Chapter 1 - Types of Value and Valuation

What principle of value says that a property is at its highest value when it conforms with and fits into its surroundings? A.) Competition B.) Highest and Best Use C.) Conformity D.) Diminishing Return

C.) Conformity

Which of the following is NOT an indirect cost? A.) Appraisal fee B.) Financing cost C.) Labor cost D.) Filing fee

C.) Labor cost

What is an amount a particular purchaser agrees to pay and a particular seller agrees to accept under the circumstances surrounding the transactions? A.) Leasehold B.) Market value C.) Market price D.) Selling price

C.) Market price

The highest price a buyer is willing to pay and the lowest price the seller will accept for a property is known as what? A.) Selling price B.) Cost C.) Market value D.) Exchange value

C.) Market value

The extra value created by merging the two parcels is called ____________ value.

plottage value

what is investment value

the amount of the return on an investment that an income-producing property will produce.

what is insured value

the face amount a casualty or hazard insurance policy will pay in case a property is deemed unusable.

what is market value

the highest price a buyer is willing to pay and the lowest price the seller will accept.

what is business enterprise value (BEV)

the value of the business component of a business separated from the value of the business's real estate and other tangible property.

what is book value

the value of the property as carried on the accounts of the owner. The value is generally equal to the acquisition price plus capital improvements minus accumulated depreciation.

what is mortgage value

the value the lender places on a property as collateral for the loan, especially in the event of a foreclosure when the lender must recover the debt through the sale of the property.

what is "use value"

the value the property holds for the owner. several factors contribute to this value: - income - appreciation - use - tax benefits

3 principles of "use value"

(1) Is generally less than market value. (2) Does not take into account highest and best use. (3) Is the value a particular property has for a particular use.

what are the 3 approaches appraisers use

(1) Sales Comparison approach (2) Cost approach (3) Income approach

what are the 2 types of costs

(1) direct costs: the cost of labor and materials. (2) indirect costs: the costs that support a given project, such as... - Attorneys' fees - Filing fees - Financing costs - Interest - Leasing costs - Recording fees - Surveyor fees

What are the assurances that a lender's repayment obligation will be honored

(1) the knowledge that the mortgaged property will generate enough income to meet the loan commitment. (2) knowing that the borrower can meet the financial obligations.

(1) what is valuation (2) what is the purpose of valuation

(1) valuation the process of estimating the value of an identified interest in specific property as of a given date (2) the purpose of valuation is to determine a property's market value

what is "highest and best use"

According to this principle, every property has a single use which produces the greatest income and return. Therefore the property will have its highest value when it is used for that purpose.

what is rental value

An estimate of the rental rate a property can command for a specific period of time.

According to what principle of value will a buyer not pay more for a home than what her or she would pay for another home that is equally attractive and available? A.) Competition B.) Supply and Demand C.) Substitution D.) Conformity

C.) Substitution

David lives in Rochester but has been relocated to Grand Rapids by his company and now needs to sell his house quickly. This quick sale is likely to affect what? A.) The market value B.) The market profit C.) The market price D.) The market timeline

C.) The market price

What is the purpose of an appraisal? A.) To determine cost B.) To determine asking price C.) To determine value D.) To determine probability of a successful sale

C.) To determine value

Which of the following is an "improvement"? A.) A renovation project that restores a property B.) A remodeling project such as an extension C.) The leveling of land to enable construction to begin D.) A house

D.) A house

What is an appraisal? A.) An appraisal is the determined value of a property. B.) An appraisal is a breakdown of a property's features. C.) An appraisal is a method of calculating the listing price of a property. D.) An appraisal is an estimate about a certain aspect of a property.

D.) An appraisal is an estimate about a certain aspect of a property.

