Appraisal Principles (Definitions) Flashcards
Professional services that come under appraisal practice include…
Appraisal, appraisal review, and other services while acting as an appraiser
What are the 8 steps of the Valuation Process?
- Identification of the Problem
- Scope of Work Determination
- Data Collection and Property Description (Market Area, Subject Property, Comparable Property Datas)
- Data Analysis (Market Analysis and Highest and Best Use Analysis)
- Land Value Opinion
- Application of the Approaches to Value (Sales Comparison Approach, Income Capitalization Approach, Cost Approach)
- Reconciliation of Value Indications and Final Opinion of Value
- Report of Defined Value
A mortgage scam used to deceive banks involving properties purchased at a low price and then resold at an inflated price…
Illegal property flipping
Fannie Mae/Freddie Mac and FHA require appraiser to have requisite knowledge and experience p____ to accepting the assignment
Prior
The state of having the requisite or adequate ability
or qualities to perform the specific assignment and produce credible
assignment results.
Competence
- “The type and extent of research and analyses in an
appraisal or appraisal review assignment.” (USPAP, DEFINITIONS) - The type of data and the extent of research and analyses. (SVP,
Definitions section)
Scope of Work
Appraisers must develop and communicate their work in a manner that is
meaningful and t___ d___ n__ m______ their services to intended users.
that does not misrepresent
An appraiser must not advocate the cause or interest of any p____ or i____.
party or issue
At what point must an appraiser be competent regarding an appraisal
assignment?
At completion of the assignment (Except for FHA, Fannie Mae/Freddie Mac must be prior)
The appraiser must be prepared to demonstrate that the type and extent of
research and analyses performed in the appraisal is sufficient to produce
c______ assignment results.
credible
An appraiser performing an assignment in an unfamiliar geographic location must
spend sufficient time to understand the n_______ of the local market.
nuances
T or F: A series of errors in an appraisal is acceptable as long as it does not significantly affect the value conclusion.
False
T or F: An appraiser must inform a client prior to accepting the
assignment if he or she lacks the requisite training,
information, and/or work experience to complete the
assignment competently.
True
T or F: A fee arrangement contingent on an appraiser’s value
conclusion will help the appraiser to maintain impartiality
and independence.
False
T or F: In an assignment that involves a dispute between two parties,
it is the appraiser’s duty to represent his client’s position.
False
T or F: The unethical practices of a few can sometimes damage
public trust for an entire profession.
True
Land is i_______, and each parcel is u______ in its location and composition.
Immobile, unique
In law, the solid surface on the earth, as distinguished from water.
Land
The right to undisturbed use and control of designated air space above a specific land area within stated elevations.
Air rights (suprasurface rights)
Rights include land, water, and anything attached to the land—either naturally
or placed by human hands.
Surface rights
These are rights pertaining to properties touching a body of water or a waterway such as a river or stream (generally interpreted as flowing waters) with an emphasis on the benefit and useful purpose to which the flowing water may be applied.
Riparian rights
These are rights pertaining to properties abutting an ocean, lake or pond (generally interpreted as non-flowing
waters) with an emphasis on the use and enjoyment of the shore (the area between high and low water levels).
Littoral rights
Riparian and littoral rights are a_________ (that is, attached) to the land and cannot be retained by the seller after the property is sold.
appurtenant
This system of allocating water rights is different from riparian and littoral rights. Water law in the western United
States generally follows the appropriation doctrine (sometimes referred to
as the Colorado Doctrine) which came about due to the scarcity of water
in that area of the country. This water right can be summed up as “first in time is first in line,” and the rights are unconnected to land ownership.
Prior appropriation water rights
Schaefer owns land with a grove of trees that are prized for their wood. The trees
would be classified as…
real estate
Schaefer cuts down several of the trees and stacks the wood on his land.
personal property
Schaefer sends the wood to a
woodworker to be made into cabinets. The finished cabinets are delivered and placed in Schaefer’s house.
personal property
Schaefer secures the cabinets to a wall in the family room of the house.
real estate
Years later Schaefer remodels the home and removes the cabinets and places them in the attached garage.
personal property
Schaefer’s marriage falls apart, and a judge orders that Schaefer’s spouse receive one-half the wholesale timber
value of the tree grove. The interest in the tree grove represents…
real property
- Rights to the use and profits of the underground portion of a designated property.
