Residential Market Analysis and Highest and Best Use
Eight houses sold in a neighborhood. The sales prices were $150,000, $175,000, $200,000, $160,000, $150,000, $175,000, $195,000, and $150,000. What was the mode sale price?
$150,000
A developer proposes to develop a subdivision of 50 lots. In this market, there are three other competing subdivisions. The first is nearly sold out and has 14 lots remaining and for sale; another has 48 lots still available for sale; and county records report a third subdivision is planned with 35 lots. Based on an absorption in this market of five lots per month, assuming no other new lots are proposed, and that the subdivisions all sell at similar rates, what is the absorption time for all of these lots (all four subdivisions) in this market?
14 + 48 + 35 = 97 lots ÷ 5 = 19.4
A new dwelling on a half-acre site is proposed to cost $678,000 to build. The land was just purchased for $234,000. Based on these numbers what is the land-to-property-value percentage?
25.66%
The subject is located in a market area with 30 similar homes for sale now, 15 similar homes under construction, and 10 more planned and/or permitted. What is the supply factor?
55 units
Before completing an appraisal, the appraiser gathers data about the supply of single-family residences. Which of the following is a primary source for supply data?
City planners
Assume a land-use plan (zoning) currently defines an area as agricultural, but with a future development plan designated as one part single-unit and another for commercial properties. In a fundamental market analysis, the goal is to do what?
Combine the current land-use (zoning) plan and future development plan with the other elements to support the fundamental market analysis.
The subject was built in 1950 and contains five bedrooms. There are sales of three-, four-, and five-bedroom homes. The sales with the greater number of bedrooms have a marketing time of four to six months, whereas the three-bedroom dwellings sell in less than 30 days. What conclusion can the appraiser draw from these facts?
Demand is limited for five-bedrooms in this market.
Which of the following statements best describes "effective purchasing power" as a factor of value?
It describes the ability of participants in a market to afford that level of price.
A residential property located in a lake community, but with no lake view, yet with good access to schools would have what?
It is a positive linkage and a neutral externality.
Why does an appraiser care about delineating the market area and the most likely buyer?
It is necessary in selection of the comparable sales to know what is important to the buyer who will buy the subject, i.e., if they care about a large lot or want a small one.
Which of the following statements best describes "utility" as a factor of value?
It is the ability to satisfy a human want or desire
A market area can be labeled as primary, secondary, or tertiary. What does tertiary mean in this context?
It means third ranking or third level.
Buyers in this market prefer one-story, three-bedroom dwellings, but the community is small and choices between the designs and number of bedrooms available is limited. Many buyers have only one or two homes to choose from on most days. Most homes in this market are two-story design dwellings. There have been few sales in this market of any design (one- or two-story). Which term describes the market segment in which the preferred floor plan exists?
No market segment can be defined by floor levels or design.
Physical or market appeal attributes that could affect the productivity of a multifamily property in your area.
Number of parking spaces per unit Number of bedrooms Size Number of units Number of stories
The subject real estate is located in a town that just lost a major employer. The town has 12,000 people living there and they lost 2,000 basic industry jobs. Of the 2,000 people, 1,100 live in the town or county and 900 commute in from other counties. What will happen with regard to supply in the short run?
Other than stop all planned new construction, this will not impact supply in the short run. The supply is what it is, but demand will fall off a lot. In the long run, the demolitions, redevelopments and sometimes abandonments will level the supply and demand.
location attributes that could affect the productivity of a multifamily property in your area.
Proximity to employment, public transportation, and major transportation routes Site orientation Proximity to employment opportunities
Government/legal/regulatory attributes that could affect the productivity of a multifamily property in your area.
Public planning for growth Deed restrictions Building codes Rent controls
Could a buyer for a residence in Kansas City currently be living in Salt Lake City and therefore imply that the market area for Kansas extends all the way to Utah?
The competition for the subject must be in the market area, which means the market area has to be in Kansas City, only.
Regarding market area, which of the following statements is true?
The land area that would include the most likely competition for a buyer for the subject.
The property to be appraised is a two-story, two-unit dwelling located in an active market. Most of the sales of similar properties were converted to single-unit attached dwellings after they were purchased. This was accomplished by recording a party wall agreement and providing a new survey. In an inferred market analysis, what would be the conclusion of the appraiser in this assignment?
The market displays a preference for single-unit dwellings and the owners sell the two single-units for more than one two-family unit.
The subject is a newer four-bedroom home. The market for four-bedroom homes is oversupplied. The appraiser found 36 similar homes for sale in an area with only 12 home sales during the last year. The appraiser calculates there is a 36-month inventory; three times what is usual. The appraiser also found the market for two-bedroom dwellings has only a four-month supply. What can be inferred from these facts?
The market for four-bedroom homes does not appear to be the same as two-bedroom homes because they appeal to a different market segment.
