Unit 16: Real Estate Appraisal,

If a farm described as "the NW1/4 of the SE1/4 of Section 10, Township 2 North, Range 3 West of the 6th. P.M." sold for $4,500 an acre, what was the total sales price? $45,000 $90,000 $135,000 $180,000

$180,000

If the potential gross rental income from a property is $20,000, the vacancy rate is 5 percent, and the additional income from the laundry facilities and extra storage is $700, what is the effective gross income? $19,000 $19,700 $20,000 $20,700

$19,700

A building was purchased new five years ago for $240,000. It currently has an estimated remaining useful life of 55 years. What is the property's total depreciation to date for appraisal purposes? $14,364 $20,000 $48,000 $54,000

$20,000

A building was purchased new five years ago for $240,000. It currently has an estimated remaining useful life of 55 years. What is the current market value of the building if its construction cost has not increased? $235,636 $220,000 $192,000 $186,000

$220,000

A buyer purchased a half-acre parcel for $2.15 per square foot. What was the selling price of the parcel? $774 $46,827 $1,376 $93,654

$46,827

A man buys 4.5 acres of land for $78,400. An adjoining owner wants to purchase a strip of this land measuring 150 feet by 100 feet. What should this strip cost the adjoining owner if the owner sells it for the same price per square foot he originally paid for it? $3,000 $6,000 $7,800 $9,400

$6,000

sales comparison approach

(also known as the market data approach), value is obtained by comparing the property being appraised-the subject property-with recently sold comparable properties- properties similar to the subject in location and features.

market data approach

(also known as the sales comparison approach), value is obtained bu comparing the property being appraised- the subject property- with recently sold comparable properties- properties similar to the subject in location and features.

accrued depreciation

(loss of value) resulting from the property's physical deterioration, external depreciation, and functional obsolescence.

A building is valued at $215,000 and contains four apartments that rent for $470 each per month. The owner estimates that the net operating income is 65 percent of the gross rental receipts. What is the capitalization rate? 3.7% 6.8% 10.5% 14.2%

6.8%

If a property's annual net income is $24,000 and it is valued at $300,000, what is its capitalization rate? 8% 10.5% 12% 15%

8%

How many acres are contained in the tract described as "beginning at the NW corner of the SW1/4, then south along the west line to the SW corner of the section, then east along the south line of the section 2,640 feet, more or less, to the SE corner of the said SW1/4, then in a straight line to the POB? 80 acres 90 acres 100 acres 160 acres

80 acres

physical deterioration

A curable item is one in need of repair, such as painting (deferred maintenance), that would result in an increase in value equal to or exceeding its cost.

Which of the following is NOT used by an appraiser applying the income approach to value? Annual net operating income Capitalization rate Accrued depreciation Annual gross income

Accrued depreciation

Appraiser Independence Requirements (AIR)

An accurate, objective appraisal is an important part of a real estate transaction, as well as a safeguard against a fraudulent transaction. The Dodd-Frank Act required changes to the Truth in Lending Act and other legislation to prohibit the coercion and other activities that influenced appraisals in many cases of fraud that occurred during the housing crisis of the past decade. Fannie Mae initiated

The term reconciliation refers to which of the following? Loss of value due to any cause Separating the value of the land from the total value of the property to compute depreciation Analyzing the results obtain by the different approaches to value to form an opinion of value The process by which an appraiser determines the highest and best use for a parcel of land

Analyzing the results obtaining by the different approaches to value to form an opinion of value

law of diminishing returns

At the point where additional improvements do not increase income or value, the law of diminishing returns applies.

The income approach as used by an appraiser makes use of which of the following? Equalization Depreciation Appreciation Capitalization

Capitalization

In an old retail building, which of the following would OST likely be a source of incurable functional obsolescence? Deficient and inadequate lighting Closely spaced internal support columns Unattractive store front Decrease in the area's population

Closely spaced internal support columns

Which principal of value indicates that a developer's very profitable real estate project will attract others to engage in similar activity in the same area and thus drive down profits? Anticipation Competition Value Progression

Competition

Using which of the following would require the value of the land to be calculated separately from the value of the improvements? Income approach Cost approach Sales comparison approach Gross rent multiplier

Cost approach

It is necessary to calculate a dollar value for depreciation when using which of the following? Sales comparison approach to value. Cost approach to value. Income approach to value. Gross rent multipliers.

Cost approach to value.

net operating income (NOI)

Deduct the annual operating expenses from the effective gross income to arrive at the annual net operating income (NOI). Management costs are always included, even if the current owner manages the property.

Which of the following would NOT be acceptable evidence of ownership? Attorney's opinion Title insurance policy Abstract Deed to the current owner signed by the last seller

Deed to the current owner signed by the last seller.