- Right to extract coal, minerals, oil, gas, and water.
- Right to construct and maintain tunnels, subways, sewers, and basements.
Subsurface rights
Something added or appended to a property that then becomes an inherent part of the property; … usually passes with the
property when title is transferred.
Appurtenant
R___ e_____ is land (physical raw land) and all things that are a natural part of the land such as trees and minerals.
2. Includes appurtenances.
All r___ e_____ improvements were once personal property; when attached to
the land, they become r___ e______.
Real estate x3
“Any tangible or intangible article that is subject to ownership and not classified as real property, including identifiable tangible or intangible objects that are considered by the general public as being ‘personal,’ such as furnishings, artwork, antiques, gems and
jewelry, collectibles, machinery and equipment; and intangible property that is created and stored electronically such as plans for installation art, choreography, emails, or designs for digital tokens.”
Personal property
Tangible, moveable items of property not permanently affixed to, or part of,
the real estate. Personal property is also known as c_____ and p________.
chattel, personalty
Annual crops and plantings such as corn, wheat, and vegetables are known as e__________ and are p______ p_______.
emblements, personal property
A f_____ is an appurtenance (that is, treated as real estate) when permanently
attached to a property. However, some f_____s can be easily removed without
damaging the property and are treated as personal property. These differences
can cause disputes about whether a f_____ is real estate or personal property.
fixture
An article that was once personal property but has since been installed or attached to the land or building in a rather permanent manner so that it is regarded in law as part of the real estate.
Fixture
T____ f______ are articles placed in or attached to rented buildings by a
tenant to help carry out the trade or business of the tenant.
These fixtures are personal property regardless of how they are affixed.
Trade fixtures
“The interests, benefits, and rights inherent in the ownership
of real estate.” (USPAP, DEFINITIONS)
Real property
A right or interest in real estate is also referred to as a__ e_____.
an estate
Total range of ownership interests in real property. An
owner that possesses all the interests in the bundle of rights has the
most complete form of ownership.
Bundle of rights
Divided or undivided rights in real estate that represent less
than the whole, i.e., a fractional interest.
Partial interest
Estates are distinguished by
their duration and fall into two legal categories—f_______ and l______ estates.
Freehold, leasehold
Characteristics of a f______ e_____
- Present or future possession
- Indeterminate duration
- Ownership
Freehold estate
Freehold estates have two categories of estates: f___ s_____ estates (inheritable) and l___ estates (noninheritable)
fee simple, life
Types of fee simple estates:
a. F__ s_____ a______ is the most complete form of ownership with
unlimited duration and subject only to governmental powers.
b. F__ s_____ d________ is subject to the occurrence or non-occurrence of a specific event. The two types are an estate 1) qualified by a special
limitation and 2) subject to a condition subsequent (see the Appendix for expanded definitions of these two types of estates).
c. L______ f__ i______ is an ownership interest held by a landlord with the
rights of use and occupancy conveyed by lease to others. The rights of the lessor (the leased fee owner) and the lessee are specified by contract terms contained within the lease.
Fee simple absolute, fee simple defeasible, leased fee interest
Rights of use, occupancy, and control, limited to the lifetime
of a designated party, sometimes referred to as the life tenant.
Life estate
One who owns an estate in real property for his or her own lifetime, the lifetime of another person, or an indefinite period limited by
a lifetime.
Life tenant
A future possessory interest in property that is
given to a third party and matures upon the termination of a limited or
determinable fee.
Remainder interest
Characteristics of l______ e____
- Possessory
- Defined period of time or specified conditions
- Reversion of possessory rights (that is, reverts back to the owner)
leasehold estates
A leasehold estate begins with an agreement called a l____. There are two primary participants to a lease.
