Chapter 7: Valuation Using the Sales Comparison and Cost ApproachesAssignment

What are the two values considered during a highest and best use (HABU) analysis?

HABU as though site is vacant HABU as improved

True or false: Replacement cost estimates are typically easier to obtain than reproduction cost estimates

True

True or false: Step 6 involves applying the three approaches to valuation.

True

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 -Use market-related adjustments

Potential sources of data from public records include

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

Reliable sources of construction cost estimates include:

-construction cost estimating firms -experienced builders

The required number of comparable sales

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

In order for the sale price of a property to be considered a good comparable for the subject,

-it must be a property that typical buyers would consider a substitute -it must have been an arms-length transaction

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

Which of the following are not considered representative sales; thus generally unusable as a comparable sale for a market value estimate?

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

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

"MLS" stands for

Blank 1: multiple Blank 2: listing Blank 3: service

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

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 may be greater than market value for a given property that recently sold?

Investment value to buyer Transaction price

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

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

_________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

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

A good comparable property is a property that the typical buyer would consider

a close substitute for the subject

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 require __________ adjustment to the sale price of the comparable

a downward

An adjustment for differences in economic characteristics is not usually required when valuing

a personal residence

Typically, reconciliation of final adjusted sale prices of the comparable properties involves the use of

a weighted average

The highest and best use of a property must be

legally permissible physically possible financially feasible

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

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

If an important characteristics of the comparable property is superior to the subject property, the sale price of the __________ property must 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

If a comparable property sale included some valuable personal property, the sale price of the comparable is usually adjusted ______ by the ______ of the personal property

downward, current market value

According to the text, the main difficulty is using the cost approach to valuation is

estimating the dollar amount of accrued depreciation

You recently purchased a home that included a new, (very) large TV that incorporated all the latest technology and also included a large number of high quality speakers. If an appraiser uses your sale as a comparable sale in a appraisal assignment, the sale price of your home will likely

have to be adjusted downward

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

The formal appraisal process involves eight steps, the first of which is to

identify the appraisal problem

Favorable nonmarket financing concessions provided by the seller to the buyer generally ______ the negotiated sale price of the subject property.

increase

The value of a property to a particular individual or entity is known as

investment value

The text argues that successful market analysis and research

is a process

The cost approach to valuation

is generally relied on most when data on comparable sales or the income producing ability of the subject property are not available

Examples of physical differences that would require an adjustment to the sale price of the comparable include

lot size the existence of a pool structure size

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 sale of a single-family, detached home that is currently rented to a music studio should not be used as a comparable property if the subject property is a single-family, detached home

occupied by the owner

The ________ the subject property the _______ difficult it is to estimate reproduction cost.

older, more

Although there are multiple approaches to estimating market value, there is only___________true market value.

one

Physical deterioration may result from

ordinary wear and tear neglect weathering from the elements

Conventional approaches to estimating the market value of real estate include the

sales comparison approach cost approach income approach

The text argues that the most significant errors in appraisal reports typically result from

poor selection of comparables

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

To complete the sales comparison approach, the appraiser ______ the adjusted sale prices of the comparable properties to obtain a single indicated value for the subject.

reconciles

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

The subject property has a very nice pool. The comparable property does not have a pool. As a result,

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

Most appraisal assignments entail estimating

the current market value of a 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