section 4 chapter 3

The process of combining smaller lots into one larger lot is known as _____ while the increase in value that results is known as _____. Select one: a. Assemblage / plottage b. Plottage / assemblage c. Assemblage / conformity d. Plottage / anticipation

Assemblage / plottage

Appraisal fees are set by:

The appraiser's estimate of the time and effort involved in the assignment

Which of the following is incurable depreciation? Select one: a. A kitchen with outdated appliances. b. A poorly designed floor plan. c. Noxious odors from a nearby chemical plan. d. A leaking roof.

c. Noxious odors from a nearby chemical plan.

The Market Data approach is based on which of the following appraisal principles? Select one: a. Substitution b. Competition c. Anticipation d. Conformity

substitution

true or false: Increased profits tend to increase competition.

true

The Market Data Approach to value is normally used in estimating the value of: Select one: a. An oil refinery b. A hotel c. A gas station d. Vacant land

vacant land

An owner, in anticipation of selling his home, has central air conditioning installed. How would you determine the value of the property after the installation was complete? Select one: a. By comparing it to other houses in the area that have central air b. By adding the cost of the installation to the unimproved value c. By determining additional rental income derived from the improvement d. By adding the cost of installation to the depreciated value of the property

By comparing it to other houses in the area that have central air

Utilization of a property in the manner most profitable to the owner at the time the value is estimated is called: Select one: a. Economic life b. Highest and best use c. Principle of conformity d. Reconciliation process

Highest and best use

In appraisal theory the use that would generate the highest net return on investment is called the: Select one: a. Ancillary use. b. Preferred use. c. Potential use. d. Highest and best use.

Highest and best use.

Which of the following statements is a true statement? Select one: a. Physical life is generally longer than economic life. b. Physical life is generally shorter than economic life. c. Physical and economic life are generally the same. d. It is impossible to tell.

Physical life is generally longer than economic life.

When a salesperson or broker does a Comparative Market Analysis (CMA), he or she could be doing any of the following, EXCEPT: Select one: a. Helping a seller set a reasonable price b. Providing an appraisal of value c. Obtaining information about the price of similar properties d. Assisting a potential buyer to locate a suitable property

Providing an appraisal of value

An appraiser has estimated the value of a property according to the comparison approach, the cost approach and the income approach. To reach a final value estimate the appraiser will: Select one: a. Average the three values b. Choose one of the three values c. Differentiate the three values d. Reconcile the three values

Reconcile the three values

The comparison approach to appraisal is based on the principle of: Select one: a. Contribution b. Progression and regression c. Substitution d. Anticipation

Substitution

A home located in an area where there are factories with much smoke and dust experiences: Select one: a. Physical deterioration b. Economic obsolescence c. Locational obsolescence d. Functional obsolescence

b. Economic obsolescence

An owner builds a beautiful brick colonial house on a lot located in a neighborhood of only very contemporary, single level, mostly glass homes. The owner puts his newly constructed house on the market and is unable to sell it. This is an example of the appraisal principle of: Select one: a. Highest and best use b. Progression and regression c. Conformity d. Substitution

conformity

Neighborhood A has homes of similar size and quality grouped together. Neighborhood B has a mixture of sizes and qualities. The same model of house sells for more in neighborhood A than in neighborhood B. What principle of appraisal could explain this? Select one: a. Substitution b. Conformity c. Anticipation d. Plottage

conformity

In which appraisal approach is a separate value established for the land? a. Market Data b. Gross rent multiplier c. Income d. Cost

cost

Rachel bought her house years ago for $100,000. Over the years she has made $25,000 in improvements to the home. The house is now valued at $275,000. This is an example of the principle of: Select one: a. Unearned increment. b. Progression. c. Conformity. d. Change.

unearned increment (value increases not through efforts of owner)

An appraiser is appraising a house which has 4 bedrooms and 1 bathroom. One of the comps is a 3 bedroom home with 2 bathrooms. The appraiser has determined that the appropriate adjustments for bedrooms is $5,000 and for bathrooms is $10,000. If the comp sold for $150,000, what is the indicated value of the subject property based on this comparable sale? Select one: a. $165,000 b. $155,000 c. $145,000 d. $135,000

$145,000 $150,000 Sale price of comp + 5,000 Bedroom (comp is "poor") - 10,000 Bathroom (comp is "rich") $145,000 Indicated value.

Mary is considering purchasing a rental house. Another rental home recently sold for $187,500 and rents for $1,500 per month. If the house she is considering rents for $1,700 per month, what should Mary expect to pay for the house? Select one: a. $195,500 b. $208,500 c. $212,500 d. $218,500

$212,500 $187,500 / $1,500 = 125 GRM $1,700 x 125 GRM = $212,500.

