Chapter 3

Each of the following is an essential element of value, EXCEPT: Select one: a. Capital b. Scarcity c. Transferability d. Utility

a. Capital

A building badly in need of cleaning, painting and minor repairs is an example of: Select one: a. Physical deterioration - curable. b. Physical deterioration - incurable. c. Functional obsolescence - curable. d. Functional obsolescence - incurable.

a. Physical deterioration - curable.

Increased profits tend to increase competition. Select one: a. True b. False

a. True

The process of merging lots under one owner is known as assemblage. Select one: a. True b. False

a. True

A home located in an area where there are factories with much smoke and dust experiences: Select one: a. Physical deterioration b. Economic obsolescence c. Locational obsolescence d. Functional obsolescence

b. Economic obsolescence

Any improvement you make to real estate will increase its value. Select one: a. True b. False

b. False

Appraising is an exact science, with proven principles and certain results. Select one: a. True b. False

b. False

When analyzing various comps in the comparison approach, the appraiser would consider each of the following issues, EXCEPT: Select one: a. Number of adjustments in each comp b. The average indicated value of the comps c. The size of the adjustments in each comp d. The distance of each comp from the subject

b. The average indicated value of the comps

Which of the following is used to estimate value using a comparison between gross monthly rents and the selling price? Select one: a. Monthly rental rates b. The gross rent multiplier c. The date of tax increases d. Profits

b. The gross rent multiplier

Mary is considering purchasing a rental house. Another rental home recently sold for $187,500 and rents for $1,500 per month. If the house she is considering rents for $1,700 per month, what should Mary expect to pay for the house? Select one: a. $195,500 b. $208,500 c. $212,500 d. $218,500

c. $212,500 $187,500 / $1,500 = 125 GRM $1,700 x 125 GRM = $212,500.

When appraising property located on a corner lot, the appraiser would consider all of the following, EXCEPT: Select one: a. Comparable sales. b. Highest and best use. c. Acquisition cost. d. Zoning and deed restrictions.

c. Acquisition cost.

An appraiser would be likely to place the greatest emphasis on the cost approach to appraisal when appraising: Select one: a. A single-family residence b. An apartment complex c. A four-plex d. A library

d. A library

A 75 unit apartment complex has an average rent per unit of $800 per month. The vacancy rate averages 5%. The operating expenses are 45% of effective gross income. The property recently sold for $4,950,000. At what capitalization rate did the property sell? Select one: a. 7.6% b. 4.5% c. 5.2% d. 8.8%

a. 7.6% Potential Gross Income $720,000 (75 x 800 x 12) - Vacancies - 36,000 ($720,000 x .05) Effective Gross Income $684,000 - Operating Expenses - 307,800 ($684,000 x .45) Net Operating Income $376,200. $376,200 / Cap Rate = $4,950,000. $376,200 / $4,950,000 = .076 = 7.6%.

The process of combining smaller lots into one larger lot is known as _____ while the increase in value that results is known as _____. Select one: a. Assemblage / plottage b. Plottage / assemblage c. Assemblage / conformity d. Plottage / anticipation

a. Assemblage / plottage

Three similar houses in the same subdivision are placed on the market at the same time. According to the law of supply and demand, which house will sell for the least amount of money assuming demand remains constant. Select one: a. First. b. Second. c. Third. d. All would sell for the same price.

a. First.

An appraiser who is appraising a single family residence would most likely place the greatest emphasis on which approach to appraisal? Select one: a. Market approach b. Cost approach c. Capitalization approach d. Gross rent multiplier approach

a. Market approach

Which of the following statements is a true statement? 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.

a. Physical life is generally longer than economic life.

In the capitalization approach, the appraiser considers all of the following EXCEPT: Select one: a. Price of the property. b. Rate of return on the investment. c. Rate of return of the investment. d. The estimated future income.

a. Price of the property.

