Quiz Questions from Basic Appraisal Procedures
A property sold recently for $87,000. The site value is $14,000. The building has an effective age estimate of 21 years, and the estimated replacement cost is $95,000. What is the indicated average annual depreciation rate?
1.1% per year $87,000 - $14,000 = $73,000$95,000 - $73,000 = $22,000$22,000 / $95,000 = 0.23160.2316 / 21 years = 0.0110 or 1.1% per year
A property sold for $500,000. The buyer anticipated that the potential gross income would be $100,000, the vacancy would be 10%, and expenses would be 45% of EGI in the year after the purchase. What is the overall capitalization rate (RO)? Round your answer to the nearest 0.5%.
10.0% ($100,000 x 0.90 x 0.55 = $49,500 NOI / $500,000 = 0.099 or 10.0%)
A property sold for $555,000. The buyer anticipated that the potential gross income would be $93,000, the vacancy would be 5%, and expenses would be 35% of EGI in the year after the purchase. What is the overall capitalization rate (RO)?
10.35% ($93,000 x 0.95 x 0.65 = $57,427.50.RO = $57,427.50 / $555,000 = 0.1035, or 10.35%)
What is the percentage of depreciation present in a building that has an effective age of 15 years and a remaining economic life of 65 years?
18.75%
What is the total gross living area (GLA) for the following structure? 1,500 sq. ft. one-story area, 750 sq. ft. two-story area, 650 sq. ft. finished basement area, and 400 sq. ft. garage area.
2,250 sq. ft.
A one-story residence has a main section that is 45 x 55, a full basement that is 20 x 35, a back porch that is 10 x 12, and a 15 x 22 detached garage. What is the GLA of this residence?
2,475 45 x 55 = 2,475
A warehouse recently sold for $1,950,000. The land value was estimated to be $750,000, and the replacement cost was estimated at $1,500,000. What percent depreciation was present in the improvements?
20% $1,950,000 - $750,000 = $1,200,000 (value of improvements). Now, $1,500,000 (cost new) - $1,200,000 = $300,000 (depreciation). $300,000 depreciation / $1,500,000 cost new = 20% depreciation rate
If a window has an effective age of 10 years and a remaining economic life of 25 years, what would the percentage of depreciation be (rounded)?
30% 10 / 35 (total economic life) = 0.28 or 30% rounded
Using the following information, what is the effective gross income multiplier?PGI = $75,000Value = $550,000Vacancy = 5%Operating expense ratio = 45%
7.72 $75,000 x 0.95 = $71,250$550,000 / $71,250 = 7.72 EGIM
What is the capitalization rate (R) for a property that has a net operating income of $40,000 and a net income multiplier (NIM) of 12.5? Note: A NIM is based on the same concepts as a gross income multiplier (GIM).
8% $40,000 X 12.5 = $500,000.$40,000/$500,000 = 0.08 or 8% capitalization rate.You may have also used the reciprocal to solve this problem
What is the capitalization rate (R) for a property that has a net operating income of $45,000 and that just sold for $500,000?
9% ($45,000 / $500,000 = 0.09 or 9% capitalization rate)
Concerning factors and multipliers, which of the following is correct?
A factor is the same as a multiplier.
Which of the following statements about adjustments is true?
Adjustments should be equal to the differences in value as reflected in the actions of market participants.
Which of the following should an appraiser characterize as NOT being an arm's length transaction?
An elderly woman sells her longtime residence to her grandson.
Suppose you are appraising a high-rise apartment building with fireproofed structural steel frames, concrete floors and roof, and metal and glass paneled walls. What class of construction is this building?
Class A The primary feature of Class A buildings is the fireproofed, protected structural steel frame and metal deck flooring and roof with a concrete topping.
You have a 20,000 square feet retail store with a concrete slab floor, stucco on masonry block exterior walls, and metal trusses as a roof structure partially supported by open steel framing members. What class of construction is this building?