Using the data, what would happen to the mean and median values if the sale price of #10 was misquoted and it was actually $2,100,000 not $2,083,000?
The mean would go up and the median would be unchanged.
Which statement best describes market area analysis?
The objective analysis of patterns of urban growth, structure, and change that may detract from or enhance property values.
A single-unit residence is located on a heavy traffic street. There have been no sales on this street for three years, but there have been many listings. Similar homes on the surrounding interior streets typically sell within 30 days. This dwelling has been listed for sale with an agent for 90 days, but has not yet sold. What conclusion could the appraiser reach?
The subject has an extended marketing time and will likely need a discount to attract a buyer.
Which of the following statements is true?
There are times when a market area and a neighborhood may be one and the same, and times when it's possible to have a neighborhood within a bigger market area.
While preparing an appraisal assignment, the appraiser notes that historically there are very few listings for sale for similar age, ranch-style dwellings like the subject property in the subject neighborhood. However, in other locations there are many listings and they sell well. What conclusion might the appraiser deduce from this information?
There could be fewer of these designs in that market, but it could also be that they don't sell well when they are put on the market.
The neighborhood has a mix of single-unit and four-unit dwellings. The single-unit homes are mostly rented, but there is no upward trend in rents. The four-unit residences have shown a rental increase of 10% annually for the past three years. If the buyers for both properties are investor/landlords, what would an appraiser deduce about this market?
There is more demand now for four-unit rentals, but it could also be that there was an oversupply of those units in the past and it is now recovering.
An appraiser asked the listing agent of the subject property if she thought the market was oversupplied. The agent said, "Oh no, the market is excellent, we are selling houses very well."
This information should be taken as the opinion of a person with an interest in the outcome of the appraisal. If the deal closes, she gets paid. If it does not close, she will not get paid.
An appraiser was asked to do a market study of single-family homes in the 12345 zip code with improvements that are less than 10 years old and that have 2,000 to 3,000 square feet. What is this an example of?
This is an example of a market study, not a market analysis.
Can a neighborhood include a variety of land uses?
Yes, a neighborhood is a grouping of complementary land uses, so there can be many different land uses.
If the subject residence is a 26-year-old, two-bedroom, two-bathroom, apartment style condominium unit with 1,200 square feet of GLA, and a two-car basement garage, what should the appraiser consider as comparable sales?
a 20- to 30-year-old apartment style condominium with 1,300 square feet and a two-car basement garage located in the adjacent complex
Which of the following data would NOT impact the supply side of a housing market?
a change in the number of manufactured homes produced in that market
The supply of land is
a finite amount, so it is always undersupplied.
An example of an externality for supply of residential properties is
a sewer moratorium.
A market analysis revealed that a specific market segment would be purchasers of a one-bedroom, one-bathroom, 700-square-foot, first-floor condominium unit. What would be a reasonable substitute for the property?
a similar one-bedroom, first-floor unit in a nearby complex
The subject is located in a market where a basic industry employer has just built a new manufacturing facility. This facility will employ 500 people in the town. The salaries will be near minimum wage for 90% of the employees. The management will have higher salaries, and have lived in town for two years now. This should cause
a strong market for low-valued housing, apartments, and maybe manufactured homes.
Most properties in a market are sold by owners, and not listed with real estate agents. In some cases, potential buyers knock on doors of this community to see if the owner is interested in selling. The majority sell above asking prices. How would this market be described?
a strong market for sellers
This market is focused on affordable housing for low-income citizens. The rents are subsidized by the state's housing authority. An appraiser attempting to do a productivity analysis on a four-unit apartment would consider the
access and proximity to public transportation.
An appraiser is working on an appraisal of a residential property located adjacent to a small lake (500 acres) in a rural location. When analyzing this property's attributes, the appraiser will put primary focus on the
amount of feet of lake frontage and/or the view of the lake.
The subject is located in a market where the houses are for sale for 12 to 24 months and then if not sold are offered for rent. In this market, the mortgage interest rates have increased, and the number of transferred employees is steady. Some homes are being auctioned, but few are selling otherwise. This is evidence of
an oversupplied market.
The subject is located in a market where typically (the last 10 years) single-unit homes sell in less than 45 days, the inventory is a six- to 12-month supply, and the list-to-sale price ratio is 95% or higher. Currently in this market, the inventory shows a 28-month supply, the days on market for sold units is averaging 310 days, and the list-to-sale price ratio is 90%. This market is probably
an oversupplied market.
In an owner-occupied primary (not vacation home) residential market analysis, a market can be
as small as a city block or as large as the north side of a city.
Which of the following factors affect the supply of real estate?
availability of vacant land
When calculating the rate of change in a sale/resale percent change calculation
both sale and resale prices must be cash-equivalent and adjusted for non-market factors that may impact one or the other sale prices.
