Real Estate Valuation and Market Analysis

A property has a net income of $30,000. An appraiser decides to use a 12% capitalization rate rather than a 10% rate on this property. What is the result of using the higher capitalization rate?

$50,000 decrease in the appraised value

A normal size section in the Government Rectangular Survey System contains

1 square mile. a rectangular system of land survey that divides a district into 24-square mile quadrangles from the meridian (north-south line) and the baseline (east-west line); the tracts are divided into 6-mile-square parts called townships, which are in turn divided into 36 tracts, each 1 mile square, called sections.

How many acres are in a lot that is 1/4 of a mile wide by 1/4 of a mile long?

1,320 feet (1/4 (.25) of 5,280 feet {one mile}) �- 1,320 feet = 1,742,400 square feet ÷ 43,560 (square feet in an acre) = 40 acres

A township contains

36 sections

The direct sales comparison (market data) approach would be MOST appropriate for establishing the value of a:

5-year-old single-family house. This is the most common method use by real estate licensees.

A bearing wall in a home:

A Bearing Wall is a wall supporting any load in the vertical plane as well as its own weight.

Of the following, which would most nearly refer to loss in value due to economic obsolescence:

A change in nearby zoning. Economic obsolescence is the loss of useful life and desirability of a property through economic forces, such as change in zoning, changes in traffic flow, etc

Which of the following comparables would be the most helpful in appraising a home?

A similar home sold by a motivated seller to a motivated buyer.

A homeowner acquired the ownership of land that was deposited by a river running through her property by:

Accretion

When analyzing the income produced by a property, an appraiser is concerned with:

All of these are important factors to consider when calculating net income for capitalization purposes.

What is a "fee appraiser?"

An independent appraiser who works on a fee basis.

It would be perfectly ethical for an appraiser to do which of the following:

Appraise a property in which the appraiser has an interest, provided the appraiser first discloses his interest.

The answer to which of the following questions would be of most benefit when trying to determine the amount of economic obsolescence suffered by a commercial property?

Are the tenants in the neighborhood prospering? Economic or social obsolescence concerns factors of the surrounding properties within the same geographic area, such as, are the tenants prospering or is it a depressed area, etc.

A "real estate appraisal" is an estimate of value:

Based upon analysis of fact as of a specific date.

The income approach as used by an appraiser makes use of which of the following?

Capitalization is a method of estimating today the future value of an income stream.

Which of the following factors contributes most to the maintenance of value in a well-planned residential community:

Conformity to proper land use objectives. Conformity is an appraisal term stating that general uniformity of the structures in an area will produce the highest value.

If an appraiser is appraising a special purpose property he would probably use the:

Cost approach. Cost (replacement) approach is most commonly used to appraise special purpose properties or buildings. Example of these would be schools or libraries.

When appraising a single-family home, an appraiser considers which of these in determining the value of a property?

Date sold

In the income approach, all of the following are considered when calculating net operating income EXCEPT

Debt service, (mortgage payments of principal and interest) is not included in calculating net operating income.

Property should be valued at its highest and best use. If an appraiser is appraising a parcel which has a building on the land that has no asset, he should

Deduct the demolition cost from his appraisal

A landowner divided much of her land into smaller parcels and has recently sold a tract adjacent to a nature preserve. The preserve and the tract that was sold are landlocked and cannot be entered except through one of the other tracts still belonging to the landowner. The buyer of the tract will probably be granted what type of easement by a court action?

Easement by necessity. An easement by necessity arises when there is no ingress or egress (entry or exit) from one piece of property without crossing over a parcel of land owned by another.

Which of the following types of depreciation would be the most difficult to cure?

Economic Obsolescence

The effectiveness of the market data approach of appraising would be limited most by which of the following?

Economic conditions that rapidly change. Market Data is least reliable when there is rapid economic change to the market and/or the market is inactive.

