Chapter 9 practice quiz
An appraisal comes in at $300,000 and the seller has the property listed for $350,000. What should he do?
The sales price should be reduced to be in line with the value.
There are four properties an appraiser must value. One is a three unit home, one is a shopping mall, one is an office building and one is a church. Which ones can be appraised using income capitalization?
The shopping center and the office building.
What happens if a seller is going through a divorce and is forced to sell a home?
The theory of equal motivation would apply; the seller will accept less.
What does clean, clear title mean?
The title can be easily transferred.
How does the lack of internet access in remote areas impact property values?
The values are likely to be lower due to the lack of service.
If couples with school aged children are not looking for a home, what happens to values?
There is less market demand for property.
If three properties in a neighborhood were sold to the original owner's cousins and siblings, can they be used for a sales comparison?
These are not arms length transactions and the values may not be accurate.
How does an appraiser get vacancy and missed payments data?
They use information from similar recent sales.
What is highest and best use?
When a property is used in the manner it is best suited for.
What is the principal of progression?
When new properties of higher value are built near a neighborhood and increase property values.
What is an arms length sale?
When the buyer and seller are unrelated.
A new employer opens up in the area and wants to hire 500 people. What happens to property values?
Values will likely increase because of the new demand for homes.
Does it matter if lenders are not offering loans when using the sales comparison approach?
Yes, it does matter; properties may be valued lower.
Is it easier to use a Sales Comparison Approach when the properties are almost the same?
Yes, style, size, location and age of properties that are similar are easier to compare.
Does it matter if a sale was forced because of foreclosure or divorce?
Yes, this is considered a "fire sale" and may not be a true reflection of value.
What value is used for establishing taxes?
Assessed value
What is the principal of change?
Changing market conditions such as supply and demand, interest rates and property conditions.
What does unit-in-place value take into consideration?
Considers direct and indirect costs for a specific piece of construction
What is a cost approach appraisal?
Cost of building a property to given specifications.
What happens when interest rates increase?
Fewer people are eligible for mortgages and property values decrease.
If Home Buyer is the cousin of Home Seller what usually happens with the sale price?
Home Seller usually pays less for the property.
Are mortgage payments deducted from net income when using the capitalization approach?
No, they are not included.
The cost approach is primarily used to value which of the following properties?
Schools
How often is the square foot method of valuation used?
Seldom because it is the least accurate.
What goes into a land valuation?
Shape, location, size of lot and frontage are considered
What are the four factors that influence value?
Social, economic, construction costs, governmental.
What costs are considered in valuations based on the cost approach?
The price of the lot and all costs associated with constructing the property to specifications.
There are 100 three-bedroom homes available and there are 200 buyers, what happens to the property value?
The property values increase because of high demand.
A developer builds a property and wants to sell at a profit. How do they set the sale price?
AAfter the developer knows all his costs, they set the sales price based on what they spent, what they want for a profit and what the market will bear.
What is the purpose of an appraisal?
ATo arrive at a market value of a given property.
What is considered gross property income?
All income derived from a property including fees, rent and income from laundry rooms.
What does depreciation mean?
Depreciation is the loss in value over time.
What happens when a person adds on two bedrooms to an existing two bedroom home, when all the homes in the neighborhood have three bedrooms?
Diminishing returns; the property no longer conforms.
A town has decided to build a school and a playground in a neighborhood. Property values are increasing. Why does this occur?
In anticipation of the school and playground, more families are interested in homes.
A Victorian home is built in a neighborhood that is almost all split level ranches. Is the Victorian more valuable?
No, the property does not conform and therefore will be worth less than it might otherwise be.
What is the formula used when using the income capitalization approach?
Net Operating Income/Capitalization Rate = Market Value
Which of the following numbers is used to calculate the value of a property using the income capitalization approach?
Net operating income
A playground is being built in a neighborhood with primarily senior housing. Is this good for property values?
No because it lacks utility.
Is it necessary to have a lease agreement to determine occupancy of a commercial property?
No, appraisers can determine whether a property will remain occupied based on average occupancy of similar properties..
Is data from recent sales enough to establish value?
No, combining recent sales only gives you an estimate.
The appraiser finds three properties in one neighborhood where the property for sale. All three were sold in the last six months. He does not like the homes. Three properties across town are much nicer, can he use the three properties across town?
No, the properties in the same neighborhood should be used.
What types of properties are appraised using the income capitalization approach?
Property that is expected to generate income for the owner.
What happens to property values if lenders freeze lending?
Property values drop because of lack of capital.
How does an appraiser identify properties when using the Sales Comparison Approach?
Public records such as the clerk in the county and MLS services.
What are the three methods for determining the cost of development?
Quantity survey method, unit-in-place method and square foot method
What two steps does an appraiser take to get the property value?
Reviews information for accuracy and applies logic and judgment.
What is the Sales Comparison Approach?
Sales comparison approach means comparing one property against recent sales of properties in a neighborhood
If all the homes sold recently have finished basements and the appraised property has an unfinished basement, what happens?
The appraiser takes the cost of finishing and deducts from the value.
If the home for sale has more bathrooms or additional bedrooms than the homes sold, what does the appraiser do?
Takes the cost of construction of new bathrooms or bedrooms and add to the value.
Other issues out of the control of the seller impact the value of a property. What are some of them?
Taxes, other sales and supply and demand
If three homes used for comparison all have different square footage, what does the appraiser do?
The appraiser will get the average square feet and cost per square foot for the new property.
What is the insured value?
The assessment done by an insurance company.
What is the principal of anticipation?
The benefits the property may offer buyer.
Who uses the information contained in an appraisal?
The buyer, seller, lender and insurance company.
What is the principal of substitution?
The ability to acquire another property that is both desirable and similar in a short period of time.
What is reconciliation?
The final step in reaching a market value after the appraisal process.
What is the principal of competition?
The higher the demand, the higher the value. The lower the demand, the lower the value.
What occurs when a subdivision built 10 years ago suddenly has a brand new home added?
The newer home will have a lower value because the other homes are not as new or modern.
A builder buys all the lots of a street abutting a neighborhood and builds luxury homes. Property values in the neighborhood increase; what principal applies?
The principal of progression applies.
A builder buys all the lots of a street abutting a neighborhood and builds mobile homes. Property values in the neighborhood drop; what principal applies?
The principal of regression applies.
A home is up for sale at $275,000. A new home that is similar can be built for $255,000. What principal applies?
The principal of substitution.
The formula for the cost approach is Value = Replacement cost - depreciation + value of land?
True
Half of the residents are employed by a large employer in a nearby city and the employer shutters their doors. What happens to the property in the area?
Typically lower prices because people are moving out.
Can all property be valued using the sales comparison approach?
Typically, this approach is used for residential property.
The seller has a ranch home. There are three ranch homes and three Tudors that have sold in the last six months. What should the appraiser do?
Using the ranch homes is how he would do the comparison.
What value is most commonly used for commercial property?
Value in use