General Appraiser Sales Comparison Approach
Sale B is a half-acre commercial lot with a 1,400 square foot building located on a side street, which sold for $110,000. Sale C is a half-acre commercial lot with a 1,500 square foot building located on a side street, which sold for $120,000. Based on this information, what is the adjustment for a difference of 100 square feet of building size? $25,000 $15,000 $10,000 $135,000
$10,000
Based on the following information, what is the adjustment for a corner location versus a side street? Sale A Sale B Sale C Sale Price $135,000 $110,000 $120,000 Bldg Size 1,500 SF 1,400 SF 1,500 SF Location Corner Side street Side street Lot 0.5 acre 0.5 acre 0.5 acre $25,000 $15,000 $10,000 $135,000
$15,000
Sale A is a half-acre commercial lot with a 1,500 square foot building, located on a corner, which sold for $135,000. Sale C is a half-acre commercial lot with a 1,500 square foot building located on a side street, which sold for $120,000. Based on this information, what is the adjustment for a corner location versus a side street? $25,000 $15,000 $10,000 $135,000
$15,000
Sale B is a half-acre commercial lot with a 1,400 square foot building located on a side street, which sold for $110,000. Sale C is a half-acre commercial lot with a 1,500 square foot building located on a side street, which sold for $120,000. Based on the information that can be extracted from these sales, what would be the dollar adjustment for a 150 square foot difference in building size? $25,000 $15,000 $10,000 Cannot determine from the information provided
$15,000
Property E is a small retail building with a flat roof and a good highway location, which sold for $285,000. Property F has a peaked gable roof, but an inferior location on a side street; it sold for $275,000. Analysis of other paired sales indicates that retail properties along highways sell for $30,000 more than properties on side streets. What is the indicated adjustment for a flat roof? A negative $20,000 adjustment A positive $20,000 adjustment A negative $10,000 adjustment A positive $10,000 adjustment
A negative $20,000 adjustment
Market segmentation separates the market for different types of properties such as: Lodging Residential or multi-family Commercial or office All of these
All of these
Which of these is a difficulty associated with the paired sales technique? Some markets have few sales and listings Some areas have a low degree of similarity among properties It is difficult to account for every single difference between properties when applying paired sales analysis All of these are difficulties associated with the paired sales technique
All of these are difficulties associated with the paired sales technique
Why is the real estate market considered inefficient? The real estate market is complex. Because of the lack of readily available information during many of the various levels of a transaction. It takes a relatively long time to improve a parcel of real estate. All of these are reasons why the real estate market is inefficient.
All of these are reasons why the real estate market is inefficient.
Tangible and intangible benefits to a property, which increase its value, would be considered ____________. External obsolescence Cost Amenities Functional obsolescence
Amenities
When applying gross income multiplier (GIM), what type of rental rate is used when appraising income-producing properties? Annual Monthly Weekly None of these
Annual
An appraiser may reconcile to what type of indicated value by the Sales Comparison Approach? Single-point value Range of values Relationship to a numerical benchmark Any of these
Any of these
When appraising a parcel of real property, when should an appraiser make modifications to the scope of work decision? Never As soon as such modifications are deemed necessary As soon as client permission for modifications is obtained When the appraised value is not high enough to support the loan amount
As soon as such modifications are deemed necessary
Which stage in the real estate cycle is characterized by increasing competition among sellers and decreasing profits, which leads to a decrease in building? Expansion Contraction Recession Recovery
Contraction Contraction follows the growth stage, especially when an area grows at a slower rate. Absorption rates, construction, and rental rates begin to decline. At the beginning of this stage, competition among sellers increases causing decreases in profits. At this stage, eventually it becomes less profitable to build, as inventory increases. (Chapter 3, Appraisal of Properties in a Fluctuating Market)
A building owner installs a new "green" roof on the structure at a cost of $300,000. The value of the building only increases by $200,000 as a result of the new roof. This demonstrates which economic principle? Opportunity cost Externalities Substitution Contribution
Contribution
If there is an undersupply of new homes in a market, __________ will remain relatively stable. Builder's profit New housing starts Value Cost
Cost If there is an undersupply of homes, values will typically increase, while costs will generally remain fixed. This leads to development, because significant profit motive exists. (Chapter 3, Cost and Value Interplay)
Which value characteristic implies the presence of a need or demand, which considers the monetary power to fill that need? Utility Scarcity Value in use Desire
Desire
What is often the most significant problem with using a sale that was the result of a contract for deed? Determining the actual sale price of the property Developing an opinion of the property's highest and best use Determining the date when the actual meeting of the minds took place between the buyer and seller Finding the sale documentation in poorly-organized municipal records
Determining the date when the actual meeting of the minds took place between the buyer and seller
Which statement is TRUE regarding the appraisal development process? The first step in the process is communication of the assignment results to the client. USPAP does not establish any requirements for appraisal development. Development and reporting are two separate and distinct functions. All of these are true statements.
