VALUATION AND APPRAISAL II

Depreciation is defined as a loss of value due to any cause. It is also classified as curable and incurable. Of the following statements concerning depreciation, which on is correct?

Bearing walls sagging beyond a 30-degree angle is an example of physical deterioration-incurable.

A multi-storied apartment building that contains no elevator is called:

a walk up. a walk-up is an apartment building of more than one story with no elevator.

Which of the following would be the most important fact in determining the value of a single family residence?

location and neighborhood. Location is the most important factor influencing value, as far as highest and best use.

An appraiser's primary concern when analyzing residential property is:

marketability and acceptability. Marketability and acceptability are the primary concerns.

A gross multiplier:

may be expressed as a monthly or annual gross multiplier. The gross rent multiplier is income, calculated annually or monthly, received before any expenses are deducted.

In the definition of highest and best use, one would likely find the phrase:

net return. The highest and best use is the use which will create the highest net return on money invested.

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

purchasing power. Without purchasing power, no matter how great the demand for a commodity, property would not sell.

Unearned increment means:

value increases due to population increase. Unearned increment is an increase in value to real property that comes about from forces outside the influence and control of the property owner, such as a favorable rezoning or a favorable shift of population in the neighborhood.

"Depreciation," as used in the cost approach to appraisal, may be defined as:

a loss in value from any cause. "Depreciation" for appraisal purposes means loss in value from any cause.

A property located at 147 James Street, any city, Your State, which is near the corner of Broadway ad 3rd avenue and measures 140 feet by 200 feet is:

a physical description. External characteristics of a property include locations, size, corner influence, thoroughfare condition, exposure, orientation, plottage increment, shape, topography and soil as well as quality of conveniences; availability of schools, shopping, public transportation, churches, and similarity of land use. These are also known as physical characteristics or a physical description.

Appraisers speak of the highest and best use. Of the following, which is related to this expression?

a starting point for an appraisal and the greatest net return. The principle of highest and best use is based on the reasonable use of real property at the time of the appraisal, which is most likely to produce the greatest net return to the land ad/or the building over a given period of time.

Which of the following is an appraisal approach?

all of the above, Market data, Cost, Income. comparison is called market data, reproduction is called cost approach, capitalization approach is called income.

The value of income property is usually:

based on capitalization of net income. Income property would be valued by the capitalization of net income.

Which contributes most to the maintenance of value in a well-planned community?

conformity to proper land use objectives contributes to value.

Of the following which is a correct statement concerning the income method of appraisal? a. it requires the determination of net income before interest and amortization, but after deduction of operating expenses. b. an appropriate capitalization rate must be determined. c. it is not applicable to owner-occupied homes because benefits of amenities are difficult to measure in terms of dollars. d. all of the above are correct.

correct answer is d. all of the above are correct.

When appraising income producing properties, the appraiser is concerned with the effective gross income. Which of the following with respect to effective gross income is the appraiser concerned with? a. functional obsolescence. b. physical deterioration. c. interest on the loans. d. vacancy.

correct answer is d. vacancy. The effective gross income is the total annual income from the property minus any vacancy or rental losses.

Which of the following is not classified as obsolescence? a. poor floor plan. b. massive cornices. c. old fashioned kitchen fixtures. d. worn out roof.

correct answer is d. worn out roof. This is an example of physical deterioration.

Another name for a cul de sac is:

dead end street. a cul-de-sac is a street that has only one way in and the same way out. It is a dead end street.

Negligent care of a building is called:

defered maintenance. Physical deterioration, a type of depreciation, can come from wear and tear, negligent care, sometimes called deferred maintenance, damage by dry rot or termites, or sever changes in temperature. It may or may not be curable.

In which of the following is the appraiser estimating the value of the land by considering it as fully developed to its highest and best use, then deducting the cost of development?

development method.

The period of time in which an income property produces enough income to maintain itself and show a profit is known as its:

economic life. definition: Economic life is the estimated period over which a building may be profitably used and it is usually shorter than physical, actual, life.