Once a property has been appraised, then exposed to the market for a reasonable length of time and finally sells, who has determined the value of the property? Select one: a. Lender. b. Buyer. c. Appraiser. d. Seller.

buyer

The best approach for appraising a 20-year old residence is: Select one: a. Amortization b. Capitalization c. Cost approach d. Comparable sales

comparable sales

A homeowner spends $40,000 installing a luxurious kitchen in his home. When the property is sold, the homeowner finds that the kitchen only added $25,000 to the value of the home. This illustrates the principle of: Select one: a. Change b. Unearned increment c. Regression d. Contribution

contribution

In which type of appraisal approach is replacement or reproduction cost used to estimate value of property? Select one: a. Market data (Sales comparison). b. Income. c. Cost. d. Gross rent multiplier.

cost

Which of the following appraisal approaches would be considered most reliable when appraising a public library? Select one: a. Market Data b. Capitalization c. Income d. Cost

cost

Which of the following appraisal approaches would be most appropriate for a public school? Select one: a. Market data. b. Cost. c. Capitalization. d. Gross rent multiplier.

cost

A home that has severely peeling paint would be an example of which of the following? Select one: a. Correlation b. Obsolescence c. Depreciation d. Capitalization

depreciation

When computing the net operating income, an appraiser would deduct which of the following? Select one: a. Depreciation. b. Interest payments on any mortgages. c. Both depreciation and interest payments on any mortgages. d. None of these choices.

none

A developer buys a parcel of land that adjoins his property. As a result, the land appreciates in value because the development will be more cost effective. The increased value of the property is referred to as the: Select one: a. Plottage increment. b. Contingent increment. c. Functional increment. d. Economic increment.

plottage increment

A savvy real estate buyer purchases the least expensive home in the most expensive neighborhood he can afford. This is done to take advantage of the appraisal principle of: Select one: a. Regression. b. Progression. c. Contribution. d. Unearned increment.

progression

The cost to build a building with the same utility as a particular structure, but not necessarily identical to the existing structure, would be the: Select one: a. Replacement cost b. Reproduction cost c. Quantity survey cost d. Unit-in-place cost

replacement cost

The cost to build a building with the same utility as a particular structure, but not necessarily identical to the existing structure, would be the: Select one: a. Replacement cost. b. Reproduction cost. c. Quantity survey cost. d. Unit-in-place cost.

replacement cost

An appraiser is preparing an appraisal. Included in the appraisal report are several statistical charts detailing the traffic count. For which type of property is this type of information most important? Select one: a. Offices. b. Apartments. c. Retail stores. d. Industrial warehouses.

retail stores

Two real estate developers are working on similar but competing commercial developments. Both projects are finished at approximately the same time. Which of the following would most likely characterize the reasons that one succeeds while the other fails? Select one: a. Supply and demand. b. Situs. c. Plottage value. d. Nonhomogeneity.

situs- location of the properties

A professional appraiser would establish his fee based on: Select one: a. A percentage of the estimated value b. The appraiser's costs and time involved c. Local custom for making appraisals d. Fees allotted by the American Institute of Real Estate Appraisers

the appraiser's costs and time involved

A real estate salesperson uses a Competitive Market Analysis to suggest a listing price for a home. If this CMA has been done correctly, each of the following statements would be true, EXCEPT: a. Expired listings will be included to show the upper limits of value b. Recent sales will be included to show what the market has been c. The salesperson can call the analysis an appraisal d. Current listings will be included in the analysis

the salesperson can call the analysis an appraisal

An appraiser is using the cost approach to value an office building. The one-story building measures 25' by 60'. The appraiser estimates the current cost of a similar structure would be $85 per square foot. What is the cost estimate for this structure? Select one: a. $97,500 b. $127,500 c. $135,500 d. $142,500

25 x 60 = 1,500 square feet 1,500 x $85 = $127,500

A 75 unit apartment complex has an average rent per unit of $800 per month. The vacancy rate averages 5%. The operating expenses are 45% of effective gross income. The property recently sold for $4,950,000. At what capitalization rate did the property sell? Select one: a. 7.6% b. 4.5% c. 5.2% d. 8.8%

7.6% -Potential Gross Income $720,000 (75 x 800 x 12) - Vacancies - 36,000 ($720,000 x .05) Effective Gross Income $684,000 - Operating Expenses - 307,800 ($684,000 x .45) Net Operating Income $376,200. $376,200 / Cap Rate = $4,950,000. $376,200 / $4,950,000 = .076 = 7.6%.