The subject is a four-unit residence located right outside a college campus. In the past, the owner had little trouble renting the units to students, but last year the college built a new 300-unit dormitory building and imposed a rule that all undergraduate students must live on campus. This shoul
cause high vacancy and lower prices for units like the subject.
The demand for residential real estate is a product of
changes in population, income, and effective purchasing power.
The subject of an appraisal is an older home in a very popular area of the city next to a small lake. Many homes next to the lake have been removed in recent years and replaced with much larger new homes. In the appraisal of the subject, the appraiser should
consider the possibility of redevelopment of the site by comparing the land value with the improved property value.
Which of the following factors are considered externalities?
cost and availability of mortgage financing
Which of the following are externalities related to supply variables?
cost of construction loan financing
Market type: Buyer's market Description: A market in which buyers have the advantage which exists when market prices are relatively low due to an oversupply of property or reduced buyer demand.
disequilibrium
Market type: Depressed market Description: A market in which a drop in demand is accompanied by a relative oversupply and a decline in prices.
disequilibrium
Market type: Seller's market Description: An active market in which the sellers of available properties can obtain higher prices than those obtainable in the immediately preceding period. A market in which a few available properties are demanded at prevailing prices by many users and potential users.
disequilibrium
Market type: Weak market Description: A market characterized by low demand and declining price levels, also called a soft market.
disequilibrium
The subject is a 0.72-acre site improved with a single-unit residence. The site is adjacent to a very busy four-lane road. An appraiser attempting to do a productivity analysis on this property would consider the
distance of the house from the street.
In an appraisal analysis, which of the following does the appraiser consider regarding economic characteristics of the subject's market area?
effective buying power of the buyers in that area
Market type: Active market Description: A market characterized by numerous transactions. Group of answer choices
equilibrium
Market analysis is crucial in what parts of the valuation process regardless of the property type?
highest and best use analysis, application of the appropriate approaches to value, reconciliation to a final value opinion; all of these answers
If the subject of an appraisal is a residential parcel improved with a house in poor condition that only appeals to investor buyers, the appraiser should use comparable sales of
homes in equal condition that would appeal to the same buyer as the subject, which in this case would likely include investors.
How would you apply information gathered in your market analysis as you begin to value the subject property?
identify the best comparable sales
The subject real estate is a newer attached apartment-style condominium located in an urban metropolitan area. A local developer just announced that she had purchased an old factory about a mile away from the subject and would be remodeling it into apartment-style condominium units. These will be priced nearly the same as the subject project. This should
increase the supply of residential properties in this market.
Real estate appraisers and many other analysts use the median value rather than the mean value because
it deemphasizes the outliers.
What is the area in which alternative properties compete with the subject property called?
market area
For a site-specific market analysis, which study is always focused on the subject property?
marketability study
What is a group of complementary land uses?
neighborhood
The subject real estate is located in a city where XYZ Corp just announced the opening of a new plant to build widgets. The city has a population of 500,000, expects an increase of 12,000 basic industry jobs, and total employment increases of over 50,000. What will this probably cause in the city?
no change in supply in the short run, but as demand increases in the long run, so will the supply
An investor purchased a 60-year-old, 56-unit apartment building with plans to convert it to condominiums. How would this conversion impact the overall housing market, the condominium market, and the apartment market?
not impact the overall housing market at all, but the condominium market will have more supply and the apartment market less.
The principle of supply and demand states that
prices tend to increase with high demand.
When an appraiser inspects a subject property, what kind of data is gathered?
primary
During inspection, an appraiser learned from the homeowner that a previous termite infestation had been treated and damages repaired. The appraiser went into the basement and saw the repairs but did not see any signs of the treatment. The owner showed the appraiser the receipt for treatment. This is an example of what type of data?
primary and secondary data
Which of the following factors are considered components of supply?
properties currently offered for sale
Study of locational influences occurs in which step of a market analysis?
property productivity analysis
Governmental/legal/regulatory forces can influence the market value of a residential property because
property values are impacted by taxation, zoning, and building code laws as they can put a burden on owners and by extension buyers. Zoning laws can be a benefit to ensure compatible land uses.