What a leased property would be expected to rent for under current market conditions if the property were vacant and available for rent is:

economic rent. Economic rent is the amount a rental could bring in an open market.

Which method of appraisal would a licensee use to appraise a restaurant?

income approach. The income approach to appraisal is the best method to appraise a restaurant.

When calculating value using a capitalization rate, which item is not deductible in calculating net income?

interest on loan payments. Only the expenses directly attributable to property are deductible, not personal expenses. Principal and interest payments on a loan would be personal expenses.

If you were asked to appraise an industrial piece of property, which of the following would be most important to you?

location of the property. To appraiser an industrial piece of property, the appraiser must take into consideration the location of the property in relation to transportation, housing, parking, etc.

When the owner of a commercial property lists it for the purpose of selling, which cost is most often overlooked?

management costs. Probably because it is the least obvious and is often handled wholly or partially by the owner.

To arrive at the valuation of an amenity type property, an appraiser would use:

market data approach. Amenities, meaning the good things that make the property desirable, Comparison or market data approach would be the method of appraising to be utilized.

What approach to value tends to set the upper limit to value?

reproduction cost. reproduction cost represents the cost of reproducing the subject property, which is normally more expensive than merely replacing the property.

The market value of a 15 years old residence is determined by:

selling price of comparable residences. Market data or comparison approach in appraising a residence.

A couple is looking at houses and turns one down because they felt the price of the home was too hight. This is based on what principle of real estate?

substitution. The principle of substitution is the basis of the appraisal process. explained simply, value is set by the cost of getting an equally desirably substitute.

If you were asked to appraise a piece of property with a worthless building on it, in order to arrive at the value of the lot and determine its highest and best use, you would:

subtract the cost of removing the worthless building from the current value of the lot. To determine the value of a lot for its highest and best use, an appraiser always deducts any cost of demolition that must take place in order to make the lot vacant once again.

Referring to the capitalization rate used in the income method:

the higher the risk, the higher the rate. the higher the rate, the lower the value. the lower the rate, the higher the value. if the risk is high the investor will demand a higher rate of return, thereby making the value of the property lower.

On appraising a residential property, which of the following would have the least effect on the appraiser's estimate?

the original cost of the building. Appraising takes into consideration its worth now, not its original cost.

The income remaining after cost of labor and management have been paid is called:

theory of surplus productivity. The principle of surplus productivity is the net income that remains after the proper costs of labor, organization and capital have been paid.

In one word, the contour of the surface of the land is called:

topography. topography is the various surface features or contours of the land that affect construction costs.

When the value of real property increased becaseu of an increase in population, this could be classified as:

unearned increment. An unearned increment is an increase in value due to no effort on the part of the owner, such as an increase in population.

The word value as used in appraising real property is most nearly comparable to:

worth. What a property is said to be worth is its value.

When do real estate values decline?

before a recession. Actually before and during a recession.

The building residual technique of appraising is directly related to the:

capitalization of net income approach. Property residual, building reidual and land residual are all related to capitalization of net income approach.

Which of the following is not a "non-property characteristic" used by an appraiser?

original price paid by the seller. Price paid has nothing to do with the characteristics of the property.

A licensee must make an adjustment between the comparable and the subject property because:

two properties are rarely similar concerning everything. The appraiser adjusts the comparable to the subject property because two properties are rarely identical.

Which of the following types of value would be approximately the same as market value?

utility value. utility value is the personal opinion of value by the current owner. Book value is the price paid less depreciation. Insurance value is based on the cost approach of appraising. Speculative value is approximately the same as market value.

When appraising income producing properties, the appraiser is concerned with the effective gross income. Which of the following, with respect to effective gross income, is the appraiser concerned with?

vacancy. The effective gross income is the total annual income from the property minus any vacancy or rental losses.