Randy built a $90,000 house in a new subdivision of homes which were priced from $22,500 to $30,500. After the house was completed, it probably suffered:

Economic obsolescence. Having an expensive house lose value because it is surrounded by cheaper ones would be a form of Economic Obsolescence.

If an appraiser is estimating the value of a property using the cost approach, which of these describes what the appraiser should do?

Estimate the replacement cost of the improvements

Economic Obsolescence is a cause of depreciation that can occur because of:

Factors extraneous to the property. In other words, your property loses value for reasons that have nothing to do with the property.

A spreading at the foundation base would be most appropriately called:

Footing

How many acres are in a parcel described as the NW¼ of the SE¼ and the S½ of the SW¼ of the NE¼ of Section 4?

In this problem, multiply denominators for the first part: 4 �- 4 = 16; 640 acres ÷ 16 = 40 acres. Multiply denominators for the second part: 2 �- 4 �- 4 = 32; 640 ÷ 32 = 20 acres. Then add 40 acres + 20 acres = 60 acres.

An appraiser has been hired to prepare an appraisal on a rented property that includes an elegant old mansion that is now used entirely as an insurance company office. Which approach to value would the appraiser MOST rely on?

Income approach

An appraiser was contracted to determine the value of a large apartment building for a potential investor client. Which appraisal method is the MOST useful for this type of property?

Income approach. The Income Approach is one of three major groups of methodologies

An appraiser asked to estimate the value of an existing strip shopping center would probably give the MOST weight to which approach to value?

Income approach. The income approach will have the most weight in the analysis of income-producing property.

Which approach to value would be given most consideration in an appraisal of a Restaurant?

Income. Capitalization (income) Approach would be employed in the appraisal of a restaurant building. It would be most appropriate for a shopping center.

An increase in the appraised value of property which is considered unearned increment would most probably result from:

Increase in population. An unearned increment means there has been an increase in value due to no efforts on the part of the owner.

An appraiser was hired by Joe to appraise Bill's property. With whom should the appraiser discuss his findings?

Joe. The results of an appraisal are confidential.

All of the following terms are associated with the economic characteristics of real estate EXCEPT

License. A license is the permission to use another's property and is not an economic characteristic of property.

An appraiser is assigned to appraise a house in an area with very few sales over the past year. One of the comparable properties she chooses is a home similar to the subject property. The house recently sold as a foreclosure property. When writing her appraisal report, what action will the appraiser take as a result of the foreclosed sale?

Make a positive adjustment to the sales price of the foreclosed home

When is the Market Data approach the least reliable?

Market Data becomes less reliable during times of rapid economic change or instability, or in an inactive market.

Which of the following approaches is most commonly used by real estate licensees?

Market Data. Licensees usually use the Market Data Approach to find values of houses and vacant lots.

Mrs. Jones, an appraiser, is appraising a single family residence for which she has located six closely comparable properties, all sold within the past six months. The subject property is rented for $500 per month. It is a custom-built home, approximately three years old. Mrs. Jones would probably give the most weight in her final estimate of value to which of the following appraisal methods?

Market data would be used because it is the most reliable indicator of a home's true value.

The listing or asking price of a property in the marketplace is its

Market value is what a property should sell for in an arm's-length transaction between informed parties, neither of which is under undue pressure, and the property has been exposed to the market for a reasonable length of time.

Which of the following types of legal descriptions identifies a property by outlining its boundaries in terms of a series of directions and distances from a specific point of beginning?

Metes and bounds is a method used in describing property which starts at an identifiable starting point and then describes the succeeding sides by their bearing (direction) and length (distance)

The most comprehensive and complete appraisal report is the:

Narrative report

Economic obsolescence might be attributed to each of the following except:

No air conditioning in a commercial building in a warm climate. An air conditioning unit would NOT be Economic Obsolescence. It would be Physical deterioration if it broke down and Functional Obsolescence, if it never was supposed to be there in the first place.