Class C The primary features of Class C buildings are masonry or reinforced concrete exterior walls, and wood or steel roof and floor structures that have not been made fire-resistant, except for concrete slab on grade
In an appraisal of a property using all three approaches to value, each approach resulted in a different value indication. The indicated value by the cost approach was $200,000, the indicated value by the sales comparison approach was $193,500, and the indicated value by the income approach was $195,000. Is the appraiser forced to choose just one of these value indications?
No, the appraiser can choose any one of the numbers or any number between. The appraiser is not forced to choose just one of the value indications. In fact, the appraiser may choose any one of the numbers, or any number between, and, in some cases, any number slightly above or below the range.
Which of the following statements is true regarding the terms "land" and "site"?
Site is land that has all infrastructure installed and is ready for construction of building improvements.
An appraiser has an assignment for a commercial lot located on a busy road. The appraiser has determined that in this market, lots on a busy street are approximately $10,000 superior. How should the appraiser apply the adjustment to a comparable sale, NOT on a busy street?
The adjustment must be added to the comparable sale price.
A residence has been listed for sale in the MLS for the last six months at a price of $224,900 and has not sold. In this market, the average marketing period is 45 days for this type of property. What can you conclude?
The subject property's market value is most likely lower than the list price
Which of the following statements about manufactured housing is false?
The wheels and axles may remain on the dwelling.
Which of the following is a useful adage to remember about making adjustments?
When the comparable sale is superior - subtract, when the comparable sale is inferior - increase.
Which statement best describes "comparative analysis"?
a generic term used to describe the process where qualitative or quantitative techniques are used to derive a value opinion in the sales comparison approach
Which of the following should an appraiser consider when appraising a property that is located adjacent to an operating sewer plant?
a landfill may not be affected by this location a heavy industrial property may not be affected by this location a single-family residence may suffer from this location
The allocation method of site valuation is based on which of the following?
a ratio of the value of the land to the value of the property
Which of the following best defines the valuation process that appraisers use to perform appraisal assignments?
a systematic procedure used to solve a client's real property valuation problem
Which of the following is NOT an accurate statement regarding the reconciliation process?
a. Reconciliation occurs throughout the valuation process. b .Reconciliation is achieved through the application of a precise mathematical formula. c. Reconciliation is a disciplined process using reason and judgment. (b)
Which of the following is considered a plumbing fixture?
all of these answers
An incurable functional problem is best defined as
an item that will not return as much in value as it costs to fix.
Which of the following would be considered a variable expense?
an operating expense that changes with occupancy
Which of the following would be considered a fixed expense?
an operating expense that does not change with occupancy
If the land has improvements on it, the land must be valued under which of the following conditions?
as if the improvements were not there
How should an appraiser identify utilities?
availability to the site whether typical of the area or not public, private, or community services
A building has been designed for maximum economic potential and to comply with standard construction codes, but extras in ornamentation and finishes are not evident. What quality rank should be chosen for this building?
average Average quality buildings constitute the largest group of buildings constructed, approximately 50% of all buildings.
Why would an appraiser NOT want to use the figure $154,245 as the final value conclusion in a market value assignment?
because the amount gives an illusion of precision that does not exist
The appraiser's initial collection of comparable property data is best categorized as
both general data and specific data.
If the three approaches to value provide three different value indications, what should an appraiser do?
choose a value opinion that best represents the market for the subject based on all data available as of the effective date of the appraisal
The number of years that have elapsed since the construction of the improvements was completed is described by which of the following terms?
chronological age actual age historical age The actual age of improvements is also known as historical age and chronological age. It can be significantly different from effective age depending on renovation, remodeling, and level of maintenance.