Economic obsolescence is said to be extraneous, caused by environmental or economic changes. Of the following, which is a correct statement concerning economic obsolescence?

value loss due to proximity to a major highway causing noise and traffic hazards will create economic obsolescence. deferred maintenance causes physical deterioration. poor architectural design is functional obsolescence.

Economic obsolescence is said to be extraneous, caused by environmental or economic changes. Of the following, which is a correct statement concerning economic obsolescence?

value loss due to proximity to a major highway causing noise and traffic hazards will create economic obsolescence. deferred maintenance is physical deterioration. Poor architectural design is functional obsolescence. Value loss due to proximity to a major highway causing noise and traffic hazard being economic obsolescence is statement of fact.

What is the correct formula used to figure the value of a piece of income property?

I divided by R equals V. Income divided by rate equals value.

What is the definition of value to an appraiser?

all of the above, Relationship of desirous persons and things desired, Ability of one commodity to command other commodities, Present worth of future benefits arising out of ownership of property. These are the accepted definitions of value.

Which of the following would be most beneficial in preventing economic obsolescence on income property?

all of the surrounding buildings were prospering. Economis obsolescence is due to surrounding outside economic factors changing, thereby decreasing the value of your property.

Depth tables are used by:

appraisers. depth tables are used by appraisers when appraising commercial lots that vary from the normal depth.

4-3-2-1 is a familiar approach to one facet of real estate practice. It normally refers to which of the following?

appraising vacant land where the lots vary in depth. This is an old assessing formula whereby 40% of the land value was in the first 1/4 of the depth, 30% in the second 1/4.

In the field of real estate, the terms "quantity survey," "unit cost in place" and "square foot" apply to:

appraising. Reproduction or cost of replacement approach to appraising uses these terms.

In the field of real estate, the terms, "quantity survey," "unit-cost-in-place," and "square foot" apply to:

appraising. reproduction or cost of replacement approach to appraising uses these terms.

An increase in valuse of real property is known as:

appreciation. The opposite of depreciation is appreciation, or an increase in value for a specific property.

The amount of money left over after an owner of an income producing property has paid all of his expenses, including principal and interest payments, is called:

cash flow. definition: cash flow is the net income generated by a property before depreciation and other non cash expenses.

functional obsolescence:

causes a more rapid decline in value than physical deterioration and can be caused by changes in style and design. Poor architectural design and style can contribute to functional obsolescence, a type of depreciation, as can lack of modern facilities, out of date equipment, changes in styles of construction or changes in utility demand.

A good example of the most incurable functional obsolescence is:

closely aligned pillars inside of a store. In order to correct closely aligned pillars one could run into major structural strength situation. This could be quite costly.

In the appraisal of real property, using the capitalization approach, the overall capitalization rate applicable to the income in interpreting value would take into consideration which of the following? a. all of the following. b. durability of income. c. quality of income. d. quantity of income.

correct answer is a. all of the following. Definition: Capitalization is the determination of the amount, the reliability and durability of the income stream as made by the appraiser.

Of the following, which is a correct statement concerning the cost method of appraisal? a. it sets the upper limit of value. b. little difficulty is encountered in estimating the replacement cost of new structures. c. serious difficulties often arise in obtaining an accurate computation of accrued depreciation. d. all of the above are correct statements.

correct answer is d. all of the above are correct statements. The cost approach tends to set the upper limit of value for a property. It is not difficult to estimate the replacement cost of new structures, but it is difficult to estimate depreciation in older buildings. The cost approach is also used with unique or one of a kind buildings where it is difficult to find comparables.

An appraiser, in determining the value of real property, would give consideration to which of the following? a. the desire of a person for the desired thing b. the relationship of the value of the property in exchange for other property. c. effective demand, as evidenced by purchasing power and relative scarcity. d. all of the above.

correct answer is d. all of the above. All of these have an influence on value.

a real estate appraiser will determine the capitalization rate by: a. band of investment. b. summation. c. market comparison. d. any of the above.

correct answer is d. any of the above. Capitalization rate is determined by market comparison, band of investment or summation.

