Lesson 6: Basic Residential Appraisal Procedures

A house with outdated 1960's electrical fixtures is worth $425,000. An appraiser determines that spending $25,000 on new fixtures would make the house worth $475,000. This is an example of a(n) A. curable short-lived item B. economic obsolescence C. replacement cost D. super-adequacy

A

For which of the following types of structures is reproduction typically used? A. historical buildings B. personal homes C. restaurants D. schools

A

What is the primary consideration in deterring whether depreciation is curable? A. cost of repairs B. functional vs. external C. number of items needing repaid D. reseve replacement fund

A

Entrepreneurial incentive

A dollar value attributable for the expertise and efforts provided in the connection of the development, such as the entrepreneur's expertise, skills, and involvement with development (e.g., leasing, selling) of the project

Entrepreneurial profit

A figure derived from the market representing an amount received by the entrepreneur for his contributions and risk accepted in a project

Breakdown method

A method for calculating depreciation by taking a figure for each kind of depreciation and combining them into one number.

Which of the rolling are direct costs? Select all correct responses. A. building permits B. contractor's profit C. construction site security D. real estate taxes doing construction `

A, B, C

Which of the following are indirect costs? Select all correct responses. A. engineering fees B. equipment costs C. insurance during construction D. materials needed for labor

A, C

The cost of a dwelling has been estimated at $140,000. The estimated cost identified for curable items is $5,100. Once cured, the dwelling is estimated to have an effective age of 12 years with a remaining economic life of 60 years. What is the amount of incurable depreciation once all curable items are cured? A. $22,158 B. $22,488 C. $23,125 D. $23,148

B

Using the breakdown method, calculate the deprecation of a roof that cost $9,200 and has about 15% left of its life. A. $7,750 B. $7,820 C. $7,910 D. $8,080

B

What is a minor deferred maintenance usually classified as? A. curable external obsolescence B. curable physical deterioration C. incurable functional obsolescence D. incurable physical deterioration

B

What would be the total depreciation applied if curing the functional obsolescence would simultaneously eliminate all physical deterioration? Depreciation due to functional obsolescence: $9,000; Depreciation due to physical deterioration is: $15,000 A. $6,000 B. $9,000 C. $12,000 D. $15,000

B

Which of the following is NOT a direct cost? A. interest B. legal fees C. permits D. taxes

B

Which of the following is long-lived item? A. carpet B. framing C. HVAC system D. paint

B

Which type of external obsolescence is NOT locational? A. a neighborhood that is in decline B. a faculty not supported by market economics C. industrial exposure D. noise and traffic from a highway

B

A building has a total expected economic life of 75 years and an effective age of 25 years. If the replacement cost is $750,000, what is the current value of the building? A. $187,500 B. $250,000 C. $500,000 D. $562,200

C

Appraiser Danielle is figuring the cost of a 1,400 square foot, one-story house in Indianapolis. Costing date for the midwest region of the country, in which Indianapolis is located, shows the total cost per square foot at $48.65. Using the local multiplier for Indianapolis, which is 0.82, what is the cost estimate for the house? A. $50,412 B. $52,687 C. $55,846 D. $57,321

C

Appraiser Sandy is figuring the cost of a 1,650 square foot, one-story house in Cleveland. Costing data for the Midwest region of the country, in which Cleveland is located, shows the total cost per square foot at $48.75. Using the local multiplier for Cleveland, which is 0.77, what is the cost of the house? A. $55,230 B. $58,479 C. $61,809 D. $63, 580

C

If direct costs of a proposed construction are $600,00 and indirect costs are estimated at $150,000, what is the total estimated cost of the proposed construction if entrepreneurial profit is 15% of direct and indirect costs? A. $770,500 B. $840,000 C. $862,500 D. $945,000

C

The cost new of a dwelling has been estimated at $200,00. The estimated cost identified for curable items is $6,500. Once cured, the dwelling is estimated to have an effete age of 15 years with a remaining economic life of 60 years. What is the amount on incurable depreciation once all curable items are cured? A. $37,900 B. $38,500 C. $38,700 D. $39,200

C

What is the period of usefulness that a building has remaining as of the effective data of the appraisal? A. actual age B. depreciation C. remaining economic life D. effective age

C

All of the following are considered direct building costs EXCEPT A. contractor profit B. labor C. materials D. sales commissions

D

If a furnace breaks down 20 years into a property's lifetime, and that occurrence coincides with when the furnace was expected to be replaced, which concept is illustrated? A. economic life B. external obsolescence C. functional obsolescence D. useful life

D

Which of the following is most likely an example of incurable functional obsolescence? A. no door on the bathroom B. no lighting in the pantry C. outdated fixtures D. style of home

D

A broken handrail on a staircase is functional obsolescence. True or False

False

A direct cost is referred to as a soft cost. True or False

False

A regional multiplier would be used to bring the cost in line with local material and labor costs. An appraiser can ALWAYS use the data from one city to the next as long as the cities are in the same state. True or False

False

Most of the time, the cost approach uses reproduction cost because of a building that is built to today's standards and is a preferred and often less expensive alternative. True or False

False

Price is what a typical person would pay for something. True or False

False

Square footage of a structure is calculated by using the combined inside areas of a property. True or False

False

The cost approach is not appropriate for calculating insurance value because insurance companies are usually interested in reproduction costs for the structure. True or False

False

The economic age-life method and the age-life method are NOT the same methods. True or False

False

The period of time a building can be useful and generate more than is paid out in expenses is known as allocated life. True or False

False

The quantity survey method is the least detailed of the cost approaches. True or False

False

When a house is completely renovated, the estimated effective age can be set back to zero. True or False

False

Comparative unit method

Method for determining the cost of a building that uses the cost of recently built comparable buildings as a basis for estimating the cost of replacing the subject property.