Which of the following is the most reliable source of data?
closed sale
When an appraiser estimates cost using a cost manual, which method is being used?
comparative unit
What situation would give an appraiser the least amount of concern when comparing sales to derive an indicated gross rent?
comparing rentals sales located in the same high-rise condominium building
Which of the following expenses that may be found on a property owner's financial statements, should be excluded in the appraiser's reconstructed operating statement?
corporate franchise tax
An appraiser is developing a separate estimate of land value as part of an appraisal assignment. Which approach to value is the appraiser using?
cost approach Only the cost approach requires a separate estimate of land value.
What are the three traditional approaches to value?
cost, sales comparison, and income capitalization
When making a CCM adjustment using a cost manual, you are adjusting the cost for which of the following?
current cost multiplier
When performing a cost analysis, where can an appraiser obtain information about the entrepreneurial incentive?
derive it from the local market
The total construction cost of a structure requires consideration of which of the following?
direct and indirect costs along with entrepreneurial incentive
To which kind of cost should an appraiser attribute labor and materials to?
direct cost
Which of the following is the correct manner in which a GRM (gross rent multiplier) would be calculated?
divide sale price by monthly gross income
Which of the following descriptions provides a simple explanation of the process used in direct capitalization?
dividing the net operating income by a capitalization rate
Quiz Questions through module 15 done
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Assume that wood subfloor is included in the base cost. The subject has a concrete slab (less desirable) which has a cost of $2.04 per square foot less than the base cost. In estimating the cost for the subject, what would be the adjustment to the base cost?
downward $2.04 per sq. ft
The period of time over which the improvements will contribute to property value is described by which of the following terms?
economic life The economic life of improvements can be affected by physical, economic, social, and geographic forces, and can be extended by renovations and remodeling.
Which of the following describes the age of a property that is based on the amount of observed deterioration and obsolescence it has sustained?
effective age Assume that an improvement has an actual age of 50 years, but has been renovated, remodeled, rehabbed, or has had a high level of maintenance over the years. If it can compete in the market with much newer properties that have actual ages of 15 to 20 years, then the 50-year-old improvement has an effective age of 15 to 20 years.
Which of the following best describes direct costs?
expenditures for the labor and material used in the construction of the improvements
The major employer in a small city just went out of business. This resulted in a loss of jobs and a subsequent decline in real estate values. Which of the following terms best describes this loss?
external obsolescence
The federal government increases interest rates by a 1/4 point, causing a newly constructed building to be worth less than its cost. What principle does this illustrate?
externalities
A comparable sale included the seller taking back a purchase-money mortgage at 3% under the market rate for 10 years. The appraisal was based on the cash-equivalent market value. Which of the following describes this adjustment?
financing terms adjustment
What area is included in the gross living area?
finished floor areas above grade
A workfile must be retained for which of the following periods?
five years, or two years after final disposition of judicial proceedings in which the appraiser provided testimony
An appraiser observes a bathroom with a sink, a bathtub with shower, and toilet. What would this be called?
full bath
Which of the following statements describes the loss in value due to changes in market tastes and standards?
functional obsolescence
Which of the following types of depreciation would a three-story office building without an elevator suffer?
functional obsolescence
Which of the following considerations are included in an analysis of zoning?
general use permitted greenbelt requirements density (number of units permitted)
At the conclusion of the adjustment process, an appraiser should conduct a review. During the review, consideration of which of the following should be included?
gross adjustments net adjustments the number of adjustments
What characteristics based on investment value are identifiable in an income producing property?
has value to a particular investor and also has personal, subjective parameters
For an appraiser to appraise manufactured housing, it must
have the towing hitch, wheels, and axles removed. be legally classified as real estate (not personal property) assume the characteristics of site-built housing.
Physically possible, legally permissible, financially feasible and maximally productive are the four tests related to what type of data analysis?
highest and best use
Which of the following is NOT one of the six major components of a building?
home theatre system
In terms of cost, what type of cost are appraisal fees?
indirect costs only
Which of the following is true of an equity capitalization rate?
it is an income rate that reflects the relationship between a single year's pre-tax cash flow expectancy and the equity investment
What are units of comparison?
items that represent a breakdown of the price based on a significant variable
Which of the following is always considered when valuing land?
its highest and best use as though vacant
A legal nonconforming use is a use that was
legally established and maintained but no longer conforms to existing zoning.