Appraisers speak of "the highest and best use." Of the following, which is related to this expression? a. a starting point for an appraisal. b. greatest net return. c. neither a. nor b. d. both a. and b.

correct answer is d. both a. and b. The principle of highest and best use is based on the reasonable use of real property at the time of the appraisal, which is most likely to produce the greatest net return to the land and/or the building over a given period of time.

In deciding the value of industrial property, which of the following would be the least vital? a. topography. b. subsoil. c. plottage. d. fertility.

correct answer is d. fertility. Fertility of soil has no value in industrial property.

Which of the following appraisal approaches would tend to set the upper limits of value?

cost approach tends to set the upper limit of value for a property.

Accrued depreciation is a term used in the real estate appraisal field. Which of the following methods would accrued depreciation have its greatest effect on?

cost approach. The cost approach subtracts accrued depreciation from new replacement cost to determine the current value of the improvements.

Most appraisers use the blank when appraising a new building.

cost approach. cost approach or reproduction approach.

How would the replacement cost of a warehouse be determined?

cost per cubic foot. There are several methods to estimate the cost of a new building: Square foot method; cubic foot method; quantity survey method and unit in place method.

What appraisal approach would be used on a residential duplex for fire insurance purposes?

cost. fire insurance rates are based on cost to reproduce the improvements.

The period of time when an income producing property generates income in excess of its expenses is known as:

economic life. Economic life is the estimated period over which a building may be profitably used.

An appraisal has been requested for a residential home. The home is actually 10 years old but because it has been exceptionally cared for, the appraiser places its age at 6 years. This would be known as:

effective age. Actual age is the real age of the building. Effective age is not determined by the actual age of a building, but by its condition and usefulness.

A residential property that is 15 years old has an average projected physical life of 40 years. This particular property has been superbly maintained and appears as if it were just 5 years old. This represents the concept of:

effective age. The effective age of an improvement reflects how well it has been maintained by the owner. A well maintained structure may have an effective age with is far less than its physical age.

In making a real estate appraisal, the opinion of value typically is based on the:

effective date of the appraisal. The effective date of the appraisal establishes the context for the value opinion. The value opinion can be made for any date in the past, and with some care, for nay date in the future. The time of inspection of the physical improvements is generally taken as the effective date of value opinion unless otherwise informed by either the property owner, owner's attorney or a court of law. The date of the final writing and deliver of the report is the date of the appraisal, not to be confused with the effective date of value.

Mr. Smith built a house with four bedrooms and one bath. When work was complete the property had depreciated immediately from what cause?

functional obsolescence. Out of date design would be functional obsolescence.

Ms. Jones built a house with four bedrooms and one bath. When work was completed, the property had depreciated immediately from what cause?

functional obsolescence. Out of date design would be functional obsolescence.

Of the following, which is the closest to highest and best use?

greatest net income. The definition of highest and best use is: to improve a lot in such a way that it will produce the greatest net income.

If a house were built in 1948 and appraised in 1993, it:

had a physical life of 45 years. In real estate terminology, a house that was actually 45 years old had a physical life of 45 years.

In analyzing a vacant parcel of land to estimate its value, the first logical step is to determine:

highest and best use. Until you first determine its highest and best use, other comparisons are futile.

Which of the following is a correct statement concerning the cost method?

it sets the upper limit of value. Little difficulty is encountered in estimating the replacement cost of "new" Structures. Serious difficulties often arise in obtaining an accurate computation of accrued depreciation. The cost approach tends to set the upper limit of value for a property. It is not difficult to estimate the replacement cost of new structures, but it is difficult to estimate depreciation in older buildings. The cost approach is also used with unique or one-of-a-kind buildings where it is difficult to find comparables.

Two appraisers, one using a capitailzation rate of 11% and the other one 10% both agree that the net income of a building was $9,020. The higher capitalization rate made the price of the building:

lower by 9%. First appraiser used 10%; $9,020 divided by 10%=90,200. The second appraiser used 11% $9,020 divide by 11%=$82,000. The difference is $8,200. Divide the difference $90,200 which is 9% rounded.

