Chapter 7
The most reliable approach to estimating land values is usually the
sales comparison approach
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.
0.60
Generally, how many approaches to estimating market value are considered by the appraiser for use in a formal appraisal?
3
If all three approaches to value are used by the appraiser, the appraiser must reconcile ____ indicated values.
3
The rules for making adjustments to the sale prices of comparable properties include which of the following?
Adjust the sale price of the comparable toward the subject property. make transactional adjustments in the proper order. Use market-related adjustments.
The organization with independent authority over the generally accepted standards of appraisal is the
Appraisal Foundation
True or false: A location adjustment is not required when the comparable property has a superior location than the subject.
False
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
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?
Highest and best use analysis. Cost approach.
Which of the following steps in the evaluation of an appraisal is the most important?
Make sure the comparables used are appropriate
______ adjustments focus primarily on the physical and locational differences between the subject and comparable properties.
Property
Which of the following statements about market value are true?
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.
____ 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: 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
True or false: The goal of market analysis is generally to develop an understanding of the factors that affect demand and and supply in a particular market and use that knowledge to forecast how values in that market are likely to change over time.
True
True or false: USPAP addresses the ethical obligations of appraisers and provides the minimum appraisal standards that most be followed by all appraisers
True
USPAP standards require that, when using the sales comparison approach, appraisers use how many comparables?
USPAP has no requirement regarding the number of comparable sales
The current market interest rate on fixed rate, long-term mortgage for single-family homes is 4%. To help sell her home, the seller of a comparable sale provided long-term, fixed rate financing to the buyer at an interest rate of 3%. (that is, the seller was also the lender). This would required __________ adjustment to the sale price of the comparable
a downward
Typically, reconciliation of final adjusted sale prices of the comparable properties involves the use of
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
adjust the comparable sale price upward by the cost of the new roof
Adjustments made to the sale price of comparable properties for expenditures made after purchase are
always positive
Location adjustments to comparable sale prices
are almost always required
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 ________.
comparable, downward
A comparable property sold 5 months ago. Sales prices in the market have increased over those five months. The sale price of the ___________ must be adjusted ___________.
comparable, upward
The sale of the comparable property included a clause that stated that legal title to the property would revert back to the seller in 20 years. If this comparable is used by the appraiser, the sale price of the __________ would have to be adjusted _________
comparable, upward
Repeat-sale analysis is the process of
comparing the sale prices of properties that have sold twice
The goal of the numerous required adjustments to comparable sale prices is to
convert each comparable sale into a closer approximation of the subject
Conventional approaches to estimating the market value of real estate include the
cost approach. income approach. sales comparison approach.
According to the text, the main difficulty is using the cost approach to valuation is
estimating the dollar amount of accrued depreciation
Unless the characteristics of the comparable property are ______ to the subject property, adjustments must be made to the sale price of the comparable property.
identical
Favorable nonmarket financing concessions provided by the seller to the buyer generally ______ the negotiated sale price of the subject property.
increase
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.
The text argues that successful market analysis and research
is a process
Valuation of real estate is complicated by the
lack of observable transactions. immobility of real estate. lack of perfect substitutes.
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.
less than, an upward
Potential sources of data from public records include
local property tax assessors. many agencies of the federal government. cities and counties.
The Appraisal Foundation
maintains the USPAP
The concept of market value in formal appraisal practice includes
most probable selling price. buyer and seller acting prudently. a competitive market.
The value that real estate appraisers generally estimate is market value, which is synonymous to
most probably selling price
"MLS" stands for ____ ____ ____.
multiple listing service
To the extent the comparable property is physically lacking in some respect to the subject, the sale price of the comparable
must be adjusted upward
The ____________ appraisal report is the longest and most formal report writing format
narrative
The ________ the subject property the _______ difficult it is to estimate reproduction cost.
older, more
The text argues that the most significant errors in appraisal reports typically result from
poor selection of comparables
Required sale price adjustments are divided by USPAP into two major categories including
property adjustments. transactional adjustments.
As the final step in arriving at the indicated value of the subject property based on the sales comparison approach, the appraiser must
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
replacement cost
The approach typically given the most weight in the appraisal of single-family, detached homes is the
sales comparison approach
The economic principle of ______ implies that the value of the subject property is determined by the sale prices of comparable properties.
substitution
Most appraisals of single-family homes are
summary reports
Each required transactional and property adjustment is made to
the adjusted sale price of the comparable after the prior adjustment
Most appraisal assignments entail estimating
the current market value of a property
Which of the following should be included in the identification of the appraisal problem?
the effective date of the valuation. the type of value to be estimated. the intended use of the appraisal.
Examples of physical differences that would require an adjustment to the sale price of the comparable include
the existence of a pool. lot size. structure size.
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
the share price is continuously revealed throughout the trading day. SPG shares trade in a liquid public market. one share is a prefect substitute for another.
A comparable sale price should be adjusted for the terms of sale when
there was favorable seller-provided financing
From the appraiser's point of view, replacement cost estimates are preferred over reproduction cost estimates because
they are less time consuming to obtain. it is often impossible to build an exact replica of the subject property.
Reproduction cost is defined as the cost
to build an exact replica of the subject property
Generally, a current estimate of land value plus the reproduction or replacement cost of the building will set the ______ value of the property.
upper limit to the
Each approach to valuation has its strengths and weaknesses. In arriving at a final opinion of value, the appraiser should
weight the strengths and weaknesses of each approach, as well as the reliability of the data collected for each approach
The final estimate of market value is usually a ______ average of the indicated values from the different approaches.
weighted