The subject is a single-unit residential property abutting an interstate highway at the rear. The market is active, and most dwellings in the area have a marketing time of 30 to 60 days. The subject, which is very similar in size and design to other houses in the neighborhood, has been listed for sale over 120 days, and had several price reductions. What attribute is most likely influencing the longer days on market?
proximity to traffic
The property to be appraised is located in an area where marketing times of three to six months have been the norm for the last five years. Interest rates have recently declined for 30-year fixed loans. There have been several houses in the subdivision which have been listed and sold after being on the market for 10 to 30 days. This identifies what type of market?
seller's
Physical attributes of structures and sites would include which of the following?
size, shape, and topography of the site
The subject is a 235-acre parcel improved property with a single-unit residence, a pole barn, and several other outbuildings. The land is 95% tillable. A productivity analysis an appraiser performs would consider which of the following to be a primary attribute?
soil quality and productivity
Physical attributes would include which of the following?
stability of soil
Fundamental analysis means that the appraiser does which of the following?
studies the causes of the demand and the available supply to estimate the supply and demand factors rather than trying to read the signs of what is happening
The property to be appraised is a one-story, 2,000-square-foot, 5-year-old dwelling. In researching, the appraiser found that there is a new subdivision nearby which is selling homes similar in design and gross living area (GLA) to the subject. There are 223 homes and lots in this new subdivision. There are two additional subdivisions currently beginning construction with 150 and 123 homes and 50 vacant lots in those subdivisions. The assessor's records show there are 3,1257 homes in this market area now. Which step of the market analysis can be performed?
supply analysis
Which type of analysis determines whether a market is a seller's or a buyer's market?
supply and demand analysis
When an appraiser completes the neighborhood section on the 1004 residential form, specifically the housing trends section, to which of the following steps in the valuation process does this portion of the form apply?
supply and demand market analysis
One of the first steps in market delineation is to draw boundaries. Which of the following statements is correct?
the boundaries of the subject market area must include both demand and the competition.
An appraiser is working on an appraisal assignment of a single-unit residence in a suburban location located close to high voltage transmission lines. Of the following locational attributes, which might have a significant impact on value?
the distance from the subject residence to the power lines
The subject real estate is improved with a high-quality residence. The appraiser's research indicates that the property will be in the top 5% of the price range for the entire city. The market for high-end homes in this market is not centered in any one part of the city but is in pockets all over the city. Therefore, this market would be delineated by
the entire city.
What are significant components an appraiser is concerned with when analyzing a real estate market area?
the geographic limits of the buyers in that market
The city just passed a new ordinance revising the minimum lot size in an R-1 district from 20,000 square feet to 25,000 square feet. This is an example of a change in
the governmental, legal, and regulatory attributes for properties in that area.
The subject is in a market where most homes are 25 years old with four bedrooms. The majority of the buyers were first time homebuyers when they bought these homes 20 to 25 years ago. Fifteen years ago, there was an average of 3.2 school-age children per household. In the current market, it would be expected that
the household size would be smaller.
An appraiser is developing an opinion of value for a single-family residence on the north side of a metropolitan area of about 1.5 million people in a southwestern state. The appraiser wants to report the market trends for that subject. In doing that, the appraiser will focus on
the land area that the most likely buyer for the subject would consider, i.e., the land area in which the buyer for the subject would have told their broker to show them property.
The subject is a 42-acre parcel of land in a very popular area. There are water and sewer pipes nearby with adequate capacity. What would be a major governmental factor in this productivity analysis?
the local zoning code
The subject is a two-acre parcel located in a rural area with mostly flat terrain. The parcel is at the corner of two county roads and has access points on both roads. The population density in this area is about .025 persons per acre. The subject is zoned commercial. The traffic counts in front of the subject property averages eight cars per hour. The traffic counts in front of most commercial improved properties in this market are more than 4,000 cars per day. The owner insists that since it is zoned commercial, it is commercial land. The market value for this property as commercial land is limited by
the low traffic counts.
The larger the random sample
the more statistically valid the results of the analysis.
The subject property is located in a municipality where subdivision development is encouraged but is scrutinized very carefully. The process of developing a subdivision takes over a year. The process of building a house also takes a long time because of the scrutiny of the building inspection process. This will cause
the reaction time to adjust supply to accommodate shifts in demand to be longer.
The property is improved with a two-story, 10-year-old house containing 4,600 square feet of gross living area. This residence contains six bedrooms, five bathrooms, and two large family room areas, and is the largest home in this market. Which factors would an appraiser focus on in selecting comparable sales and preparing an appraisal report?
the size of the home and the number of bedrooms
The subject is improved with a residence located in a suburban market with a highly rated school district. This home is priced at $450,000, which is very near the median price in this suburban city. The subject residence has four bedrooms, 2.5 bathrooms, a basketball hoop in the driveway and a swing set in the back yard. Brokers report the most likely buyer for the subject is concerned with the quality of the school system, the age, size and condition of improvements, the site size, and utilities. The appraiser is trying to delineate the market area for this property. She should define the market area as
the subject's school system.
The subject is a residential property in a market with 45 active listings that are direct competitors for the subject, and in the last 12 months there have been five sales of comparable properties. The normal inventory is about six months' supply. This minimal market analysis would imply that
there is a 108 month inventory and prices are likely to be falling if five months is the normal inventory.
Why would an appraiser do a marketability analysis on a residential property?
to know where the subject will fit in the market, if there is functional or external obsolescence, which are the best comparable sales, and to allow a highest and best use analysis
