Real Estate Chapter 7 - Valuation Sales Comparison and Cost Approaches

Although otherwise very similar to the subject property, the back yard of a comparable sale provides a view of a small, clean lake. The sale price of the ____________ needs to be adjusted ________. a. comparable, downward b. comparable, upward c. subject, upward

a. comparable, downward

Favorable nonmarket financing concessions provided by the seller to the buyer generally ______ the negotiated sale price of the subject property. a. increase b. decrease c. have no effect on

a. increase

If all three approaches to value are used by the appraiser, the appraiser must reconcile *blank* indicated values.

3

True or false: The fact that the last sale of a house was made by the seller to avoid an almost certain default and foreclosure likely had no effect on the sale price.

False

True or false: The required adjustment for difference in legal estates is typically a relatively simple adjustment.

False

"MLS" stands for *blank* *blank* *blank*.

Multiple Listing Service

True or false: A poor architectural design is an example of functional obsolescence.

True

True or false: Although most appraisal assignments involve the valuation of properties with improvement (buildings) on the land, appraisers often must separately value the land.

True

Which of the following steps in the evaluation of an appraisal is the most important? a. Make sure the comparables used are appropriate b. Make sure all dollar adjustments are applied first c. Make sure the calculation of adjustments to comparable sale prices are reasonable

a. Make sure the comparables used are appropriate

Repeat-sale analysis is the process of a. comparing the sale prices of properties that have sold twice b. comparing similar items from all comparable sales c. comparing the subject to the differences in the comparables

a. comparing the sale prices of properties that have sold twice

The ____________ appraisal report is the longest and most formal report writing format a. narrative b. form c. restricted d. Uniform Residential

a. narrative

The goal of the numerous required adjustments to comparable sale prices is to a. convert the subject into a closer approximation of the comparable sale b. convert each comparable sale into a closer approximation of the subject c. decrease the time required to complete the appraisal assignment

b. convert each comparable sale into a closer approximation of the subject

The economic principle of ______ implies that the value of the subject property is determined by the sale prices of comparable properties. a. supply and demand b. substitution c. scarcity

b. substitution

Each required transactional and property adjustment is made to a. the sale price of the comparable property prior to any adjustments b. the adjusted sale price of the comparable after the prior adjustment c. the adjusted value of the subject property

b. the adjusted sale price of the comparable after the prior adjustment

Most appraisal assignments entail estimating a. the cost to construct the property b. the current market value of a property c. the future market value of a property

b. the current market value of a property

The final estimate of market value is usually a ______ average of the indicated values from the different approaches. a. moving b. weighted c. simple

b. weighted

A house sold for $650,485 five months ago. A very comparable house sold yesterday for $670,000. The implied (non-compounded) monthly rate of increase in property prices is ______ percent. a. 0.25 b. 0.52 c. 0.60 d. 0.035

c. 0.60 (Price today-Price at previous)/months ago=Change/month (670,000-650,485)/5=3903 Change/Price at previous=Monthly rate of increase 3903/650485=0.0060=0.60%

______ adjustments focus primarily on the physical and locational differences between the subject and comparable properties. a. Market value b. Financing c. Property d. Transactional

c. Property

The ________ the subject property the _______ difficult it is to estimate reproduction cost. a. more unique, less b. older, less c. older, more

c. older, more

The approach typically given the most weight in the appraisal of single-family, detached homes is the a. cost approach b. income approach c. sales comparison approach

c. sales comparison approach

Each approach to valuation has its strengths and weaknesses. In arriving at a final opinion of value, the appraiser should a. emphasize the approach that has the most available data b. take a simple average of the market values indicated by the three approaches c. choose the approach currently most popular with lenders d. weight the strengths and weaknesses of each approach, as well as the reliability of the data collected for each approach

d. weight the strengths and weaknesses of each approach, as well as the reliability of the data collected for each approach

Which of the following are not considered representative sales; thus generally unusable as a comparable sale for a market value estimate? -A sale to a family member -A sale forced by a local property tax jurisdiction -A voluntary sale in lieu of foreclosure -An arms-length transaction following the listing of the property with a local Realtor

-A sale to a family member -A sale forced by a local property tax jurisdiction -A voluntary sale in lieu of foreclosure

It is often necessary to value the site independent of the improvements to the site. Which of the following approach requires a separate site valuation? -Comparable sales analysis -Cost approach -Highest and best use analysis

-Cost approach -Highest and best use analysis

If you know the value of one share of common stock in Simon Property Group (SPG), you know the value of all SPG shares because -SPG shares trade in a liquid private market -SPG shares trade in a liquid public market -the share price is continuously revealed throughout the trading day one share is a perfect substitute for another

-SPG shares trade in a liquid public market -the share price is continuously revealed throughout the trading day -one share is a perfect substitute for another

Which of the following statements about market value are true? -Market value and transaction price are identical -The specific bundle of rights associated with the property's ownership affects fair market value -The fair market value is the most probable selling price

-The specific bundle of rights associated with the property's ownership affects fair market value -The fair market value is the most probable selling price

Conventional approaches to estimating the market value of real estate include the -cost approach -income approach -sales comparison approach -USPAP approach

-cost approach -income approach -sales comparison approach

The required number of comparable sales -increases as the reliability of comparable sale information decreases -decreases if those comparables already selected are very similar to the subject property -is always greater than three