Development and reporting are two separate and distinct functions.
A parcel of vacant land sold for $408,000. Nine months later, it sold again for $371,000. No physical changes were made to the property over this time. What is the monthly adjustment for market conditions indicated by this sale? Upward 1% Downward 1% Upward 9% Downward 9%
Downward 1% The original sale price was $408,000. The property decreased by $37,000 over nine months. ($408,000 - $371,000 = $37,000) Dividing the amount of the decrease by the original sale price indicates that the property decreased by 9.06% over nine months ($37,000 divided by $408,000). A 9% decrease divided by 9 months indicates a monthly decrease of 1%. This would be a negative adjustment. (Chapter 3, Market Conditions)
The Sales Comparison Approach is what type of investigation? Experimental Observational Investigational Empirical
Empirical
The growth rate is higher in Community A than Community B, because Community A has public water and sewage available. As a result, property values are higher in Community A. This is an example of what force affecting the market? Governmental Environmental Economic Social
Environmental Environmental or physical factors include transportation, open space, availability of public utilities, among other factors. (Chapter 1 - The Four Great Forces)
How can an appraiser best deal with errors that sometimes occur when extracting adjustments using the paired sales technique? Use sales that are exactly identical to the subject; that way, adjustments will not be necessary Subscribe to a national database which provides adjustment data for each state and region Examine several pairs of sales Nothing; errors are unavoidable in the analysis
Examine several pairs of sales
Which stage in the real estate cycle is characterized by rising occupancy and absorption rates, and increasing prices? Expansion Contraction Recession Recovery
Expansion
The appraisal development process and appraisal reporting process is considered to be one function. True False
False
The value conclusion indicated by the Sales Comparison Approach is always market value. True False
False
USPAP cautions appraisers to use the definition of market value that is specified in the DEFINITIONS section of USPAP. True False
False
What is the most profitable use to which a property can be put? Commercial use Industrial use Highest and best use Interim use
Highest and best use
Kate is appraising in an economically depressed market where the majority of sales are short sales or foreclosure sales. She is considering using two short sale properties as comparable sales in an appraisal. Which statement is true regarding this situation? Short sales should never be used as comparables in a market value appraisal. Short sales can be used, but they will require adjustments for conditions of sale. If these short sales are indicative of typical seller motivation, they can be used without adjustments for conditions of sale. Short sales should be adjusted downward for seller motivation.
If these short sales are indicative of typical seller motivation, they can be used without adjustments for conditions of sale.
What question is an "adjustment" intended to answer? What is the market value of this comparable sale? What is the highest and best use of this comparable sale property? If this comparable property were similar to the subject in this regard, what would it have sold for? If I were interested in obtaining this property, how much would I have to pay in order to purchase it?
If this comparable property were similar to the subject in this regard, what would it have sold for?
Which statement is FALSE regarding highest and best use analysis? It is useful in final reconciliation. It does not help in selecting comparable sales. It is an essential step in developing a market value opinion. It helps determine which approaches will be developed.