Broker Jones appraised two similar commercial properties. Both were leased on a long term basis. One was a hardware store and the other was a post office. Compared to the hardware store, the capitalization rate on the post office was:

lower. Because the post office would be more stable.

In the appraisal of commercial property, the most overlooked iten of expense is:

management costs. Expenses are generally classified as being either fixed or variable. Fixed expenses include property taxes, insurance and utilities. Variable expenses include management and maintenance.

To appraise an amenity an appraiser would probably use the:

market comparison. An amenity type property is anything that will enhance the value of the property making it desirable to the buyer. This type of property is appraised by comparing it with similar properties.

When would the cost approach to appraisal be most appropriately used?

new property. The cost approach to appraisal is most appropriate for appraising new property.

The square footage of a single family residence for appraisal purposes is computed by obtaining the:

outside measurement of the house only. Square footage would be measured by the outside perimeter of the house. It does not include the garage.

Value is created, maintained, modified and destroyed by all of the following except:

personal forces. The relationship of the following four forces - physical characteristics, economic influences, political or governmental regulation and social ideals - creates, maintains, modifies and destroys value.

In the cost approach to appraisal, the phrase "reproduction cost" is different from "replacement cost" in that "replacement cost" measures the:

present cost using utility. The "replacement cost of a building is the cost to build a comparable structure in terms of utility, comparable usefulness.

Demand being equal:

prices increase as availability decreases. Definition: Increasing supply or decreasing demand will reduce the price in the market. Reducing supply or increasing demand will raise the price in the market. The less there is of something, the higher the cost; the more there is the lower the cost.

A lesser-valued property will be worth more because of the presence of a greater-valued property nearby. This is known as the principle of:

progression. The principle of progression means a lesser-valued property will be worth more because of the presence of greater-valued properties nearby.

Demand is a very important element of value. In order for demand to be effective, it must be implemented by:

purchasing power. Demand is how many people want the property. If they do not have the purchasing power, the demand is worthless.

The reproduction cost method:

requires a separate appraisal of the land. You appraise by cost of reproducing the improvements and then appraise and add the land value to the cost. It is used most effectively on new properties. It would be used to appraise an athletic stadium. Income approach requires an accurate estimate of expenses.

How are the improvements and the land valued when using the cost approach?

separately by more than one approach. The value of the land is determined using the principles of substitution and the value of the improvements is determined using the cost approach.

Economic obsolescence is best described as:

sociological and political changes in the area. Since economic obsolescence takes place outside of the affected property, next to adverse zoning, it is neither curable nor incurable.

When two properties are identical or highly-similar most buyers focus on lower price. This principle is called.

substitution. The principle of substitution says the buyer will not pay more for a property than other similar properties sell for in the area. Where two properties are similar, most buyers focus on the lower price.

Should you be asked to appraise a piece of property with a worthless building on it, in order to arrive at the value of the lot and determine it's highest and best use, you would:

subtract the cost of removing the worthless building from the current value of the lot. To determine the value of a lot for its highest and best use, an appraiser always deducts any cost of demolition that must take place in order to make the lot vacant once again.

The age of a house can be determined most accurately by inspecting the:

tax assessor s record. Annual assessments of all taxable property appear in the assessment Roll of Tax Roll, a public record maintained by the city or county assessor.

In the appraisal field of real estate there are many ways an appraiser can arrive at a capitalization rate. Which of the following could be used to determine a capitalization rate?

the band of investment theory. The band of investment theory is a method of developing a capitalization rate by applying mortgage rates and equity rates of comparable properties.

What would happen to the value of a commercial property whose depth is extended beyond that of neighboring lots?

value per front foot would increase.

In the case of residential properties, there is an increase in the demand for lots with:

wider frontage. Frontage is the length of a property along a street.