What is the most probable rent that the property should bring?
market rent
Marshall and Swift has three classifications for climate. The three classifications are
mild, moderate and extreme.
A potential axiom for the sales comparison approach may be stated as; the more market data available, the
more reliable the value indication becomes.
If the comparable sale is superior to the subject property, the adjustment to the comparable for that factor should be in what direction?
negative
Which of the following would you need to solve for value (V)?
net income and overall rate
Which of the following is effective gross income less operating expenses and reserves (if applicable)?
net operating income
When measuring a commercial office structure, an appraiser identifies the amount of space on which the rent is based. Which measurement is the appraiser using?
net rentable area
Which of the following would you need to solve for income (I)?
overall rate (R) and sales price
How is the amount of basement finish normally expressed?
percentage
The older a building becomes, the greater is the likelihood of it having
physical deterioration external obsolescence functional obsolescence
Depreciation is a loss in value. Which of the following categories can these losses be attributed to?
physical, functional, or economic
During an exterior inspection, an appraiser observes a foundation that is exposed to the environment. Which foundation type is this?
pier
Which of the following is NOT one of the three common types of foundations?
platform
A wood stud home in which each floor is framed and erected separately is referred to as what type of construction?
platform framing
Which of the following terms best describes the increment in value when two or more parcels are combined to produce greater utility?
plottage
In a market value assignment, when must an appraiser identify the intended users of the appraisal?
prior to accepting the assignment
What method is being used when an appraiser estimates the cost of construction by considering the quantity and quality of all materials, as well as all categories of required labor, and unit costs are applied?
quantity survey
Which of the following is NOT an example of a quantitative technique?
ranking analysis Ranking analysis is simply an array of data without a mathematical process
Resolving the differences between various value indications is called?
reconciliation
What is the process by which an appraiser evaluates, chooses, and selects a final value opinion called?
reconciliation
An appraiser is analyzing a multi-family apartment complex for lending purposes. While collecting data for the appraisal, what information listed below would the appraiser identify as general data?
regional demographics
Chandra is appraising a residential property. The house was built in 1981 and is in average condition. The appraiser is using a cost service provider to develop the cost approach. What type of cost will she be using in this appraisal?
replacement cost
What is the final step of the valuation process?
report the defined value
An appraiser asks a local building contractor for cost data. The contractor gives his best estimate to build an exact replica of the property being appraised. What could this data be called?
reproduction cost
Which type of lease may adjust due to changes in market rent, and may be facilitated through the use of an appraisal or arbitration?
revaluation lease
Which of the following units of comparison would be appropriate in the valuation of a waterfront property?
sale price per front foot
There are six procedures for developing an opinion of vacant land. Which of the following are included?
sales comparison, land residual, allocation, and extraction
In an appraiser's data collection process for a market value assignment, which of the following is an example of specific data?
subject property description
The subject property has a 12 x 10 wood deck valued at $10 per square foot. A comparable sale has a 15 x 20 screened porch valued at $25 per square foot. What is the proper adjustment for this difference?
subtract $6,300 from the comparable sale The market value of the screened porch is $7,500 and the subject's deck is $1,200. The difference of $6,300 is subtracted from the comparable sale because the feature is superior.
Which of the following economic principles affirms that buyers constitute market demand and that the properties offered for sale make up the supply?
supply and demand
When making wall height adjustment of 1.03, you're adjusting for the fact that
taller ceilings cost more to construct than lower ones
Expenditures made immediately after purchase reflect
that both the buyer and seller knew they would have to be corrected and probably factored the cost of repair into the price paid.