L____ (the landlord). The property owner holding a fee simple estate with a leased fee interest (this is a future interest).
L_____ (the tenant). The party with a leasehold interest.
lease, lessor, lessee
Leasehold estates are also referred to as t_____.
Tenancies
E_____ (tenancy) for y____: Tenancy is for a d_____ or f____ p____ of t___, not necessarily in years.
Estate for years, definite, fixed period of time
E_____ (tenancy) f___ p____ to p____: Tenancy is for an i_____ p____ of t___ with no specific expiration date. Notice must be given to terminate the lease.
Estate from period to period, indefinite period of time
E____ (tenancy) a__ w___: Tenancy is for an u______ p_____ of t___ and similar to a tenancy from period to period except that it never originated with any specific term.
Estate at will, unspecified period of time
E_____ (tenancy) a__ s________: The estate is created when a tenant lawfully takes possession but stays after the lease expires without consent of the property owner.
Estate at sufferance
Any claim or liability that affects or limits the title to property. An
e___________ can affect the title such as a mortgage or other lien, or it can affect
the physical condition of the property such as an easement. An e____________
cannot prevent the transfer of possession, but it does remain after the transfer.
encumbrance x2
The right to use another’s land for a stated purpose.
Easement
All l___ are e_________; not all e_________ are l___.
Liens, encumbrances, encumbrances, liens
An easement that is attached to, benefits, and passes with the transfer of the dominant estate; runs with the land for the benefit of the dominant estate and continues to burden the servient estate.
Easement appurtenant
An easement that benefits a legal person or entity (individual, corporation, partnership, LLC, government entity, etc.) and
not a particular tract of land; an easement having a servient estate but no dominant estate.
Easement in gross
Trespassing on the domain of another.
Encroachment
Longstanding encroachments can mature into an e______ by p________ or possibly a title issue via adverse possession.
Easement by prescription
A provision written into a deed that limits the use of land. D____ r_______s usually remain in effect when title passes to subsequent owners.
Deed restriction
_____ is a term used to represent conditions, covenants, and restrictions.
CC&R
A clause found in legal instruments and conveyances that creates a new right or interest on behalf of the grantor. While title passes to
the grantee, some use or income is reserved for the grantor. R__________s
may include mineral rights, rental income, or easements.
Reservation
L______ are NOT encumbrances.
Licenses
Which of the following items are considered to be personal property? A. a tree orchard B. built-in cabinetry C. furniture D. interior light fixtures
C Furniture
Mayes owns a property but has leased it to Jacobs. Which term describes Jacobs’ right in the property? A. fee simple interest B. leased fee interest C. leasehold interest D. lessor interest
C Leasehold interest
Real estate is best described as
A. everything resting on the surface of the land.
B. fixtures and building improvements.
C. land and everything permanently attached to the land.
D. the complete bundle of rights attached to land.
C Land and everything attached to the land
Mineral rights are an example of A. air rights. B. riparian rights. C. subsurface rights. D. suprasurface rights.
C
An appraiser’s familiarity with a specific type of property applies to what concept? A. competency B. impartiality C. intended use D. sufficient diligence
A Competency
Sanchez is appraising a property for a client with the intended use of fi ling a tax
appeal. In this type of assignment, Sanchez should
A. find out what value the client’s lawyer recommends.
B. not advocate the cause or interest of any party or issue.
C. represent the client’s cause in the appeal.
D. try to keep the value as low as possible.
B
Before an appraiser begins an assignment, the problem to be solved must be
identified. What is the next step the appraiser must take to ensure credible
assignment results?
A. a preliminary opinion for the client
B. a pro forma for the assignment
C. a project timeline
D. determination of the scope of work
D
Chattel and personalty are terms used to describe A. emblements. B. fixtures. C. personal property. D. real property.
C
Hooper gave permission to a nearby business neighbor to place a sign on his
corner property to advertise the neighbor’s liquidation sale. What has Hooper
given his neighbor?