The major cause of loss of value in real property is due to:

Obsolescence is the major cause of loss of value in real property. The word obsolescence literally means the condition of no longer being used or useful : the condition of being obsolete

When appraising a property on a hillside, the appraiser noticed cracks on the walls. The best recommendation is to:

Order soil engineer report.

Of the following, which would not affect supply?

Population. Factors that tend to affect the "supply" of the real estate market's supply and demand balance include the labor force, construction and material costs, government controls and financial policies.

How does one determine the gross rent multiplier?

Price divided by the monthly rent.

Which of the Methods could be used by Appraisers for estimating the cost of Construction:

Quantity Survey Method, Unit-in-Place Method, Square Footage Method, etc.

A homeowner constructs an eight-bedroom brick house with a tennis court, a greenhouse, and an indoor pool in a neighborhood of modest two-bedroom and three-bedroom frame houses on narrow lots. The value of this house is MOST likely to be affected by what principle?

Regression

You are preparing a competitive market analysis on a vacant lot that you hope to list for sale. Which of the following approaches to value will be used in the development of the estimated value?

Sales comparison approach. The sales comparison approach is most applicable to the appraisal of vacant land.

In the capitalization method of appraising, the most difficult step is to:

Select a capitalization rate.

An appraiser is using the market data approach comparing the prices of comparable properties to the subject property. If the comparable properties have a feature that is not present in the subject property, the value of that feature will be:

Subtracted from the sales price of the comparables. When comparing two properties you need to deduct for features of the comparable.

An appraiser has been hired to prepare an appraisal report of a property for loan purposes. The property is an elegant old mansion that is now leased out as a restaurant. To which approach to value should the appraiser probably give the greatest weight when making this appraisal?

The Income Approach is one of three major groups of methodologies

Timothy owns a 20 unit income property in Madison, Wisconsin and he added a pool. He also has a 20-unit income property in Yuma, Arizona, he added a pool to that property as well, because of the climate the pool had a greater effect on the net income in Yuma than it did in Madison, this would be an example of:

The Principle of Contribution:

When an appraiser is appraising a property he usually considers all of the following except:

The assessed value. Assessed Value cannot be used in finding the appraised value. Assessed value is used by tax assessors for tax purposes, not by appraisers

It is necessary to calculate a dollar value for depreciation when using which of the following?

The cost approach to value

The quantity survey method; unit-in-place method; and the square or cubic foot methods in real estate appraisal most directly relate to:

The cost approach. Quantity survey, unit-in-place, square foot. These relate to the cost approach

Which of following basic economic characteristics is the best expression of why real estate has value

The maximum utilization of available resources. Real Estate Value increases when there is a maximum use of resources.

When an appraiser contrasts the phrase reproduction costs and the phrase replacement cost; replacement would be more closely associated with which of the following concepts?

The present cost to replace the building with another building having the same utility.

Where in a standard narrative appraisal report would one likely find the type of value being estimated:

The statement of purpose. The type of value being estimated would be found in the statement of purpose section of the report.

Which of these is an example of external obsolescence?

Vacant, abandoned, and run-down buildings in an area.

Of the following factors, which would not contribute to obsolescence?

Wear and tear from use. Physical deterioration is a cause of depreciation which is a loss in value due to wear and tear and the forces of nature

An appraiser is usually paid:

a fee based on the amount of time and effort.

An example of functional obsolescence is

a five-bedroom home with one bathroom. Obsolescence is a loss of value. Functional obsolescence results from outmoded or unacceptable physical features in a property.

In computing the square footage of a single family home, an appraiser measures the external dimensions of the gross living area, which includes all of the following EXCEPT

a porch. To compute the square footage of a single family home, the external dimensions of the building are measured. A garage, porch, patio, or unfinished areas are not used when computing the square footage of a property.

An appraiser conducting an appraisal of a single-family home discovers that the subject home has one more bedroom than any of the three comparable properties the appraiser wants to use in the appraisal. To account for the extra bedroom, the appraiser will

add the value of the bedroom to the sales price of each comparable.