There are various data sources an appraiser considers in analyzing the operating expense for a property. Which source is likely to provide the best expense information?
the actual operating history of the subject property
Entrepreneurial profit is best described by which of the following statements?
the amount of money entrepreneurs receive as a reward for their efforts
What does the accuracy of the market extraction method of depreciation depend upon?
the availability of both comparable improved property and vacant site sales
Which of the following best defines elements of comparison?
the characteristics that cause the prices paid for real estate to vary
Which of the following best describes the term, "capitalization"?
the conversion of income into value
Which statement best describes the term "depreciation"?
the difference between the reproduction or replacement cost and the market value of the improvements as of the effective date of the appraisal
The second step of the cost approach is to estimate direct (hard) and indirect (soft) costs as of
the effective date of the appraisal
Which of the following best describes a gross lease?
the landlord pays all operating expenses
Which of the following is used for conditions of sale adjustments?
the motivations of buyers and sellers
Which of the following can define the term "useful life"?
the period of time that the components of the improvement may reasonably be expected to perform the functions for which they were designed
In the highest and best use analysis, when an appraiser is evaluating the land as though vacant, what is one of the four criteria the appraiser will evaluate?
the physical possibility of an intended use
When an appraiser analyzes the income-producing property, using the income capitalization approach, what is actually being measured?
the present value of the future benefits derived from property ownership
What are dollar or percentage adjustments for elements of comparison made to?
the sale price of a comparable property
Which of the following best describes a net lease?
the tenant pays all operating expenses
At the start of the valuation process, an appraiser considers and analyzes the various elements in the identification of the problem in order to determine what issue(s) in the scope of work?
the type and extent of research and analysis required in the assignment
The first step of the cost approach is to estimate
the value of the site as if vacant and available to be put to its highest and best use.
What is the definition of an appraisal report?
the written or oral communication of an appraisal
When does reconciliation take place?
throughout the valuation process
If an appraiser estimates the current cost of individual units of construction and adds them up, what method is the appraiser using?
unit-in-place
Assume that forced air heating is the base cost. The subject has warm and cooled air heating (more desirable) which has a cost of $1.61 per square foot more than the base cost. In estimating the cost for the subject, what would be the adjustment to the base cost?
upward $1.61 per sq. ft.
Which of the following best describes the term, "investment value"?
value to a particular investor, based on personal, subjective parameters
Which of the following group are more concerned with an opinion of market value derived from the sales comparison approach?
well-informed purchasers
Alan used four comparable sales with value indications of $199,000, $201,000, $202,000, and $204,000. What should Alan's final opinion of value for the sales comparison approach be if the appraiser believes all the comps are reasonably similar to the subject property?
whatever value Alan reconciles into his value conclusion Of course the appraiser believes all the comps are reasonably similar, otherwise they would not be comps. Reconciliation is the appraiser's reasoned analysis of the data and is reserved only for the appraiser
When is rent called excess rent?
when it is greater than market rent
When is an item of depreciation curable?
when the cost to cure is less than the expected increase in value
When would the extraction method of land valuation be most applicable?
when the value of the improvements can be reliably estimated
Which of the following is NOT one of the six major components of a building?
window system
Which of the following is considered a type of framing?
wood studs and joists
Using the following data, what is the value?Potential gross income (PGI) = $175,000Vacancy = 5%Operating expense ratio (OER) = 35%Overall capitalization rate = 8.5%
$1,271,323 Value = $175,000 x 0.95 = $166,250 x 0.65 = $108,063 / 0.085 = $1,271,323.
Remaining economic life is 40 years, and total economic life is 60 years. Site value of $550,000. If the replacement cost of the improvements was estimated at $1,800,000, what is the indicated value of the property?