It does not help in selecting comparable sales. In conclusion, an essential step in developing an opinion of market value is the development of a highest and best use opinion of the subject property, which, in turn, determines which of the three valuation approaches will be developed, which comparable sales are to be utilized, and ultimately, what approach or approaches are given the most weight in final reconciliation. (Chapter 1 - USPAP and Highest and Best Use)
What is the greatest weakness in using GIM as a unit of comparison? It cannot be applied to income-producing properties Income properties are rarely sold in arm's-length transfers It is simplistic, and may not fully address vacancy or expenses All of these are weaknesses with GIM
It is simplistic, and may not fully address vacancy or expenses
Margot is appraising a vacant site which is suitable for commercial development. In selecting comparable sales, what would likely be her most important consideration? Sales should have the same zoning Sales should be located within the same census tract Sales should be as proximate to the subject as possible Sales should have the same highest and best use
Sales should have the same highest and best use
Cash equivalency is determined through the eyes of the: Buyer Seller IRS Local tax assessment office
Seller Typical financing in most markets is from a third party institutional lender, which means that even if the purchaser borrows all or part of the purchase price, the seller receives cash at closing. For this reason, cash equivalency is determined through the eyes of the seller. (Chapter 3, Financing Terms)
In the appraisal process, what type of data pertains only to the subject property and comparables? General Data Specific Data Primary Data Secondary Data
Specific Data General data relates to information pertaining to a number of properties (labor statistics, transportation studies, etc.). Specific data relates to the information that specifically pertains to the subject and comparables. Primary data is observed or collected personally by the appraiser. Secondary data is prepared by someone else other than the appraiser. (Chapter 1 - Availability, Types, and Sources of Information)
What type of technique involves the appraiser surveying market participants and using this information to estimate adjustments? Quantitative analysis Stated preference method Grouped data analysis Multiple linear regression
Stated preference method
What helps appraisers understand and apply accurate analysis in the evaluation of real estate? Government information Statistical techniques Old reports of the same subject property Mentoring with an inexperienced appraiser
Statistical techniques
Which principle equally applies to residential and commercial properties? Exchange Replacement Substitution Swap
Substitution
Which statement is FALSE regarding the Sales Comparison Approach? It indicates value directly based on actual sales negotiated between buyers and sellers. The approach is always localized - regional and national data is not used. When the appraiser has an understanding of value influences in the market, the approach is more reliable. The approach works best when the subject and comparable sales all have the same potential highest and best use.
The approach is always localized - regional and national data is not used.
The expense of labor and materials must be equal to or less than value if the construction of a building is economically feasible. True False
True
If the property rights conveyed of a comparable sale are different from those of the subject, and an adjustment cannot be reliably extracted and made, the sale should not be used. It is improper to make adjustments for property rights conveyed False True
True If the property rights conveyed of a comparable sale differ from those of the subject, either an adjustment must be made, or the sale should not be included in the analysis. (Chapter 3, Property Rights Conveyed)
In the Sales Comparison Approach, an appraiser should never simply average the indicated values of the comparable sales. True False
True The appraiser should consider both the quantity and quality of the data. The reconciliation process applies an appraiser's judgment and experience. This is not a mechanical process; an appraiser should never simply average the indicated values of the comparable sales when arriving at an indicated value. (Chapter 2 - Reconciling to Indicated Value)
As the term applies to appraisal, transferability refers to the number of goods and services that can be purchased with a unit of currency. True False
True Transferability or purchasing power is the number of goods/services that can be purchased with a unit of currency. (Chapter 1 - Transferability)
What happens when the four characteristics of value (Utility, Scarcity, Desire, and Purchasing Power) change? Value changes Value stays the same Value is increased based on a standard formula Not enough information to answer this question
Value changes
What adds the most value to land and the improvements? When the property is used for its highest and best use When the property sells for the highest price in the neighborhood When the most expensive materials are used in construction When construction meets minimum expectations of market participants
When the property is used for its highest and best use
A client asks an appraiser to simply state whether a property's value is more or less than a previous appraisal completed one year ago. Under USPAP, is this an acceptable opinion of value? Yes No Only if the client specifies this condition in writing
Yes
