Real Estate Online - Valuation Definition, Purpose & Process

In terms of basic physical characteristics, land may properly be described as:

The answer is all of these. Land is immobile, as the geographic location of any parcel of land cannot be changed. Land is durable and indestructible. Land is nonhomogeneous (no two parcels are ever exactly the same).

An appraisal is:

The answer is an "opinion of value." An appraiser "estimates" (gives an informed opinion of) market value. Since market price is what buyers are willing to pay and sellers are willing to accept, an appraiser cannot "determine" market price but can give an opinion of market value.

Constructing homes costing $190,000 in an area of homes valued at $140,000 would mean the current homes in the neighborhood should see:

The answer is an increase in value. The principle of progression states that the property of lower value is increased by being located among better-quality property. The principle of regression states that the worth of better-quality property is adversely affected by the presence of lesser-quality property.

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

The answer is based upon analysis of facts as of a specific date. An appraisal is an estimate of value based on an analysis of data as of a certain date.

In a properly developed community, values are upheld by:

The answer is conformity to land use objectives. The "principle of conformity" states that maximum value is realized if the use of land conforms to existing neighborhood standards (e.g., design, construction, size, and age of buildings, as well as the social and economic status of residents). However, these factors should not be so uniform as to become monotonous.

To realize the maximum value of property, a reasonable degree of sociological and economic homogeneity is necessary, but it should not become monotonously uniform. In real estate, this concept is called the principle of:

The answer is conformity. The "principle of conformity" states that maximum value is realized if the use of land conforms to existing neighborhood standards (e.g., design, construction, size, and age of buildings, as well as the social and economic status of residents). However, these factors should not be so uniform as to become monotonous.

If the cost of constructing houses is greater than their market value, what will occur in the short run?

The answer is construction will decrease. The principle of contribution values a component part of a property in proportion to its contribution to the value of the whole. If the cost exceeds the return, construction will decrease.

An appraiser was hired to prepare a feasibility study for adding a swimming pool to a 24-unit apartment building. What basic principle of appraising would be used?

The answer is contribution. The principle of contribution values a component part of a property in proportion to its contribution to the value of the whole. Maximum values result when improvements produce the greatest net return.

Which of the following is NOT a characteristic of value?

The answer is cost. Remember DUST: to have value, the property must have Demand, Utility, Scarcity, and Transferability.

Assume that the trend in architectural design is toward more contemporary-styled homes. Because of this trend, a conservatively designed home will tend to:

The answer is decrease in value more rapidly than the more contemporary-styled home. The loss in value due to the outdated style is be an example of functional obsolescence.

If the demand for houses remains constant and the supply:

The answer is decreases, the value will increase. When demand increases or supply decreases, the value should go up.

The fact that someone desires a property and has the purchasing power to buy it is the basis for the essential element of value known as:

The answer is demand. The essential elements of value are demand, utility, scarcity and transferability, or DUST.

The interest an owner has in her property over and above the mortgage debt is known as:

The answer is equity. Equity is the difference between the value of the property owned and the loans against that property.

Which of the following best describes the function of a real estate appraiser?

The answer is estimates value. An appraiser "estimates" (gives an informed opinion of) value. Since value is what buyers are willing to pay and sellers are willing to accept, an appraiser cannot "determine" value.

In a real estate analysis, one should be more interested in:

The answer is future economic life of the improvements. The "economic life" is the estimated period over which an improved property may be profitably utilized so that it will produce a yield over and above the economic rent attributable to the land. At the end of the economic life, the building is usually torn down or rehabilitated.

Which one of the following best describes the concept of highest and best use?

The answer is greatest net return over a given period. "Highest and best use" is the reasonable use that, at the time of the appraisal, is most likely to produce the greatest net return (profit) to the land and/or buildings over a given period of time.

An appraiser advised the owner of an older home that considerably more income could be obtained if the house were torn down and a different improvement placed upon the lot. This illustrates the principle of:

The answer is highest and best use. Highest and best use is the reasonable use that, at the time of the appraisal, is most likely to produce the greatest net return (profit) to the land and/or buildings over a given period of time.