The property being appraised has 4 bedrooms. The comparables in the area have only 3 bedrooms. Using the Market Data approach, how does the appraiser arrive at an estimate of value for the subject property? Select one: a. Deduct the value of a bedroom from the selling price of the subject property. b. Add the value of a bedroom to the selling price of the comparables. c. Adjust the selling price of the subject property by the difference of the salary of the owners of the properties. d. Deduct the value of a bedroom from the price paid for the property by the current owner.

Add the value of a bedroom to the selling price of the comparables.

When analyzing various comps in the comparison approach, the appraiser would consider each of the following issues, EXCEPT: Select one: a. Number of adjustments in each comp. b. The average indicated value of the comps. c. The size of the adjustments in each comp. d. The distance of each comp from the subject.

The average indicated value of the comps.

Which of the following principles of value would a real estate salesperson consider first when doing a CMA (competitive market analysis)? Select one: a. The principle of conformity. b. The principle of contribution. c. The principle of substitution. d. The principle of highest and best use.

The principle of conformity

The appraiser should NOT consider which of the following in making his or her appraisal? Select one: a. The presence or lack of curbs, gutters and sidewalks. b. The prevailing winds in the area. c. The elevation of the lot. d. The racial make-up of the neighborhood.

The racial make-up of the neighborhood.

When the appraiser prepares a site analysis, which of the following is INCORRECT? Select one: a. Topographic factors are important for farm valuation. b. Commercial properties are influenced by corner location more than residential properties. c. The wider the lot, the greater the value of the lot. d. The cost and availability of utilities are a part of site analysis.

The wider the lot, the greater the value of the lot.

Which of the following types of depreciation would be least likely to be curable? Select one: a. Physical deterioration b. Functional obsolescence c. Economic obsolescence d. None of these - since they can all be cured if the owner is willing to pay the cost

Economic obsolescence -Depreciation is only curable if the cost of fixing it adds at least that much to the value of the property. Economic obsolescence is caused by factors outside of the property lines and would therefore be least likely to be curable.

The construction of a new highway will divert traffic away from an area and causes a decline in property values. This is an example of which type of depreciation? Select one: a. Functional obsolescence, incurable. b. Physical deterioration, curable. c. Economic obsolescence, curable. d. Economic obsolescence, incurable.

Economic obsolescence, incurable.

An appraiser, compiling a neighborhood analysis, would NOT include information about which of the following: Select one: a. Price range of similar housing b. Traffic patterns c. Ethnic characteristics of the residents d. Conformity in the style of housing

Ethnic characteristics of the residents

True or False: An appraiser usually charges a fee based upon the percentage of the appraised value.

False

The principle of substitution is used in appraisal: Select one: a. In the Income approach b. When the shape of the lot is irregular c. In the Cost approach d. In the Market Data approach

In the Market Data approach

The three (3) approaches used in the appraisal of real property are: Select one: a. Replacement; market data; cost b. Income; cost; market data c. Capitalization; replacement; cost d. Reproduction; market data; income

Income; cost; market data

Which of the following best describes the gross rent multiplier? Select one: a. The GRM is also referred to as a cap rate. b. It is a factor derived by dividing the sales price of a property by monthly rental income. c. Calculating the GRM is the final step used to estimate value when using the cost approach. d. GRM is used to compute depreciation.

It is a factor derived by dividing the sales price of a property by monthly rental income.

In the capitalization approach, the appraiser considers all of the following EXCEPT: Select one: a. Price of the property. b. Rate of return on the investment. c. Rate of return of the investment. d. The estimated future income.

Price of the property.

The appraised value of a quality single-family residence would probably NOT take into consideration which of the following: Select one: a. Projected rental income b. The location of the property c. The floor plan of the house d. The sales price of the house across the street

Projected rental income

An appraiser would use which of the following information if she or he was appraising a house built in 1935? Select one: a. Consumer Price Index for 1935 with annual adjustments b. Current construction costs adjusted by the CPI index c. Replacement or reproduction cost d. Actual cost of construction in 1935

Replacement or reproduction cost

When appraising an office building using the capitalization approach, all of the following would be considered EXCEPT: Select one: a. Operating expenses. b. Reproduction cost. c. Vacancy allowance. d. Estimated gross income

Reproduction cost.