A comparable property sold for $800,000. In the sales comparison grid, it is adjusted downward 5% for property rights, downward 10% for financing terms, and upward 15% for market conditions. What is the dollar adjustment for market conditions? $786,600 $800,000 $120,000 $102,600
$102,600
A comparable property sold for $400,000. In the sales comparison grid, it is adjusted downward 5% for financing terms, and upward 10% for conditions of sale. What is the dollar adjustment for conditions of sale? $20,000 $19,000 $38,000 $418,000
$38,000 Adjustments for property rights, financing, conditions of sale, and market conditions establish a new adjusted sale price, which becomes a base for further adjustments. If a property sold for $400,000 and is adjusted downward 5% for financing terms, this is a negative $20,000 adjustment, which means the adjusted sale price (base) is $380,000. ($400,000 - $20,000) This sale price is then adjusted upward 10% for conditions of sale, which means a positive $38,000 adjustment is made. ($380,000 x 0.1) The net adjusted sale price is now $418,000 ($380,000 + $38,000). (Chapter 3, Example Adjustment Grid)
A comparable property sold for $800,000. In the sales comparison grid, it is adjusted downward 5% for property rights, downward 10% for financing terms, and upward 15% for market conditions. What is the dollar adjustment for property rights conveyed? $40,000 $76,000 $80,000 $38,000
$40,000
Property C sold for $352,000 and has 5,000 square feet of building area. Property D sold for $396,000 and has 5,880 square feet of building area. What is the indicated adjustment per square foot of building area? $880 $50 $44 $44,000
$50
A comparable property sold for $80,000. In the sales comparison grid, it is adjusted downward 10% for financing terms, and 10% for market conditions. What is the dollar adjustment for financing terms? $8,000 $64,800 $7,200 $16,000
$8,000
An appraiser makes the following adjustments to Comparable Sale 1: +28,000, +35,000, -12,000, +8,000, -15,500. What is the gross adjustment? $43,500 $70,500 $98,500 $83,000
$98,500
How many intangible adjustments must be considered in a real property appraisal? 2 4 6 8
4
Appraiser A and Appraiser B are appraising the same property, and they use the same comparable sales, but make different adjustments. Which statement is true regarding this situation? A third appraiser should be engaged to determine who is correct The appraisers should have used the exact same adjustments Both appraisers may be right, if they have support for their adjustments One appraiser is right, and the other is wrong
Both appraisers may be right, if they have support for their adjustments
In the Sales Comparison Approach, if an appraiser's initial observations are inadequate or untrustworthy, the appraiser should: Omit the Sales Comparison Approach, and instead, value the property using the cost approach Collect and analyze additional data Modify his/her opinion of highest and best use Withdraw from the assignment
Collect and analyze additional data
The Concentric Zone Model includes which zones? Commuter, residential, working class, transition, factory, Loop or Central Business District Commuter, housing, working class, change, plant, Central Business District Commuter, residential, working class, transition, factory, Central Business District Traveler, residential, operational class, transition, plant, Central Business District
Commuter, residential, working class, transition, factory, Loop or Central Business District
What is the motivation of an individual, group of persons, or business entity involving the purchase of an item? Utility Scarcity Purchasing power Desire
Desire
A large, old, dilapidated commercial building sits in an economically depressed section of the city. There are no market participants who have the financial capability to renovate and use such a large building. This is an example of what force? Government Economic Environmental Social
Economic
Which methods are most appropriate to the Sales Comparison Approach? Economics and money matters Economics and statistics Economics and financial Figures and financial
Economics and statistics
The elements of comparison adjust the comparable sales by: Either a percentage or a dollar adjustment A percentage adjustment A dollar adjustment None of the above
Either a percentage or a dollar adjustment
Unverified sales data gathered from a local multiple listing service would be considered primary data. True False
False
Utilities and their availability are essential to every market analysis and highest and best use opinion, but rarely require adjustments in the sales comparison approach. False True
False
What are the most common units of comparison for income-producing properties? GIM and GRM GRM and RCN GIM and NIR USPAP and FIRREA
GIM and GRM
Jerald is researching data for an appraisal of an apartment building. On the internet, he finds useful information on employment statistics, housing trends, and transportation studies. What type of data is this? General Data Specific Data Primary Data Confidential Data
General Data
If an appraiser is valuing real property by sales comparison, whose actions is he or she LEAST likely to consider? Market participants Buyers Sellers Government agencies
Government agencies
What are the forces that influence real estate markets? Government, environmental, financial, and social Governmental, ecological, economic, and communal Governmental, ecological, economic, and social Governmental, environmental, economic, and social
Governmental, environmental, economic, and social
What are the necessary components in using gross income multiplier? Price and overall rates Income and rental rates Income and sale price List price and sale price
Income and sale price
What are the four agents of production?