In the cost approach, an appraiser uses which of the following? Sales prices of similar properties Owner's original cost of construction Estimate of the building's replacement cost Property's depreciated value as used from income tax purposes

Estimate of the building's replacement cost

capitalization rate

Estimating the rate of return (capitalization rate or cap rate) for the subject by analyzing cap rates of similar properties.

gross rent multiplier (GRM)

If a buyer is interested in purchasing a one-to four-unit residential rental property, the gross rent multiplier (GRM) based on monthly rental income could be used for a rough approximation of value.

external obsolescence

If depreciation is caused by negative factors not on the subject property, such as environmental, social, or economic forces, it is always incurable. The loss in value cannot be reversed by spending money on the property.

gross income multiplier (GIM)

If the buyer is interested in purchasing five or more units, a gross income multiplier (GIM) based on annual income could be used.

regression

In general, the worth of a better-quality property is adversely affected by the presence of a lesser-quality property.

An appraiser asked for an opinion of the value of an exiting shopping center would probably give the MOST weight to which approach to value? Cost approach Sales comparison approach Income approach Index method

Income approach

In the valuation of a large apartment complex, the most weight would be given to which of the following approaches to value? Cost approach Income approach Sales comparison approach All approaches equally weighted.

Income approach

Which appraisal method uses a rate of investment return? Sales comparison approach Cost approach Income approach Gross income multiplier method

Income approach

In the appriasal of the office building, which of the following would declassified as external depreciation? Termite damage to the structural components of the building Poor architectural design resulting in a cluttered floor plan. Inadequate number of elevators and antiquated restroom facilities Law requiring the building to be retrofitted with fire sprinklers

Law requiring the building to be retrofitted with fire sprinkles

functional obsolescence

Obsolescence means a loss in value from the market's response to the item. Outmoded or unacceptable physical or design features that are no longer considered desirable by purchasers are considered curable if they can be replaced to redesigned at a cost that would be offset by the anticipated increase in ultimate value.

There are two vacant adjacent lots, each worth approximately $50,000. If their owner sells them as a single lot, however, the combined parcel will be worth $120,000. What principle does this illustrate?

Plottage

Which of the following would be classified as external depreciation? Leaking roof that needs to be completely replaced Poorly maintained properties in the neighborhood Poorly designed floor plan that could be modified Convenient access to schools and recreational facilities

Poorly maintained properties in the neighborhood

The date and time a document was recorded help establish which of the following? Priority Abstract of title Subrogation Marketable title

Priority

The owners of a modest ranch house in a neighborhood of larger, more expensive homes may find that the value of their home is affected by what principle? Progression Increasing returns Competition Regression

Progression

change

Real estate is subject to natural phenomena such as tornadoes, fires, and routine wear and tear.

Which statement BEST explains why instruments affecting real estate are recorded? Recording gives constructive notice to the world of the rights and interest claimed in the identified parcel of real estate. Failing to record will void the transfer. The instruments must be recorded to comply with the terms of the statute of frauds. Recording proves the execution the instrument.

Recording gives constructive notice to the world of the rights and interests claimed in the identified parcel of real estate.

A homeowner contracts a five-bedroom brick house with an indoor pool in a neighborhood of a 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? Progression Assemblage Change Regression

Regression

The characteristics of value include which of the following?

Scarcity

law of increasing returns

The addition of improvements to land and structures tends to increase the property's market value, but only up to a certain point. Beyond that point, additional improvements no longer affect a property's value because buyers or renters in the market cannot be expected to pay more for the property. As long as money spent on improvements produces an increase in income or value, the law of increasing returns applies.

Uniform Standards of Professional Appraisal Practice (USPAP)

The appraisal Foundation is a non-profit organization composed of representatives of the major appraisal an related groups. In conducting an appraisal, an appraiser must follow the USPAP

A buyer bought a house, received a deed, and moved into the residence but neglected to record the document. One week later, the seller died and the heirs in another city, unaware that the property had been sold, conveyed title to a relative, who recorded the deed. Who owns that property? The buyer The relative The seller's heirs Both the buyer and the relative

The buyer

cost approach

The cost approach to value also is based on the principle of substitution. The cost approach consists of five steps: 1. Estimate the value of the land as though it were vacant and available to be put to its highest and best use. 2. Estimate the current cost of constructing buildings and improvements. 3. Estimate the amount of accrued depreciation (loss in value) resulting from the property's physical deterioration, external depreciation, and functional obsolescence. 4. Deduct the accrued depreciation estimated in Step 3 from the construction cost estimate in Step 2. 5. Add the estimated land value from Step 1 to the depreciated cost of the building and site improvements derived in Step 4 to arrive at the total property value. Example: Value of the land = $50,000 Current cost of construction =$180,000 Accrued depreciation =$20,000 $180,000-$20,000 =$160,000 $50,000+$160,000 =$210,000 In this case, the total property value is $210,000.

competition

The interaction of supply and demand creates competition.

assemblage

The process of merging two separately owned lots under one owner is known as assemblage.

sales price

The sales price of a comparable is adjusted to reflect the impact on value of any difference between the subject and comparable.