The appraisal approach most likely to be used in valuing a public library building would be:

cost. The cost method is most often used for buildings where actual income or comparative commercial value are unavailable--such as schools and libraries.

When using the cost approach to estimate the value of a residential dwelling, a listing broker SHOULD:

determine replacement value less depreciation

A condominium form of ownership is officially established when the

developer records a declaration in the public record.

An appraiser is responsible for

estimating value. analysis and considers all the data, an estimate of value will be provided.

The sales comparison approach to value is MOST important when estimating the value of a(n)

existing residence. The sales comparison approach arrives at an estimate of value by comparing the existing residence with recently sold comparable properties. This approach is normally considered the most reliable in appraising single-family homes to the large number of current sales.

An owner was building a house for himself. Due to personal preference, he decided not to put in a bathtub. This would result in:

functional obsolescence.

The appraised value of a residence with four bedrooms and one bathroom would probably be reduced because of

functional obsolescence.

A house with outdated plumbing is suffering from

functional obsolescence. Outdated plumbing is an example of an outdated design feature that lessens the value of a property.

A home with its kitchen next to the master bedroom would be considered

functionally obsolete.

The BEST way to ensure that there are no encroachments to a property and to properly verify the boundaries of a parcel of land is to

get a survey.

When appraising a commercial property, the appraiser is MOST concerned with the

income generated by the property.

A smaller home is surrounded by larger, more expensive homes. The value of the smaller home will most likely

increase because of the larger, more expensive properties.

The term depreciation refers to the

loss of value in real estate from any cause.

A recorded subdivision plat is used in the:

lot and block system. Lot and block is the "final" survey of property being readied for development and identifies each individual parcel in a subdivision.

All of the following are characteristics of value EXCEPT

obsolescence.

The income approach to appraising is MOST important in determining the value of a(n):

office building. The income approach is widely applied in appraising income-producing properties such as an office building.

orientation refers to;

position on site

A homeowner that always maintains his house has just discovered that he has termite infestation. This is an example of:

possible curable obsolescence. Defects are "curable" when the cost of the repair is less than the economic benefit of a sound, problem-free home.

The primary survey line running north and south in the rectangular survey system is the:

principal meridian

When an appraiser correlates the three approaches into a final estimate, he:

reconciles the differences according to the type of property being appraised and the quantity and quality of data available.

An appraiser conducting an appraisal of a single-family residence notes that the subject home does not have an attached garage. Three of the comparables the appraiser chooses include attached, finished garages. To account for the garage that is present in each comparable, but not in the subject property, the appraiser will

subtract the value of an attached garage from the sales price for each comparable.

Rents have gone up in the area. The principle that BEST describes this increase is

supply and demand

In MOST market areas, rents are determined by

supply and demand factors.

If there is a discrepancy between a residential lot size quoted in a listing contract and the actual lot size, the actual lot size that will prevail in a sales transaction will be found in the

survey. The accuracy of the lot size is essential for both residential and commercial properties. If there is a discrepancy between the lot size quoted in a listing contract or deed and the actual lot size, the actual lot size found by a survey will prevail.

Market value is primarily based on

the "willing buyer" and "willing seller" concept.

Reconciliation is an appraisal term used to describe

the appraiser's analysis and weighing of the findings of all three appraisal approaches

In valuing a single-family residence by the comparison approach, an appraiser would make adjustments to:

the comparable properties.

The market value of a parcel of real estate is

the most probable price it should bring.

The market price of a parcel of real estate is

the price it sells for.

The economic life of an investment can be described as:

the time over which value generated exceeds cost of operation.

The first step in an appraisal is:

to define the problem. Appraisers can legitimately come up with different values for the same property depending on the purpose of the appraisal.

The relationship between a property and a prospective purchaser is known as:

value. Value can also be described as the relationship between a property and a prospective purchaser.

Which of the following would be considered economic obsolescence?

zoning changes