenities (no extra bedroom, no pool), then the value of the difference is added to the price. If a comparable has superior amenities (a sun room), then the value of the difference is subtracted. At the end, each comparable will be weighted according to the appraiser's own knowledge and experience. Comparable price: $350,000 - Extra bedroom: + $45,000 - Pool: + $4,000 - Sun room: - $17,000 Adjusted comparable price: $382,000 The correct answer is: $382,000

The town hall leaders want to restore the town's original church. Marcus the Appraiser has been asked to provide a report for the town's unique and historical church. Which method should Marcus use to estimate the reproduction and replacement costs? Select one: A. Capitalization rate method B. Unit-in-place method C. Quantity survey method D. Square foot method

(methods of estimating value) The quantity survey method prices all raw materials separately (lumber, bricks, plaster, etc.) and estimates installation costs. Because it is detailed and time-consuming, the quantity survey method is primarily used on properties being restored for historical reasons. The correct answer is: Quantity survey method

The costs for utilities, professional management, and replacing worn out appliances and furniture are most likely to be used in which appraisal approach? Select one: A. Market data B. Comparable C. Income D. Cost

(methods of estimating value) The question describes income-producing property, and most of these expenses would be considered as operating expenses. Expenses are used to arrive at the NET income of property. The net income divided by the capitalization rate gives the estimated value of the property. The correct answer is: Income

The replacement cost of a property is the cost of constructing: Select one: A. A new building with the same functional utility as the original B. A new building with the same size, shape, and design as the original C. A new building using the original construction materials D. None of the above

(methods of estimating value) The replacement cost is the cost of constructing a new building at today's prices and with the same functional utility as the original, but not necessarily using the same size, shape, design, or materials. Appraisers frequently estimate the construction costs of older structures by computing the replacement cost because it allows them to replace outdated features and take advantage of current construction materials. The correct answer is: A new building with the same functional utility as the original

The three approaches to appraisal are: Select one: A. Replacement; Market data; Cost B. Income; Cost; Market data C. Capitalization; Replacement; Market data D. Reproduction; Market data; Income

(methods of estimating value) The three approaches are income, cost, and market data. The other answers include steps performed within the three approaches. The correct answer is: Income; Cost; Market data

What is the first step in the appraisal process? Select one: A. Locate comparables B. Do a correlation study C. Physically inspect the property in order to gather data D. Determine the purpose of the appraisal

(methods of estimating value) There are six (6) steps of the appraisal process. Defining the problem (determining the purpose of the appraisal) is the first step in any appraisal process. The next steps are to gather data, identify the highest and best use, estimate value, reconciliation, and submit the appraisal report (in that order). The correct answer is: Determine the purpose of the appraisal

Which of the following statements is true about the cost approach to estimating value? Select one: A. Replacement costs denote property that is replaced by another with similar utility B. Reproduction costs denote property that is replaced by another identical property C. Using the cost approach tends to set the upper limits of value D. All of the above

(methods of estimating value) Under the cost approach, replacement cost is the cost to build a structure with similar utility and amenities. Reproduction cost is the cost to build an exact replica of the subject property. Any time that a cost approach is used (replacement or reproduction), the value will be on the upper end of the value scale. The correct answer is: All of the above

Which appraisal approach is best suited to appraising vacant land? Select one: A. Cost B. Income C. Market data D. Residual

(methods of estimating value) Vacant land utilizes the market data approach--comparing the subject property to other vacant lots that have sold in the area. The correct answer is: Market data

Which appraisal approach accounts for replacement or reproduction costs? Select one: A. Market data B. Income C. Cost D. Gross Rent Multiplier

(methods of estimating value) When an appraiser is using the COST approach, she calculates the costs to build by use of either the replacement cost (similar materials and amenities) or reproduction cost (an exact duplicate) for the subject property. The correct answer is: Cost

Which of the following statements is true? Select one: A. Physical life is generally longer than economic life B. Physical life is generally shorter than economic life C. Physical and economic life are generally the same D. It is impossible to tell

(principles of value) The physical life of a building is generally longer than its economic life. For example, a little shop is located in what was once the business center of town. When a new shopping center is built, the customers go to the new center. The structure of the little shop may still be very good, but it has no business. Thus, the economic life has passed. The correct answer is: Physical life is generally longer than economic life

A buyer looked at four similar houses for sale in the same neighborhood. The buyer purchased the house with the lowest asking price. This decision is an example of: Select one: A. Highest and best use B. Contribution C. Supply and demand D. Substitution

(principles of value) The principle of substitution states that the value of property tends to be influenced by the value of an equally desirable property. If the properties were equally desirable, the buyer would select the one with the lowest price. While the law of supply and demand also determines cost, the principle of substitution best describes one's choice among similar alternatives. The correct answer is: Substitution

Tom buys a vacant lot and builds his dream house for $250,000. All of the other neighborhood properties are valued between $100,000 and $125,000. This is an example of: Select one: A. Progression and regression B. Assemblage C. Economic obsolescence D. Functional obsolescence

(principles of value) The value of Tom's house will be pulled down because of the surrounding property values. Meanwhile, the adjoining neighborhood properties might to be pulled up a bit in value. This is an example of the principle of progression and regression. The correct answer is: Progression and regression

Barney owns a lot valued at $84,000. He purchases an adjoining lot for $66,000 and merges the two. The appraised value of the newly formed lot is $177,500. This is an example of: Select one: A. Accretion B. Avulsion C. Plottage D. Hypothecation

(principles of value) This process of merging lots under one ownership is known as assemblage. The resulting increase in value is referred to as plottage value. The correct answer is: Plottage

Dick and Jane build a home for $250,000 in a neighborhood where the other properties are valued around $125,000. Which principle most likely describes the value of their home in relation to the others? Select one: A. Plottage and assemblage B. Progression and regression C. Increasing and decreasing returns D. Supply and demand

(principles of value) This situation describes the theory of progression and regression. Increasing and diminishing returns applies when the owner makes improvements to the property which cost more than the value that is added to the property. The correct answer is: Progression and regression

There is a geometric theorem which states that "the whole is equal to the sum of its parts." In real estate, there is a theorem which states that "the whole can be GREATER than the sum of its parts." This is an example of: Select one: A. Plottage B. Depreciation C. Accretion D. Progression

(principles of value) With plottage, two or more merged properties may result in a value greater than the sum of each individual property value. This increase in value is called plottage value. The correct answer is: Plottage