Which of the following is an example of economic obsolescence in a 6-unit apartment building? Select one: a. Outdated plumbing fixtures b. Leaking roof c. The building is located on a one-way street d. Lack of on-premises parking facilities for tenants

The building is located on a one-way street

Rachel bought her house years ago for $100,000. Over the years she has made $25,000 in improvements to the home. The house is now valued at $275,000. This is an example of the principle of: Select one: a. Unearned increment b. Progression c. Conformity d. Change

Unearned increment

Which of the following values is used to establish real property taxes? Select one: a. Insured. b. Appraised. c. Sales price. d. Assessed.

assessed

An appraiser who is appraising a single family residence would most likely place the greatest emphasis on which approach to appraisal? Select one: a. Market approach b. Cost approach c. Capitalization approach d. Gross rent multiplier approach

market approach

To find the value of real property using the Income approach, which of the following would be divided by the capitalization rate? Select one: a. Gross income b. Effective gross income c. Net income d. None of the above

net income

When computing the net operating income, an appraiser would deduct which of the following? Select one: a. Depreciation b. Interest payments on any mortgages c. Both depreciation and interest payments on any mortgages d. None of the above

none of the above

in determining total square footage of a dwelling, the appraiser would consider: Select one: a. Outside dimensions. b. Inside dimensions. c. Price per square foot. d. Basement dimensions

outside dimensions

You ask a friend how much he thinks his house is worth. He says "about $175,000." When you ask why he believes that, the friend says, "Because my neighbor's house just sold for that much." Your friend has perhaps unwittingly relied on the appraisal principle of: Select one: a. Assemblage b. Progression c. Substitution d. Conformity

substitution

You ask a friend how much he thinks his house is worth. He says "about $175,000." When you ask why he believes that, the friend says, "Because my neighbor's house just sold for that much." Your friend has perhaps unwittingly relied on the appraisal principle of: Select one: a. Assemblage. b. Progression. c. Substitution. d. Conformity.

substitution

A builder sold the first house in a new subdivision for $132,500 and sold the last house, which was the same model as the first one sold, for $165,000. This is an example of what principle of appraisal? Select one: a. Diminishing returns. b. Progression and regression. c. Caveat emptor. d. Supply and demand.

supply and demand

Which of the following is an example of functional obsolescence? Select one: a. A house with a leaking water pipe b. Shutters that needed painting c. A house that is not near an elementary school d. A house without indoor plumbing

A house without indoor plumbing

Which of the following best describes the principle of "highest and best use"? a. Value created by and maintained in proportion to the use characterized by the neighborhood b. A property that is utilized in the manner most profitable at the time that the value is estimated c. No material thing remains static, it is the future, not the past, that is of prime importance d. A property attains its highest value when it is homogeneously developed

A property that is utilized in the manner most profitable at the time that the value is estimated

When an appraiser assigns value to the rights to future income, he or she is most likely using the? Select one: a. Market data approach. b. Cost approach. c. Capitalization approach. d. Future forecast approach.

Capitalization approach.

A home sells for less than other nearby similar homes because it has a bad floor plan. This would be an example of: Select one: a. Physical deterioration b. Functional obsolescence c. Economic obsolescence d. External obsolescence

Functional obsolescence

Which of the following factors would have the LEAST effect on an appraisal? Select one: a. The real estate market, in general. b. Income to be derived from the property. c. Location of the property. d. Livelihood of the prospective buyer.

Livelihood of the prospective buyer.

When appraising new single family homes, the greatest reliance would be placed on which of the following? Select one: a. Market value and replacement cost b. Replacement cost and income c. Highest and best use and market value d. Replacement cost and capitalization

Market value and replacement cost

Which of the following describes market value? Select one: a. Assessed valuation b. Listing price c. Reproduction cost less depreciation d. Most probable selling price

Most probable selling price

Recognizing that property has experienced growth, stability and decline would be included in which part of an appraisal? Select one: a. Site analysis b. Neighborhood analysis c. Highest and best use narrative d. Gross rent multiplier computation

Neighborhood analysis

Functional obsolescence might include? Select one: a. A worn carpet. b. No indoor plumbing. c. Noise from a nearby airport. d. None of these choices.

No indoor plumbing.

When analyzing various comps in the comparison approach, the appraiser would consider each of the following issues, EXCEPT: Select one: a. Number of adjustments in each comp b. The average indicated value of the comps c. The size of the adjustments in each comp d. The distance of each comp from the subject

The average indicated value of the comps

True or False: An appraisal should take into account the highest and best use of the property.