The cost to build a building with the same utility as a particular structure, but not necessarily identical to the existing structure, would be the: Select one: a. Replacement cost b. Reproduction cost c. Quantity survey cost d. Unit-in-place cost

a. Replacement cost

Rachel bought her house years ago for $100,000. Over the years she has made $25,000 in improvements to the home. The house is now valued at $275,000. This is an example of the principle of: Select one: a. Unearned increment b. Progression c. Conformity d. Change

a. Unearned increment

When determining effective gross income, an appraiser subtracts which of the following from gross income? Select one: a. Vacancy rates and bad debts. b. Management costs. c. Maintenance, utilities and taxes. d. All of these choices.

a. Vacancy rates and bad debts.

An appraiser is using the cost approach to value an office building. The one-story building measures 25' by 60'. The appraiser estimates the current cost of a similar structure would be $85 per square foot. What is the cost estimate for this structure? Select one: a. $97,500 b. $127,500 c. $135,500 d. $142,500

b. $127,500

Using the reproduction method in the Cost approach to appraisal is NOT a good indication of value for which of the following types of property? Select one: a. A new office building. b. An old residence. c. A public library. d. A new single family residence.

b. An old residence. The reproduction method is best utilized in NEW construction or special use property. Using the reproduction method for an older single family residence would reflect a gross over estimation of value. Remember, reproduction method is based on an exact duplication of the property.

Neighborhood A has homes of similar size and quality grouped together. Neighborhood B has a mixture of sizes and qualities. The same model of house sells for more in neighborhood A than in neighborhood B. What principle of appraisal could explain this? Select one: a. Substitution b. Conformity c. Anticipation d. Plottage

b. Conformity

A home sells for less than other nearby similar homes because it has a bad floor plan. This would be an example of: Select one: a. Physical deterioration b. Functional obsolescence c. Economic obsolescence d. External obsolescence

b. Functional obsolescence

Utilization of a property in the manner most profitable to the owner at the time the value is estimated is called: Select one: a. Economic life b. Highest and best use c. Principle of conformity d. Reconciliation process

b. Highest and best use

Which of the following best describes the gross rent multiplier? Select one: a. The GRM is also referred to as a cap rate. b. It is a factor derived by dividing the sales price of a property by monthly rental income. c. Calculating the GRM is the final step used to estimate value when using the cost approach. d. GRM is used to compute depreciation.

b. It is a factor derived by dividing the sales price of a property by monthly rental income.

The actual amount of money paid for a particular parcel of real estate is said to be that property's: Select one: a. Value. b. Price. c. Market value. d. Settlement value.

b. Price.

A savvy real estate buyer purchases the least expensive home in the most expensive neighborhood he can afford. This is done to take advantage of the appraisal principle of: Select one: a. Regression b. Progression c. Contribution d. Unearned increment

b. Progression

Appraisal fees are set by: Select one: a. Amounts determined by law b. The appraiser's estimate of the time and effort involved in the assignment c. A percentage of the sale price d. Any of the above

b. The appraiser's estimate of the time and effort involved in the assignment

An appraiser is appraising a house which has 4 bedrooms and 1 bathroom. One of the comps is a 3 bedroom home with 2 bathrooms. The appraiser has determined that the appropriate adjustments for bedrooms is $5,000 and for bathrooms is $10,000. If the comp sold for $150,000, what is the indicated value of the subject property based on this comparable sale? Select one: a. $165,000 b. $155,000 c. $145,000 d. $135,000

c. $145,000

Which of the following types of depreciation would be least likely to be curable? Select one: a. Physical deterioration b. Functional obsolescence c. Economic obsolescence d. None of these - since they can all be cured if the owner is willing to pay the cost

c. Economic obsolescence

An appraiser, compiling a neighborhood analysis, would NOT include information about which of the following: Select one: a. Price range of similar housing b. Traffic patterns c. Ethnic characteristics of the residents d. Conformity in the style of housing

c. Ethnic characteristics of the residents

How would an appraiser normally appraise an office building? Select one: a. Abstraction. b. Cost. c. Income. d. Market Data

c. Income.