An appraiser's cost estimate for a structure is for building an exact replica of it. Is this considered replacement cost? Yes or No

No

Curable

Repairable or able to be fixed; something that can be fixed at a reasonable cost, with the value added to the property being more than the cost of the repair.

Useful life

The period of time a structure or component of the structure can be expected to function for the purpose it was designed for and relates only to physical deterioration

A home that costs more than the homes surrounding it would be considered an over improvement. True or False

True

An example of a physical deterioration would be a house with a missing exterior shutter. True or False

True

An example of external obsolescence would be a house in the approach zone to a major airport. True or False

True

For some properties, such as commercial buildings, the square-footage total may be divided by the type of space usage. True or False

True

If physical deterioration is curable, it means that the items can be replaced or repaired at a reasonable cost and the contributory value added to the property is more than the cost of the repair. True or False

True

One way to determine whether the perceived obsolescence is functional or external is for the appraiser to consider the land as if vacant and available for any use. True or False

True

Physical deterioration would be a water-stained ceiling. True or False

True

The period of usefulness that a structure has left as of the effective date of the appraisal is referred to as remaining economic life. True or False

True

When a house is completely renovated the estimated effective age CANNOT likely be set back to zero. True or False

True

External obsolescence

When something outside the control of a property makes it less desirable; can be locational or economic

An improved property is currently valued at $600,000. From the market data, the site is worth $250,000. The effective age is 45 years as is the actual age. The replacement cost of the house is $475,000. Is the total economic life of the subject house 171 years? Yes or No

Yes

An office building with older carpet is worth $750,000. If the carpet is replaced at a cost of $20,000, the building is worth $775,000. When considering value, should the carpet be replaced? Yes or No

Yes

Is a railway track at the back of a property an example of external obsolescence? Yes or No

Yes

Is depreciation used to describe the loss of property improvement value due to ANY reason? Yes or No

Yes

Is there more than one type of profit that can be related to costing? Yes or No

Yes

Would a bathroom with a toilet, a tub, and without a sink typically be an example of functional obsolescence? Yes or No

Yes

Age-life deprecation

a calculation that takes the effective age of a property and divides it by the total economic life

Modified age-life method

a combination of the age-life method and the breakdown method of depreciation. This method can be employed when curable depreciation is attributable to obsolescence for which the depreciation can be readily recognized and calculated

Short-lived item

a component of the property that is expected to be replaced during the life of a property

Long-lived item

a component of the property that is not expected to be replaced during the life of a property

Contractor's profit

a direct cost and part of the construction contract

Super-adequacy

a feature of an improvement that is more than is necessary for the operation of the improvement

Depreciation

a loss in value to property improvements for any reason- physical deterioration, functional obsolescence, external obsolescence

Index method

a method for determine the cost of a building by taking its original cost and multiplying that number by an index factor based on how long ago the building was constructed.

Unit-in-place method

a method that estimates the cost of construction by calculating the unit cost of all part of a structure and passing these costs together.

Quantity survey method

a method that specifies the number or quantity of each type of part of material used to build a structure

Market extraction method

a technique for deterring depreciation based on comparable sales of similar properties

Sinking fund

an account when money is deposited and allowed to accumulate with compound interest in order to cover a future expense

Cost approach

an appraisal method use to develop opinions regarding the value of a real estate by estimating the cost new of replacing or reproducing the structure on the land minus depreciation and plus the value of the site

Over improvement

an improvement that exceeds the highest and best use for a site and does not increase the value of the real property in proportion to its cost

Replacement

building the functional equivalent (substitute) of the original structure, using modern materials and workmanship and current day standards of size, layout, quality, and utility.

This method is ideal for new construction, as the standardized construction components have been identified.

comparative unit method

Dollars needed to develop, produce, or build something

cost

You cannot use this method if you do not know the original cost

cost index method

Direct costs

costs in a project that are not variable, such as labor and materials. Also called hard costs.

Indirect costs

costs in a project that are variable (costs other than labor or materials) also called soft costs

The number of years of the structure's life that has elapsed or been used

effective age

Develop an opinion of site value by an appropriate appraisal method

first step

What a property actually sold for

market price

What a property is expected to sell for

market value

Deferred maintenance

physical deterioration created when required repairs are ignored

What one person paid

price

Deficiency

property element that is less then necessary, interpreted by the market to be unacceptable, or an element that is functionally inadequate

This method requires thorough itemizations of every building component used

quantity survey method

The number of year's life that is remaining of the structure

remaining economic life

Effective age

represents the number of years of the structure's life that has elapsed or been used

Analyze comparable cost data to estimate the cost new of improvements

second step

Incurable

something that cannot be fixed at a reasonable cost with the cost of the repair being more than the value added to a property

Reproduction

the estimated cost of replicating the original building, using identical materials, workmanship, construction standards, size, layout, quality, and utility present in the current structure (including any functional obsolescence, deficiencies, and super adequacies)

Remaining economic life

the number of year's life that is remains of the structure

Economic life

the period of time, during the life of the improvement, over which the improvement contributes to the total property value.

Remaining economic life

the period of usefulness that a building has remaining as of the effective date of the appraisal.

Accrued Depreciation

the total accumulated depreciation

Total economic life

the total of the effective age and the remaining economic life

Analyze comparable cost data to estimate the difference between present worth of the improvements and the new cost.

third step

The total of the effective age and the remaining economic life

total economic life

This method uses cost data that is adjusted to the local market as a basis for estimating the cost

unit-in-place method

What a typical person would pay for something

value

Physical Deterioration

wear and tear on something due to age, the elements, or other forces

Under improvement

when property improvements are not sufficient in relation to the highest and best use of the site