True

To properly calculate effective gross income on a 16-unit apartment building, the appraiser should allow for: Select one: a. The amount of property taxes b. The amount of income taxes paid c. Principal and interest paid on the mortgage d. Vacancy rate and bad debts

Vacancy rate and bad debts

When determining effective gross income, an appraiser subtracts which of the following from gross income? Select one: a. Vacancy rates and bad debts. b. Management costs. c. Maintenance, utilities and taxes. d. All of these choices.

Vacancy rates and bad debts.

An appraiser would be likely to place the greatest emphasis on the cost approach to appraisal when appraising: Select one: a. A single-family residence b. An apartment complex c. A four-plex d. A library

a library

The value of real property is affected by which of the following? Select one: a. Real estate taxes b. The cost of financing c. Government regulations and zoning d. All of the above

all of the above

Which of the following statements is/are true? Select one: a. Replacement cost means that the property is replaced by one with similar utility b. Reproduction cost means that the property is replaced by one that is identical to the subject property c. Using the cost approach tends to set the upper limits of value d. All of the above

all of the above

The process of merging lots under one owner is known as __________________

assemblage

Name the 4 essential elements of value

demand Scarcity Transferability Utility

True or False: The most expensive house in the neighborhood will set the price for all of the other properties in the neighborhood.

false

true or false: Any improvement you make to real estate will increase its value.

false

Three similar houses in the same subdivision are placed on the market at the same time. According to the law of supply and demand, which house will sell for the least amount of money assuming demand remains constant. Select one: a. First. b. Second. c. Third. d. All would sell for the same price.

first

In appraisal theory the use that would generate the highest net return on investment is called the: Select one: a. Ancillary use b. Preferred use c. Potential use d. Highest and best use

highest and best use

The cost of utilities, the expense of professional management and the cost to replace worn out appliances and furniture are used in which appraisal approach? Select one: a. Market data b. Comparables c. Income d. Cost

income

There is a geometric theorem that states "the whole is equal to the sum of its parts." In real estate there is a theorem that states, "the whole can be GREATER than the sum of its parts." This is an example of the principle of: Select one: a. Plottage b. Depreciation c. Accretion d. Progression

plottage

A savvy real estate buyer purchases the least expensive home in the most expensive neighborhood he can afford. This is done to take advantage of the appraisal principle of: Select one: a. Regression b. Progression c. Contribution d. Unearned increment

progression

A person is offered $100,000 for his condominium. Other condos with similar amenities and utilities are selling for $100,000. This is an example of: Select one: a. Competition b. Change c. Contribution d. Substitution

substitution

An appraiser is appraising a house which has 4 bedrooms and 1 bathroom. One of the comps is a 3 bedroom home with 2 bathrooms. The appraiser has determined that the appropriate adjustments for bedrooms is $5,000 and for bathrooms is $10,000. If the comp sold for $150,000, what is the indicated value of the subject property based on this comparable sale? Select one: a. $165,000. b. $155,000. c. $145,000. d. $135,000.

$145,000 $145,000 ($150,000 (comp sold price) + $5,000 (subject extra bedroom) - $10,000 (comp extra bathroom) = $145,000 (estimated value for subject)

Mary is considering purchasing a rental house. Another rental home recently sold for $187,500 and rents for $1,500 per month. If the house she is considering rents for $1,700 per month, what should Mary expect to pay for the house? a. $195,500. b. $208,500. c. $212,500. d. $218,500.

$212,500 -$212,500 ($187,500 [sale price] / $1,500 [rent] = $125 [gross rent multiplier] x $1,700 [rent] = $212,500 [estimated value])

An appraiser would be likely to place the greatest emphasis on the cost approach to appraisal when appraising: Select one: a. A single-family residence. b. An apartment complex. c. A four-plex. d. A library.

a library

Using the reproduction method in the Cost approach to appraisal is NOT a good indication of value for which of the following types of property? Select one: a. A new office building. b. An old residence. c. A public library. d. A new single family residence.

an old residence

The process of combining smaller lots into one larger lot is known as _____ while the increase in value that results is known as ____. Select one: a. Assemblage / plottage. b. Plottage / assemblage. c. Assemblage / conformity. d. Plottage / anticipation.

assemblage/plottage

The use of a capitalization rate is most suitable for estimating the value of which type of property? Select one: a. A single family home which has been owner-occupied for ten years. b. A building which is being converted to a public art gallery. c. A building leased to a theater chain. d. A cooperative development.

A building leased to a theater chain.

If an appraiser advises you "...this property suffers from incurable depreciation", what would he or she be describing? Select one: a. Physical obsolescence b. Functional obsolescence c. Economic obsolescence d. Generic obsolescence

Economic obsolescence