To find the value of real property using the Income approach, which of the following would be divided by the capitalization rate? Select one: a. Gross income b. Effective gross income c. Net income d. None of the above

c. Net income

An appraiser would use which of the following information if she or he was 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 cost of construction in 1935

c. Replacement or reproduction cost

An appraiser is preparing an appraisal. Included in the appraisal report are several statistical charts detailing the traffic count. For which type of property is this type of information most important? Select one: a. Offices. b. Apartments. c. Retail stores. d. Industrial warehouses.

c. Retail stores.

The comparison approach to appraisal is based on the principle of: Select one: a. Contribution b. Progression and regression c. Substitution d. Anticipation

c. Substitution

You ask a friend how much he thinks his house is worth. He says "about $175,000." When you ask why he believes that, the friend says, "Because my neighbor's house just sold for that much." Your friend has perhaps unwittingly relied on the appraisal principle of: Select one: a. Assemblage b. Progression c. Substitution d. Conformity

c. Substitution

The comparison approach to appraisal is based on the principle of: Select one: a. Contribution. b. Progression and regression. c. Substitution. d. Anticipation.

c. Substitution.

Which of the following is an example of economic obsolescence in a 6-unit apartment building? Select one: a. Outdated plumbing fixtures b. Leaking roof c. The building is located on a one-way street d. Lack of on-premises parking facilities for tenants

c. The building is located on a one-way street

When an appraiser is using the Market Data approach on a residential property, the appraiser would be LEAST likely to use which of the following? Select one: a. The type of financing used to sell other homes in the neighborhood b. The dates on which other homes in the neighborhood sold c. The cost of nails, shingles, floor joists and paint on the subject property d. The size, shape and topography of the lot of the subject property

c. The cost of nails, shingles, floor joists and paint on the subject property

A real estate salesperson uses a Competitive Market Analysis to suggest a listing price for a home. If this CMA has been done correctly, each of the following statements would be true, EXCEPT: a. Expired listings will be included to show the upper limits of value b. Recent sales will be included to show what the market has been c. The salesperson can call the analysis an appraisal d. Current listings will be included in the analysis

c. The salesperson can call the analysis an appraisal

Which of the following values is used to establish real property taxes? Select one: a. Insured. b. Appraised. c. Sales price. d. Assessed.

d. Assessed.

A homeowner spends $40,000 installing a luxurious kitchen in his home. When the property is sold, the homeowner finds that the kitchen only added $25,000 to the value of the home. This illustrates the principle of: Select one: a. Change b. Unearned increment c. Regression d. Contribution

d. Contribution

What does an appraiser do FIRST, when given an assignment to appraise real property? Select one: a. Prepares the reconciliation b. Does a correlation study c. Inspects the property d. Defines the problem

d. Defines the problem

The construction of a new highway will divert traffic away from an area and causes a decline in property values. This is an example of which type of depreciation? Select one: a. Functional obsolescence, incurable. b. Physical deterioration, curable. c. Economic obsolescence, curable. d. Economic obsolescence, incurable.

d. Economic obsolescence, incurable.

In appraisal theory the use that would generate the highest net return on investment is called the: Select one: a. Ancillary use b. Preferred use c. Potential use d. Highest and best use

d. Highest and best use

The part of the appraisal report that addresses issues of zoning, schools, and shopping is called the: Select one: a. Competitive (Comparative) market analysis b. Capitalization analysis c. Useful life analysis d. Neighborhood analysis

d. Neighborhood analysis

When computing the net operating income, an appraiser would deduct which of the following? Select one: a. Depreciation b. Interest payments on any mortgages c. Both depreciation and interest payments on any mortgages d. None of the above

d. None of the above

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

d. Progression

An appraiser has estimated the value of a property according to the comparison approach, the cost approach and the income approach. To reach a final value estimate the appraiser will: Select one: a. Average the three values b. Choose one of the three values c. Differentiate the three values d. Reconcile the three values

d. Reconcile the three values

A builder sold the first house in a new subdivision for $132,500 and sold the last house, which was the same model as the first one sold, for $165,000. This is an example of what principle of appraisal? Select one: a. Diminishing returns. b. Progression and regression. c. Caveat emptor. d. Supply and demand.

d. Supply and demand.