A. a license
B. a partial interest in his property
C. a personal easement in gross
D. an estate
A License
What is a tenancy (that is, estate) in which a lessee remains in possession of the property without the lessor’s consent? A. tenancy at sufferance B. tenancy at will C. tenancy for years D. tenancy from period to period
A
Sq ft in 1 acre
43,560
A system for the legal description of land that refers
to the parcel’s boundaries, which are formed by the point of beginning (POB) and
all intermediate points (bounds) and the courses or angular direction of each
point (metes).
Mete and bounds system
M___ are measures that include direction and distance. B_____ are the
terminal points that in some cases are landmarks or monuments.
Begins and ends at a designated ____ (point of beginning).
Metes, bounds, POB
A land survey system used in Florida, Alabama,
Mississippi, and all states north of the Ohio River or west of the Mississippi River
except Texas; divides land into townships and ranges approximately six miles
square, each normally containing 36 one-square-mile sections of 640 acres,
except when adjusted for the curvature of the earth. Also called the government
survey system.
Rectangular survey system
- System is based on two sets
of intersecting lines.
a. P________ m_______ run north and south.
b. B_______ run east and west.
Principal meridians, baselines
There are ___ principal meridians in the USA.
35
Survey lines that run east and west at six-mile intervals
north and south of a baseline and form the north and south boundaries of
townships.
Township lines
One of a series of government survey lines that extend due
north and south at six-mile intervals and are numbered east or west from the principal meridian. R_____ l____ form the east and west boundaries of
townships.
Range lines
This is the area between two township lines and two range lines; normally contains 36 sections of approximately 640 acres each.
Township
A township is 640 ac x 36, which is _____.
23,040
Vertical columns of townships.
Range
Horizontal row of townships.
Tier
One of the 36 designated areas of land, each approximately one mile square, into which each township is divided.
Section
Land areas that are not divided into quarters of a quarter due to location or size; usually lie along the northern and western borders of
a township and along the edges of rivers or lakes, and extend from the border
or waterline to the first quarter of a quarter.
Government lots
A system for the legal description of land that refers to parcels’ lot and block numbers, which appear on recorded maps and plats of
subdivided land; may also be used for assessment maps.
Lot and block system, also known as recorded plat
The method of legal description most frequently used west of the Mississippi River is r________ s_____ s_____.
Rectangular survey system
Ownership forms divide into three groups; o_______ in s_______, c__-o_______
(also known as c_______ ownership), and t____.
ownership in severalty, co-ownership, concurrent, trusts
O_______ in s_______ is really sole ownership by an individual or single entity.
Ownership in severalty
A corporation or trust that
combines the capital of many investors to acquire or provide financing for all forms of real property.
Real estate investment trust (REIT)
A private or public partnership that pools funds for the
acquisition and development of real estate projects or other business ventures.
Syndication
Co-ownership or concurrent ownership property is held by two or more individuals and is categorized into 4 types: T_____ in c______, j___ t______, t_____ by the e_____, and c________ p______
Tenancy in common, joint tenancy, tenancy by the entirety, community property
T______ in c_____: Property is not physically divided. Ownership interest is divided. Equally divided among owners. Each co-owner can sell, mortgage, or transfer this interest. No co-owner can transfer the entire property. Upon the death of a co-owner, the interest passes according to the will of that owner. Business partnerships.
Tenancy in common
J____ t_____: Right of survivorship. Interest is passed to living tenants not heirs. Must be specifically written into the deed.
Joint tenancy
T_____ by the e_____: Co-ownership for married couples in which each spouse has an equal, undivided interest in the property. Husband and wife have rights of survivorship.
Tenancy by the entirety
C_______ p______ r____: 9 states use this for married couples. Each spouse has one half interest in property. When spouse dies, that half is distributed by a will unless there is no will, then it goes to the spouse. Two classifications of property: S______ p______- Property owned solely by either spouse before marriage. C_____ p_____ - Property acquired by either spouse during marriage.
Community property rights, separate property, community property
In a trust, real estate can be transferred to another person, called a f_____ (trustee) to hold or manage for the benefit of a third party.