Land, labor, capital, and entrepreneurial profit.
Which of these is NOT another name for paired sales technique? Paired sales analysis Matched pairs analysis Paired data analysis Paired regression analysis
Paired regression analysis
Harry is preparing a real property appraisal report for his client. Which USPAP Standard must he follow when preparing this report? STANDARD 1 STANDARD 2 STANDARD 10 USPAP does not address reporting
STANDARD 2 The distinction is made clear in USPAP, which establishes separate performance standards for real property appraisal development (STANDARD 1) and real property appraisal reporting (STANDARD 2). (Chapter 1 - Overview of the Appraisal Process)
What is meant by the statement "real estate is heterogeneous"? Seldom is there an exact replica that sells at the same time with the same terms as the subject property Real estate is an efficient market All real estate sells for the exact same price as similar properties Stocks and real estate are similar
Seldom is there an exact replica that sells at the same time with the same terms as the subject property
Which of these is NOT a test criterion for highest and best use? Legally permissible Maximally productive Socially acceptable Physically possible
Socially acceptable
A property being appraised has a debt coverage ratio of 1.1. What does this mean? The property generates enough income to make the mortgage payment. The property does not generate enough income to make the mortgage payment. The capitalization rate for the property is 11%. The property's value is based on its monthly debt service multiplied by 1.1.
The property generates enough income to make the mortgage payment.
Which phrase is an example of economic equilibrium? Net income is rent to the owner. That dollar value, therefore, must represent the highest and best use of the property. The quantity demanded is equal to the quantity supplied. Property values have peaked and have now begun to decline.
The quantity demanded is equal to the quantity supplied.
What is the focal point of a real property appraisal? The value of ownership rights The client's desired value The owner's desired value Economic characteristics
The value of ownership rights
Which statement is TRUE regarding the role of USPAP in appraisal development and reporting? USPAP STANDARD 2 governs development, while STANDARD 1 governs reporting. USPAP combines real property appraisal development and reporting into one Standard. USPAP STANDARD 1 governs development, while STANDARD 2 governs reporting. USPAP states that reporting precedes development.
USPAP STANDARD 1 governs development, while STANDARD 2 governs reporting.
When researching comparable sales for an appraisal, an appraiser finds a listing of a similar retail building, which is currently offered at $185,000. Typical sale-to-list price ratio in this area for similar properties is 90%. What can the appraiser do with this listing? Use it, but do not make adjustments to it, because it is inappropriate to adjust listings Nothing; it is inappropriate to consider listings in the sales comparison approach, because they are not sales Use it as an additional comparable, and adjust the list price upward by $18,500 for list-to-sale ratio Use it as an additional comparable, and adjust the list price downward by $18,500 for list-to-sale ratio
Use it as an additional comparable, and adjust the list price downward by $18,500 for list-to-sale ratio
What is created in the mind of an individual or market participant? Scarcity Value Utility Purchasing power
Value
How many independent variables are used in simple linear regression? One Two Three An unlimited number
One
What is the loss of income that results from not choosing an alternative? Opportunity Cost Law of Diminishing Returns Contribution to value Externality
Opportunity Cost
An appraiser inspects a subject property, which is an old abandoned school building. The appraiser's measurements and field notes from the inspection would be considered what type of data? General Data Secondary Data Primary Data Non-verifiable Data
Primary Data
An appraiser takes secondary data on a sale from the local MLS, and personally verifies elements of the transaction and the physical characteristics of the property with the purchaser. This sale would now be considered what type of data? Primary Data General Data Publicly Available Data Secondary Data
Primary Data
What are the four intangible adjustments? Property rights, financing terms, conditions of listings, market conditions Property rights, financing terms, market conditions, location Property rights, financing terms, conditions of sale, market conditions Financing terms, conditions of sale, market conditions, location
Property rights, financing terms, conditions of sale, market conditions
What does not include physical mobility, but rather the control and possession of all the rights of ownership? Utility Scarcity Purchasing power Desire