A purchaser went to the county building to check the recorder's records, which showed that the seller was the grantee in the last recorded deed and that no mortgage was on record against the property. The purchaser may assume which of the following? All taxes are paid and no judgements are outstanding. The seller has good title. The seller did not mortgage the property. No one else is occupying the property.

The seller did not mortgage the property.

value

To have value in the real estate market- that is, monetary worth based on desirability- a property must have the following characteristics, which can be remembered as DUST: DEMAND- the need or desire for possession or ownership backed by the financial means to satisfy that need. UTILITY- the property's usefulness for its intended purposes SCARCITY- a finite supply TRANSERABILITY- the relative ease with which ownership rights are transferred from one person to another

Change, contribution, plottage, and substitution are some of the basic principles that affect what aspect of real estate? Demand Depreciation Value Supply

Value

Chain of title is MOST accurately defined as a history of all documents and legal proceedings affecting a specific parcel of land. a report of the contents of the public record regarding a particular property. an instrument or document that protects the insured parties(subject to specific expectation) against defects in the record of property's ownership. the examination of the record and hidden risks such as forgeries, undisclosed heirs, errors in the public record, and so on.

a history of all documents and legal proceedings affecting a specific parcel of land.

A a legal secretion, "the northwest 1/4 of the southwest 1/4 of Section 6, Township 4 North, Range 7 West" is defective because it contains no reference to lot numbers boundary lines a principal meridian a record of survey

a principal meridian.

For appraisal purposes, accrued depreciation is NOT caused by functional obsolescence. physical deterioration. external obsolescence. accelerated depreciation.

accelerated depreciation.

The market value of a parcel of real estate is an estimate of its future benefits. the amount of money paid for the property. an estimate of the most probable price it should bring. its value without improvements.

an estimate of the most probable price it should bring.

Reconciliation is best described as selecting the highest value given by the three approaches to value. comparing comparable properties and identifying their amenities. determining the final value by selecting one value from those given. analyzing the results obtaining from the three approaches to value.

analyzing the results obtained from the three approaches to value.

A title search in the public records may be conducted by anyone. attorneys and abstractors only. attorneys, abstractors, and real estate professionals only. anyone who obtains a court order under the Freedom of Information Act.

anyone.

A property with encumbrances that will outlast the closing. cannot be sold. can be sold only if title insurance is provided. cannot have a deed recorded without a survey. can be sold if a buyer agrees to take it subject to the encumbrances.

can be sold if a buyer agrees to take it subject to the encumbrances.

In the income approach, the appraiser makes use of reproduction cost. capitalization rate. depreciation schedule. replacement cost.

capitalization rate.

All of the following are steps in the appraisal process EXCEPT gathering specific data on the subject property. gathering general data for the area of the subject property. considering the seller's estimate of the property''s value. applying the three approaches to value to the collected data.

considering the seller's estimate of the property's value.

In the income approach, all of the following are considered when calculating net operating income EXCEPT real estate taxes. management fees debt service. utilities.

debt service.

All of the following factors would be important in comparing properties under the sales comparison approach to value EXCEPT differences in dates of sale. differences in financing terms. differences in appearance and condition. differences in original cost.

differences in original cost.

To find the value of a property using the income approach to value, If the net operating income and the capitalization rate were known, the appriasor would multiply the net operating income by the capitalization rate. multiply the effective gross income by the capitalization rate. divide the net operating income by the capitalization rate. divide the capitalization rate by the net operating income.

divide the net operating income by the capitalization rate.

The income approach to value would be MOST important in the appraisal of a residential condominium. downtown office building. single-family residence. vacant residential lot.

downtown office building.

economic life

economic life method, or an estimate of individual items of physical deterioration, functional obsolescence or external obsolescence.

The period of time over which an improvement to the property will remain useful for its original purpose is known as its amortized life. chronological life. actual life. economic life.

economic life.

All of the following would be considered specific data EXCEPT the dimensions of the subject property. employment opportunities in the area. sales data for comparable properties. gross rent multipliers for the area.

employment opportunities in the area.

The purpose of an appraisal is to estimate the value of a property. set the market price of a property. determine the projected income of a property. set the amount of consideration the seller should accept from a purchaser.

estimate the value of a property.