What type of value is described as the value of a property as carried on the accounts of the owner? A.) Insured value B.) Assessed value C.) Capitalized value D.) Book value

D.) Book value

The additional value to a property that is created by assemblage is called what? A.) Profit B.) Joinage C.) Maximizing D.) Plottage

D.) Plottage

A commercial property was used by the owner to manufacture DVD disks. As the market for DVDs declined, the owner made less profit, so the owner changed production to in-demand cloud storage devices and the profits increased. The change in the owner's use of the property caused a change in what? A.) The property's profit potential value B.) The property's market value C.) The property's highest and best use D.) The property's in-use value

D.) The property's in-use value

What is not a data collecting approach utilized by a professional appraiser? A.) Sales comparison approach B.) Cost approach C.) Income approach D.) Valuation approach

D.) Valuation approach

what is an appraisal

Done by a licensed appraiser. An unbiased estimate of the nature, quality, value or utility of an interest in or aspect of identified real estate and related personality as of a certain date.

what is assemblage according to the principles of value

When two adjacent pieces of property are joined together, the value of the one larger parcel may be greater than the value of the two separately.

What is the book value equation

acquisition price + capital improvements - depreciation = book value.

what is leasehold value

an estimate of the market value of a lessee's interest in a property.

what is liquidation value

associated with either forced or orderly liquidation proceedings, such as foreclosures and bankruptcies. *** Liquidation value carries with it the assumption that the owners were forced to sell more quickly than they otherwise would have in order to raise much-needed capital.

what is leased fee value

consists of the combination of rental payments over the lease term plus the estimated reversionary value of the property at the time of the lease expiration.

is in-use-value generally more or less than market value

generally less than market value

A property owner buys an adjacent parcel and combines it with the original parcel to create a property with a higher value than the total of the two separate property values. The operative principle of value in this situation is called? A.) Highest and best use B.) Assemblage C.) Progression D.) Subdivision

B.) Assemblage

Four auto dealerships located along the same street attract more customers because they are close together. What principle of value is at work here? A.) Clustering B.) Proximity C.) Competition D.) Conformity

C.) Competition

What two types of value are combined to produce the "total value" of a residential property

Land value and improvement value.

what is anticipation according to the principles of value

The benefits a buyer expects to receive over the period of time he or she has the property influences the decision to purchase it.

The general definition of real estate value is what

The current worth of the benefits and rights associated with real property ownership and use.

what substitution according to the principles of value

According to this principle, a buyer will not pay more for a home than what he or she would pay for another home that is equally attractive and available. *** example, if there are several homes for sale in a neighborhood and they are alike in size, quality and amenities, a buyer won't usually purchase the home with the highest price.

what is deprecated value

A value established by subtracting accumulated depreciation from the purchase price of a property.

The value of a property as estimated by a taxing authority as the basis for ad valorem taxation is which type of real estate value? A.) Assessed value B.) Reversionary value C.) Book value D.) Reproduction value

A.) Assessed value

Which type of value are real estate licensees most concerned with A.) Exchange value B.) Assessed value C.) Depreciated value D.) Rental value

A.) Exchange value

Which of the following is not a condition for highest and best use? A.) Minimally productive B.) Financially feasible C.) Physically possible D.) Legally permissible

A.) Minimally productive

Idris is considering buying a rental property and he wants to know how much the property will generate from rent per year. Which type of value does Idris need to determine? A.) Rental value B.) Income value C.) Commercialization value D.) Profit value

A.) Rental value

What is the condemned value of a property? A.) The value of a property set by a government authority when taking a property by eminent domain. B.) The value of a property that has been abandoned by the owner and is reverting to the state's ownership. C.) The value of a property as determined by public auction. D.) The value of a property if all the improvements were to be demolished leaving only the land.

A.) The value of a property set by a government authority when taking a property by eminent domain.

If Martin needs to sell his house quickly, why is he unlikely to be paid the market value for it? A.) Because properties that sell quickly are more in demand by buyers and so fetch higher prices. B.) Because he will be unable to leave the property on the market for a reasonable length of time. C.) Because when a seller wishes to sell a property quickly it is known as a short-sell. D.) Because market value only applies to commercial properties, not residential properties.

