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Appraisal:Comparison,Cost/Income Approach > Appraisal Fundamentals/Comparison Approach > Flashcards

Appraisal Fundamentals/Comparison Approach Flashcards

1
Q

Which of the following types of depreciation is the most difficult to correct?

a. functional obsolescence
b. economic obsolescence
c. physical deterioration
d. wear and tear

A

B.

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2
Q

When appraising a home, an appraiser would make an adjustment for a poor floor plan due to

a. functional obselescence
b. functional deterioration
c. economic obsolescence
d. physical depreciation

A

A.

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3
Q

Physical deterioration results from:

a. obsolescence
b. zoning changes
c. ordinary wear and tear
d. a poor floorplan

A

C.

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4
Q

A house is located in a neighborhood that suffers from an excessive amount of smoke and dust from nearby factories. The house suffers from:

a. functional obsolescence
b. economic obsolescence
c. functional deterioration
d. physical deterioration

A

B.

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5
Q

A loss in value brought about by technical advances is:

a. deterioration
b. functional obsolescence
c. economic “
d. physical depreciation

A

B.

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6
Q

An increase in value created by joining smaller parcels into one large single parcel

a. plottage or assemblage
b. merging
c. principle of anticipation
d. subdividing

A

A.

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7
Q

Market price is the

a. true market value
b. best price bid at public sale
c. price asked for the prop in an open market
d. amount in terms of money, paid for the property

A

D.

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8
Q

Highest and best use can be defined as the use that will:

a. yield the highest gross return
b. yield the highest net return
c. give an owner the best view
d. bring in the highest rent

A

B. net return

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9
Q

Market value is best defined as

a. price a buyer will pay under immediate conditions
b. amount a willing seller would accept, and a willing buyer would pay
c. replacement cost of the prop
c. use that will yield the highest net return

A

B.

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10
Q

Functional obsolescence is caused by:

a. inherent inadequacies in the prop
b. surrounding properties lowering value
c. deferred maintenance
d. deterioration of the foundation

A

A.

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11
Q

The max value of a property tends to be set by how much it costs to buy an equally desirable and valuable property is a statement of the principal of:

a. highest and best use
b. substitution
c. supply and demand
d. regression

A

B.

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12
Q

If a prop is built using inferior grade building materials, this would directly result in

a. functional obsolescence
b. physical deterioration
c. external obsolescence
d. economic obsolescence

A

A.

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13
Q

A property suffers from functional obsolescence. Most of the damage results from issues that are curable. This means that

a. it can be restored at a reasonable cost
b. it cannot be restored at a reasonable cost
c. the deterioration is beyond repair
d. the neighborhood is economically obsolete

A

A.

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14
Q

The appraisal principle that states the value of a lesser property is enhanced by the presence of greater properties is:

a. progression
b. regression
c. externalities
d. conformity

A

A.

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15
Q

The principal of externalities states that

a. lesser properties lower the value of greater properties
b. values will be more stable in areas of similar properties
c. future events will affect values
d. factors outside of a property affect value

A

D.

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16
Q

S bought an empty lot on a quiet street of small, 40 year old ranch homes. On the lot, he built a luxurious two story, 45oo square foot home. A few years later when he put the home on the market, its value will likely be held down by the other homes in the neighborhood. This is an example of:

a. balance
b. progression
c. regression
d. substitution

A

C.

17
Q

According to the principal of substitution, what would an informed buyer pay for a property compared to what they would pay to obtain a similar one with the same benefits and utility?

a. considerably less
b. less
c. more
d. no more

A

D.

18
Q

An arm’s length transaction is one that occurred

a. between a buyer and a seller who have a close family relationship
b. only after the seller made concessions for closing costs
c. under typical conditions where each of the parties were acting in their own best interests
d. when the buyer purchased the property sight unseen

A

C.

19
Q

The highest and best use of a property with either a brand new building or an older building is the one that provides the

a. use providing the highest rent
b. most profitable permitted use
c. lowest operating expenses
d. greatest amount of deprecation

A

B.

20
Q

The process by which data is resolved into a final estimate of value is

a. reconciliation
b. capitalization
c. comparison
d. summation

A

A.

21
Q

When using the comparison method, an appraiser adjusts the price of the

a. subject property
b. capitalized value
c. GRM
d. comparables

A

D.

22
Q

For the best appraisal of residential property, the appraiser should use

a. a different neighborhood
b. the neighborhood adjacent to the subject neighborhood
c. a similar neighborhood
d. only the cost method

A

C.

23
Q

For which situation would be the comparison approach be best:

a. a farmhouses that’s surrounded by warehouses
b. A log cabin tucked away behind a row of apartment buildings
c. a ranch house in a newer subdivision of similar homes
d. a school building across the street from a library

A

C.

24
Q

INCOME APPROACH

CAP RATE = The rate of return an investor wants to receive or that the property is producing

TO ARRIVE AT THE CAP RATE:

INCOME = VALUE x RATE

VALUE = INCOME (NOI) divided by RATE OF RETURN (CAP RATE)

V = I divided by R

I = V x R

R = I divided by V

Example: If a comparable property sold for $1 million and its net operating income was $60,000, the buyer of that proper received a 6% return on the investment

$60,000 divided by $1,000,000 = 0.06

Cap Rate = 6%

A
25
Q

To get to the VALUE OF THE PROPERTY use IRV formula

Example:

  • A property produces a net operating income of $24,ooo annually. The market indicates that investors can expect a 12% rate of return. What is the value of the property?*
  • $24,000 divided by 12% = $200,000*
  • (V=I/R)*
A
26
Q

VALUE OF COMPARABLE PROPERTY WITH AN OPERTING INCOME

Example: A comparable property sold for $1,500,000 and had a net operating income of $150,000. What is the appraised value of a similar subject property with a net operating income of $143,ooo?

STEP 1: FIND THE CAP RATE OF THE COMPARABLE PROPERTY

R = I divided by V ($150,000 / $1,500,000 = .10 or 10%)

STEP 2: FIND THE VALUE OF THE SUBJECT PROPERTY

V = I divided by R ($143,000 / 10% = $1,430,00)

A
27
Q

Appreciation: List the 3 types

A
  1. Earned Increment
  2. Unearned Increment
  3. Plottage (Assemblage)
28
Q

Depreciation: List the three ways in which a property depreciates

A
  1. Deterioration (curable)
  2. Functional Obsolescence (can be either curable or incurable)
  3. Economic aka External Obsolescense (incurable, usually)
29
Q

List the four Value Components
*Remember DUST

A
  1. Demand need or desire
  2. Utility ability to satisfy
  3. Scarcity perceived supply
  4. Transferability freely buy, sell or encumber a property

Appraisal:Comparison,Cost/Income Approach (4 decks)

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