Capitalization is the process by which annual net operating income is used to determine cost. estimate value. establish depreciation. determine potential tax return.

estimate value.

In the cost approach to value, the appraiser makes use of the owner's original cost of the building. estimated replacement cost of the building. sales prices of similar buildings in the area. assessed value of the building.

estimated replacement cost of the building.

An appraiser is responsible for finding value. computing value. determining value. estimating value.

estimating value

The sales comparison approach to value would be MOST important when estimating the value of a(n) existing residence. apartment building. retail location. new residence.

existing residence.

A house with outmoded plumbing is suffering from functional obsolescence. curable physical deterioration. incurable physical deterioration. external depreciation.

functional obsolescence.

The appraised value of a residence with four bedrooms and one bathroom would probably be reduced because of external obsolescence. functional obsolescence. curable physical deterioration. incurable physical deterioration.

functional obsolescence.

A home with its kitchen next to the master bedroom would be considered physically obsolete. functionally obsolete. economically obsolete. diminished.

functionally obsolete.

market value

generally is considered the most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale.

broker's price opinion (BPO)

is a less-expensive alternative of evaluating property that is often used by lenders working with home equity lines, refinancing, portfolio management, loss mitigation, and collections. Both Fannie Mae and Freddie Mae provide forms that are used by real estate professionals who professionals who perform BPOs for a fee.

depreciation

is a loss in value for any reason.

appraisal

is an opinion of value based on supportable evidence and approved methods. It is an opinion of market value on a property given to a lender or client with detailed market information

plottage

is in evidence when the consolidation of adjacent lots into a single larger one produces a greater total land value than the sum of the two sites valued separately.

reconciliation

is the act of analyzing and effectively weighing the findings from the three approaches.

From the reproduction or replacement cost of a building, the appraiser deducts depreciation, which represents the remaining economic life of the building. remodeling costs to increase rentals. loss of value due to any reason. costs to modernize the building.

loss of value due to any reason.

The term "depreciation" refers to the value of real estate after the expiration of its useful life. loss of value in real estate from any cause. costs incurred to renovate or modernize a building. capitalized value of lost rental income.

loss of value in real estate from any cause.

The amount of money a property is likely to command in the marketplace is its intrinsic value. market price. subjective value. book value.

market price.

A seller delivered title to a buyer at closing. A title search had disclosed no serious defects, and the title did not appear to be based on doubtful questions of law or fact or to expose the buyer to possible litigation. The seller's title did not appear to present a threat to the buyer's quiet enjoyment, and the title insurance policy provided was sufficient to convince a reasonably well informed person that the property could be resold. The title conveyed would commonly be referred to as a(n) certificate of title. abstract of title. marketable title. attorney's opinion of title.

marketable title.

conformity

means that maximum value is created when a property is in harmony with its surroundings.

All of the following are characteristics of value EXCEPT scarcity. transferability. obsolescence. utility.

obsolescence.

supply and demand

operates in the real estate market just as it does in the market for any product.

Defined as a loss in value from any cause, depreciation is generally divided into three categories. The loss of value due to the normal wear and tear on a property is called external depreciation. physical deterioration. functional obsolescence. economic deterioration.

physical deterioration.

The gross multiplier is used as a guideline for estimating value based on the ratio of the gross rents to the net rents after expenses. proportion of rents due to the actual rents collected. capitalization of the annual gross rental income. relationship of sales prices to the rental income.

relationship of sales prices to the rental income.

substitution

the maximum value of a property tends to be set by how much it would cost to purchase an equally desirable and valuable substitute property.

The market price of a parcel of real estate is the price it sold for. the price it should have sold for. the price that was being asked for it. based on its assessed value.

the price it sold for.

highest and best use

the use must be -physically possible -legally permitted -economically or financially feasible -the most profitable or maximally productive.

progression

the value of a modest home would be higher if it were located among larger, fancier properties.

contribution

the value of any part of a property is measured by its effect on the value of the whole parcel.

income approach

to value is based on the present value of the right to future income. It assumes that the income generated by a property will determine the property's value Income Approach: G-Gross I-Income V-Vacancy E-Expenses N-Net operating income

When estimating the value of property using the cost approach =, all of the following are considered by the appraiser EXCEPT toss of value due to uncollected delinquent rent. estimated loss attributable to an outdated heating system. quality of materials and workmanship in the original structure. excessive amount of traffic noise outside the property.

toss of value due to uncollected delinquent rent.

anticipation

value is created by the expectation that certain events will occur. For instance, the value of a house may be affected if rumors circulate that a major employer in the area will be going out of business.