The most important factor needed to maintain the value of residential property is:

The answer is homes in the area conform in size, age, condition, value, and style. The "principle of conformity" states that maximum value is realized if the use of land conforms to existing neighborhood standards (e.g., design, construction, size, and age of buildings, as well as the social and economic status of residents). However, these factors should not be so uniform as to become monotonous.

Economic obsolescence should generally be considered to be:

The answer is incurable. Economic obsolescence results from factors outside the property (e.g., zoning, neighborhood blight, airport noise, changes in tax laws, etc.), so it is incurable.

The actual amount that a parcel of property sells for is the:

The answer is market price. Market price is the actual price paid; market value is the listing price. Assessed value is used by the tax assessor

The amount of money that would be paid by a buyer to a seller for property, both buyer and seller being ready, willing, and able to act and both being fully informed, represents that property's:

The answer is market value. "Market value" is the highest price a property will bring if exposed for sale in the open market, allowing a reasonable time to find a purchaser who buys with knowledge of all the uses to which the property is adapted and for which it is capable of being used.

The listing price of the property is known as:

The answer is market value. Market price is the actual price paid. Assessed value is used by the tax assessor

An appraiser gives his appraisal as:

The answer is of a specific date. While an appraisal may be used by people for various lengths of time after it is made (depending on circumstances), the estimate of value can only be valid as of a specific date, no later than the date of the appraisal, since market, financing, economic and other factors may all create changes in the value after that date.

Which principle of value describes the value produced by adding an improvement or upgrades to a property?

The answer is principle of contribution. The principle of contribution determines if an improvement or upgrade adds value to the property. This is determined by what the market will pay for the improvement or upgrade, not the cost of the improvement or upgrade.

Demand is one of the elements that help determine value. In order for demand to be effective, it must be implemented by:

The answer is purchasing power. Unless those who want an item can afford to purchase it, their demand will not have any effect on the value of the item.

The value of the best property in the neighborhood will be adversely affected by the presence of comparatively substandard property in the same neighborhood. This is known as the principle of:

The answer is regression. The "principle of regression" states that the value of better-quality property is adversely affected by the presence of lesser-quality property. The "principle of progression" is the opposite (the value of lesser-quality property is increased by being located among better-quality property).

If effective demand for real property in an area remains about the same over time, the market price will tend to:

The answer is rise when supply decreases. If the demand is the same, the value will increase as the supply decreases. If 10 people need housing and there are only 5 houses available, they will offer more for the houses than if there were 100 houses available.

The fact that the amount of land available affects its value is the basis for the element of value known as:

The answer is scarcity. The essential elements of value are demand, utility, scarcity, and transferability, or DUST.

Certain economic principles are of considerable importance in the valuation of real estate. The principle that "no buyer will pay more for a product than the price he can pay for a reasonable duplicate" is known as the principle of:

The answer is substitution. The principle of substitution states no buyer will pay more for something if there is a suitable alternate of equal or lesser price. All valuation approaches are based on the principle of substitution. In the market data approach, the principle states that the maximum value is set by the cost of purchasing an equally desirable and valuable substitute property. In the cost approach, it states that the maximum value is set by the cost of acquiring an equally desirable site and constructing improvements on the site. In the income approach, it states that the maximum value tends to be set based on the rates of return of comparable properties. Therefore, any comparison is actually based on the principle of substitution.

Market value is:

The answer is the price a willing seller will accept and a willing buyer will pay. "Market value" is the highest price a property will bring if exposed for sale in the open market, allowing a reasonable time to find a purchaser who buys with knowledge of all the uses to which the property is adapted and for which it is capable of being used.

The fact that the ability to buy and sell land affects its value is the basis for the essential element of value known as:

The answer is transferability. The essential elements of value are demand, utility, scarcity, and transferability, or DUST.

The fact that land has a number of important uses is the basis for the essential element of value known as:

The answer is utility. The essential elements of value are demand, utility, scarcity, and transferability, or DUST.