-increases as the reliability of comparable sale information decreases -decreases if those comparables already selected are very similar to the subject property

From the appraiser's point of view, replacement cost estimates are preferred over reproduction cost estimates because -it is often impossible to build an exact replica of the subject property -they are more detailed -they are less time consuming to obtain

-it is often impossible to build an exact replica of the subject property -they are less time consuming to obtain

Potential sources of data from public records include -local property tax assessors -the local board of Realtors -cities and counties -many agencies of the federal government

-local property tax assessors -cities and counties -many agencies of the federal government

The rules for making adjustments to the sale prices of comparable properties include which of the following? -make transactional adjustments in the proper order -Adjust the sale price of the comparable toward the subject property -always use dollar adjustments -Use market-related adjustments

-make transactional adjustments in the proper order -Adjust the sale price of the comparable toward the subject property -Use market-related adjustments

Physical deterioration may result from -ordinary wear and tear -a bad building design -weathering from the elements -neglect

-ordinary wear and tear -weathering from the elements -neglect

Examples of physical differences that would require an adjustment to the sale price of the comparable include -structure size -the existence of a pool -time of sale -lot size

-structure size -the existence of a pool -lot size

Required sale price adjustments are divided by USPAP into two major categories including -transactional adjustments -property adjustments -market adjustments -financing adjustments

-transactional adjustments -property adjustments

*blank* adjustments focus on the terms of the deal and the motivation or bargaining ability of the participants.

Transactional

True or false: A comparable property having a different legal estate than the subject property should generally not be used as a comparable.

True

True or false: The final value number produced by reconciliation of the resulting estimates from two or more approaches to value is termed the final estimate of value.

True

Typically, reconciliation of final adjusted sale prices of the comparable properties involves the use of a. a weighted average b. a market value range c. a median d. an equally-weighted average

a. a weighted average

Both the buyer and seller of a home that recently sold knew the house needed a new roof. The buyer replaced the roof immediately after purchasing the home. An appraiser using this sale as a comparable should a. adjust the comparable sale price upward by the cost of the new roof b. adjust the comparable sale price downward by the cost of the new roof c. not use the sale as a comparable even if it is highly similar in physical characteristics to the subject property

a. adjust the comparable sale price upward by the cost of the new roof

Location adjustments to comparable sale prices a. are almost always required b. require only limited knowledge of the local market c. are infrequently required

a. are almost always required

As the final step in arriving at the indicated value of the subject property based on the sales comparison approach, the appraiser must a. reconcile the final adjusted sale prices of the comparable properties b. calculate the final adjusted sale prices of the comparable properties c. estimate the value of the land separately d. write a final report

a. reconcile the final adjusted sale prices of the comparable properties

The estimated cost to build a structure with equal functionality (utility) as the existing structure using modern methods is generally referred to as the a. replacement cost b. fair market value c. substitution cost d. reproduction cost

a. replacement cost

Most appraisals of single-family homes are a. summary reports b. restricted reports c. narrative reports

a. summary reports

A comparable sale price should be adjusted for the terms of sale when a. there was favorable seller-provided financing b. conventional, market rate financing is involved c. the property was purchased by the buyer with all cash

a. there was favorable seller-provided financing

Unless the characteristics of the comparable property are ______ to the subject property, adjustments must be made to the sale price of the comparable property. a. similar b. identical c. nearly identical

b. identical

The seller of a comparable property purchased a new home just days after the sale of the comparable was completed. The seller needed cash from the sale of the comparable to purchase the new home. An appraiser using the comparable sale might need to be concerned that seller agreed to sell the comparable for ________ its market value, which would require _________ adjustment to the sale price of the comparable. a. more than, an upward b. less than, a downward c. less than, an upward d. more than, a downward

b. less than, an upward

To the extent the comparable property is physically lacking in some respect to the subject, the sale price of the comparable a. must be adjusted downward b. must be adjusted upward c. must be higher than the value of the subject property

b. must be adjusted upward

The text argues that the most significant errors in appraisal reports typically result from a. errors in calculating transactional adjustments b. poor selection of comparables c. errors in calculating property adjustments

b. poor selection of comparables

USPAP standards require that, when using the sales comparison approach, appraisers use how many comparables? a. As many comparables as necessary but no more than three b. always three c. USPAP has no requirement regarding the number of comparable sales

c. USPAP has no requirement regarding the number of comparable sales

According to the text, the main difficulty is using the cost approach to valuation is a. estimating land value b. convincing clients of its applicability c. estimating the dollar amount of accrued depreciation d. obtaining replacement cost estimates

c. estimating the dollar amount of accrued depreciation

The subject property has a very nice pool. The comparable property does not have a pool. As a result, a. the subject property's value would have to be adjusted downward b. the comparable's sale price would have to be adjusted downward c. the comparable's sale price would have to be adjusted upward

c. the comparable's sale price would have to be adjusted upward

Generally, a current estimate of land value plus the reproduction or replacement cost of the building will set the ______ value of the property. a. median b. lower limit to the c. upper limit to the d. average

c. upper limit to the

Adjustments made to the sale price of comparable properties for expenditures made after purchase are a. always negative b. usually positive c. usually negative d. always positive

d. always positive

Reproduction cost is defined as the cost a. to construct a building of equal utility to the subject property b. to construct a building of equal utility to the comparable property c. to build an exact replica of the comparable property d. to build an exact replica of the subject property

d. to build an exact replica of the subject property