B.) Because he will be unable to leave the property on the market for a reasonable length of time.

Which of the following is NOT an aspect of highest and best use? A.) Maximally productive B.) Carefully planned C.) Legally permissible D.) Financially feasible

B.) Carefully planned

Which of the following is NOT an aspect of highest and best use? A.) Maximally productive B.) Carefully planned C.) Legally permissible D.) Financially feasibleFinancially feasible

B.) Carefully planned

What the market recognizes as "the change in value an improvement makes to a property" is called what? A.) Competition B.) Contribution C.) Change D.) Conformity

B.) Contribution

What is described as the market value of all tangible and intangible assets, including real estate of an operating business, valued as if sold in aggregate? A.) Depreciated value B.) Going-concern value C.) Leasehold value D.) Book value

B.) Going-concern value

What is described as an opinion of the value of a property based on analyzing data collected about the property? A.) An investment value B.) Market value C.) Market price D.) A home analysis

B.) Market value

What is defined as the current worth of the benefit and rights associated with real property ownership and use? A.) Improved value B.) Real estate value C.) Capitalized value D.) Mortgage value

B.) Real estate value

What is the process of estimating the value of an identified interest in specific property as of a given date? A.) Variance analysis B.) Valuation C.) Tendering D.) Property analysis

B.) Valuation

Generally cost and market value don't correspond except in the case of A.) rental properties. B.) new construction. C.) historical homes. D.) rehab homes.

B.) new construction.

what is change according to the principles of value

Both market conditions and a property's physical condition change constantly over time. These changes affect the benefits of the property.

What is used to determine a market value of a property as an opinion of the value of a property based on analyzing data collected about the property? A.) An evaluation B.) An inspection report C.) A comparative market analysis D.) An appraisal

C.) A comparative market analysis

what is a comparative market analysis (CMA)

Done by a real estate licensee. Used to determine a market value of a property as an opinion of the value of a property based on analyzing data collected about the property. Analysis will generally include information about income and expenses to the property in addition to the analysis of comparable properties that have previously sold in the area.

what is the difference between market value and market price

The market value of a property is an opinion of the value of a property based on analyzing data collected about the property. The market price of a property is an amount a particular purchaser agrees to pay and a particular seller agrees to accept under the circumstances surrounding the transactions, in other words, the actual sales price.

what is salvage value

The nominal value of a property that has reached the end of its economic life. Salvage value is also an estimate of the price at which a structure will sell if it is dismantled and moved

what is replacement value

The value based on the cost of constructing a functional equivalent of the subject property's improvements, assuming current construction costs.

what is reproduction value

The value based on the cost of constructing a precise duplicate of the subject property's improvements, assuming current construction costs.

what is assessed value

The value of a property as estimated by a taxing authority as the basis for ad valorem taxation.

what is capitalized value

The value of the business component of a business separated from the value of the business's real estate and other tangible property.

what is condemned value

The value set by a county or municipal authority for a property which may be taken by eminent domain.

what is exchange value

The value that results from comparing the property to other similar properties on the open market. *** This is the type of value that real estate agents are most concerned with.

what is diminishing return according to the principles of value

This condition is a result of continuing to add improvements to a property when those improvements will have no effect on increasing the value of the property.

what is supply and demand according to the principles of value

This principle says that the value of a property depends on: - How many properties are available in an area - Property prices - Number of prospective buyers - Price buyers are willing to pay

what is progression and regression according to the principles of value

a property is affected by the surrounding properties. The value of the "smallest house on the block" will tend to increase if the other homes on the street have more value - progression. On the other hand, the value of the "largest home on the block" may decrease if the other homes on the street are much lower in value - regression.

what is conformity according to the principles of value

a property is at its highest value when it conforms with and fits into its surroundings.

define evaluation

a study of the nature, quality, or utility of certain property interests in which a value estimate is not necessarily required.