$1,750,000 60 (economic life) - 40 (remaining life) = 20 (effective age)20 (effective age) / 60 (economic life) = 0.3333 (depreciation)$1,800,000 cost x 0.3333 = $600,000 (depreciation rounded)$1,800,000 - $600,000 = $1,200,000 + $550,000 = $1,750,000 (value)
A bed and breakfast lodging facility has an effective gross income of $255,000 and collection loss of 2%. If the market-derived PGIM is 7.2, what is the indicated value of the property?
$1,873,469 $255,000 / 0.98 = $260,204 $184,210 x 7.2 = $1,873,469
Using the following data, what is the pre-tax cash flow (PTCF)?Net operating income = $30,000Overall rate (RO) = 9.5%Value = $350,000Mortgage Constant = 0.076Loan-to-value ratio = 75%
$10,050 $350,000 x 0.75 = $262,500$262,500 x 0.076 = $19,950$30,000 - $19,950 = $10,050.
In the subject property's neighborhood, improved properties are selling for prices ranging from $100,000 to $150,000. Research reveals a typical land value to total property value ratio of 15%. What is the range of value for a similar site in this neighborhood?
$15,000 to $22,500
What is the value of a property that has an appropriate capitalization rate (R) of 12.5%, an operating expense ratio of 40%, gross potential income of $45,000, and vacancy and collection loss of 10%?
$194,400 Solve for net income PGI - V&C loss = EGI - Expenses = Net Income, then apply the I / R = V formula. $45,000 x (1 - 0.10) = $40,500 x (1 - 0.40) = $24,300 / 0.125 = $194,400.
The subject property has a potential gross income (PGI) of $100,000, vacancy and collection losses of 7%, fixed expenses of $35,000, and variable expenses of $25,000. Recent sales of very similar properties in this market suggest that a capitalization rate of 12.0% is appropriate. The capitalization rates were extracted from sales in which the price was divided into the estimate of net operating income from the broker. What is the market value of the subject property?
$275,000 = $100,000Vacancy/collection loss = $7,000$100,000 - $7,000 = $93,000 (EGI)$93,000 - $60,000 (expenses) = $33,000 (NOI)$33,000 / 0.12 = $275,000
You are analyzing a sale in which the mathematical calculation of cash equivalency calls for a $10,000 downward adjustment. However, by use of several paired data sets, you find that the market only recognizes a $4,000 downward adjustment. What is the adjustment for financing?
$4,000 The adjustment of $4,000 reflects the actions of buyers and sellers, and is perhaps a better indication of value for the difference in financing terms than a mathematical calculation.
An appraiser's analysis of a property indicates that the potential gross income (PGI) is $675,000, and has tenant occupancy of 95%. Operating expense ratio (OER) is 38%. If the market indicates an overall capitalization rate of 8.5%, what is the value of the property by income capitalization?
$4,677,353 Value = $675,000 x 0.95 = $641,250 x 0.62 = $397,575 / 0.085 = $4,677,353.
Using the following information, what is the pre-tax cash flow (PTCF) for this property?PGI = $170,000OER = 35%Vacancy = 10%Mortgage debt service = $45,000
$54,450 $170,000 x 0.90 = $153,000 (EGI)$153,000 x 0.65 = $99,450 (net operating income)$99,450 - $45,000 = $54,450 (PTCF)
A one-story residence has a main section that is 1,100 square feet, with a full basement, and a 20 x 22 detached garage. If the replacement cost is estimated at $49.00 per square foot for the residence section and $18.00 per square foot for the garage, what is the total replacement cost new of the improvements? (rounded)
$62,000 This question is seeking the total cost of the improvements.1,100 sq. ft. x $49.00 = $53,900440 sq. ft x $18.00 = $7,920$53,900 + $7,920 = $61,820 (rounded to $62,000).
A property has a site value of $30,000. The reproduction cost of the building improvements is $102,350. The economic life is estimated at 50 years, and the remaining economic life is at 20 years. What is the value of the property?
$70,940 $102,350 x (30/50) = $61,410.$102,350 - $61,410 = $40,940.$40,940 + $30,000 = $70,940