Purchasing power
An appraiser is analyzing three comparable sales in the sales comparison approach. Sale 1 sold for $225,000 and is rated overall superior to the subject. Sale 2 sold for $208,000 and is rated overall inferior to the subject. Sale 3 sold for $215,000 and is rated overall inferior to the subject. The appraiser reconciles the indicated value of the subject at $220,000. This is an example of _________ analysis. Regression Improper Quantitative Qualitative
Qualitative
Using non-numeric techniques to reconcile comparable sales into an indication of value is considered _________ analysis. Mass appraisal Qualitative Quantitative Paired data
Qualitative
What two kinds of adjustments may be made for elements of comparison? Complete and Limited Supported and Unsupported Qualitative and Quantitative Development and Reporting
Qualitative and Quantitative
Intangible adjustments made to comparable sales would include all of the following EXCEPT: Financing terms Quality of construction Property rights conveyed Market conditions (time)
Quality of construction
When appraising a property, Melissa makes numeric adjustments to the sales prices of comparable properties. What type of analysis is she employing? Quantitative Qualitative Cost/value analysis None of these
Quantitative
The land, and everything permanently attached thereto, is the definition of what term? Fee simple absolute Highest and best use Real property Real estate
Real estate
Which market is inefficient? Stock market Real estate market Both of these Neither of these
Real estate market The fundamental nature of real estate is complex and inefficient. An inefficient market is characterized by goods and services that are not easily produced or transferred, with a limited amount of information available. (Chapter 1 - Various Markets (Efficient versus Inefficient)
The rights and benefits inherent in the ownership of a parcel of land would be defined as: Riparian rights Real property Real estate Fee simple absolute
Real property
When considering legal permissibility and current land use regulations, an appraiser must also consider __________. Uses that are socially acceptable Laws and regulations in adjoining states Reasonably probable modifications of land use regulations Only those uses that are specifically permitted under the zoning as of the effective date
Reasonably probable modifications of land use regulations
Intangible adjustments made to comparable sales would include all of the following EXCEPT: Property rights conveyed Financing terms Market conditions (time) Location
Location
Why is it not a good idea that appraisers use standard pre-printed residential sales comparison grids in their commercial appraisal reports? Pre-printed residential sales comparison grids are prohibited by USPAP Most commercial appraisers do not understand the techniques used in residential appraising By using a residential sales comparison grid, the appraiser is stating that the property's highest and best use is residential Many of the elements of comparison on residential grids are not typical value-related elements of comparison for commercial properties
Many of the elements of comparison on residential grids are not typical value-related elements of comparison for commercial properties
A _________ includes supply and demand analysis along with the collection of market data, analyses, and recommendations. Economic principles analysis Consumer survey Market analysis Basic study
Market analysis
The most probable price that a property should sell for, under a fair sale, with each party acting prudently and knowledgeably is the definition of what term? Highest and best use Value Utility Market value
Market value
Which statement is TRUE regarding appraisers and value? All appraisals are made for the purpose of estimating market value. Market value is synonymous with investment value, assessed value, and liquidation value. Market value is only one type of value; appraisers estimate other types of value as well. Value is a fact and it is the appraiser's job to discover this fact.
Market value is only one type of value; appraisers estimate other types of value as well.
How might an appraiser explain the extent to which individual data values have departed from the mean? Measures of central tendency Median Mode Measures of dispersion
Measures of dispersion
When applying gross rent multiplier (GRM), what type of rental rate is used when appraising one-to-four-family residential properties? Annual Monthly Weekly Cannot determine from the information provided
Monthly When appraising one-to-four-family residential properties, a monthly rental rate is utilized to estimate the gross rent multiplier (GRM). (Chapter 2 - Gross Income and Rent Multipliers)
Net operating income (NOI) considers all of the following EXCEPT: Mortgage payments Vacancy Collection loss Operating expenses
Mortgage payments