Fiduciary
A l_____ t____ is created by an agreement while the property owner is alive. A t_________ t____ is established by the will of the property owner after his or her death.
Living trust, testamentary trust
Real estate is the only asset in a l___ t____. Trustor is the beneficiary.
Land trust
Condominium owners hold a f__ s_____ t____ to an individual condo unit. Owners hold an undivided interest in the remaining condominium real estate known as c_____ e_____ (pool, tennis courts, parking spaces, elevator, gym)
fee simple title, common elements
C________ o______, a corporation owns the real estate. Offers shares of stock to prospective tenants. Tenant obtains a p_______ l____ to the apartment for the life of the corporation. Stock is personal property.
Cooperative ownership, proprietary lease
T_______ o_______, typically involve a resort property that allows each owner the right to use the facilities for a specific period of time. F__ s____ i_____ in condominium ownership with accompanying rights.
Timeshare ownership, fee simple interest
A type of building development designed as a
grouping of complementary land uses, such as housing, schools, recreation, retail,
office, and industrial parks, contained within a single master development.
Planned unit development (PUD)
“Development that seeks to meet the needs
of the present without compromising the ability of future generations to
meet their needs.”
Sustainable development
Residential and commercial properties located in P___s are typically appraised
in f___ s_____ ownership with j____ ownership of open areas. The appraiser,
however, must analyze the common amenities and benefits shared by all
property owners within the P___.
PUDs, fee simple, joint, PUD
A d__ m_____ p___ is one in which the common elements owned by the
association have little or no effect on the individual property’s value. This term is
commonly used by the lending industry.
de minimis PUD
The party that gives a mortgage is called the m________.
mortgagor
Williams owns property with Campbell by tenancy in common. When Williams dies,
her interest in the property will go to h__ h____ or a______ to her w___.
her heirs, according to her will
Purchasing a cooperative unit means you are buying s____ of s____.
Shares of stock
Joint tenancy has a right of survivorship feature shared with what other form of
ownership?
Tenancy by the entirety
Concurrent ownership is also known as c_______.
Co-ownership
Trusts that allow 100 or more investors to pool their resources into large real
estate investments are called R___
REITs
Estates in real property are subject to f____ p____ of g_______: T____, E_____ D____, P____ p____, E____
Four powers of government, taxation, eminent domain, police power, escheat
The right of government to raise revenue through assessments on
valuable goods, products, and rights.
Taxation
A__ v_____ t___ is used in property taxation because it is levied in
proportion to the value of the property to which the tax applies.
Ad valorem tax
Property taxes have their origin in the fiscal budget for each level of government. Revenue (other than taxation) is estimated and paired
against anticipated expenses. The difference is assessed in a t___ l____ against the properties within the taxing district.
tax levy
Taxable property in the district is valued by an a______ who
determines the a______ v____ of each real estate parcel.
assessor, assessed value
Owners who disagree with the assessor’s value can file a t___ a________ a_____. Appraisers can be retained in these types of disputes over value.
tax assessment appeal
An assessment against real property levied by a
public authority to pay for public improvements, e.g., sidewalks, street
improvements, sewers; also called betterment tax.
Special assessment
If a property sells between the time a special assessment
becomes of record and the time it is actually levied, it is referred to as a p______ s_____ a________.
pending special assessment
The right of government to take private property for public use upon the payment of just compensation. The Fifth Amendment of the
US Constitution, also known as the takings clause, guarantees payment of just compensation upon appropriation of private property.
Eminent domain
The acquisition process for eminent domain is called c________.
Condemnation
The inherent power of government to regulate property in order
to protect public health, safety, and general welfare.
Police power
C_____________ p____ are a form of police power used to control growth and
development.
Comprehensive plans
Public regulation of the use of private land through application of police power; accomplished by establishing districts or areas with uniform requirements relating to lot coverage, setbacks, type of improvement, permitted activities, signage, structure height, minimum lot area, density, landscaping and other aspects of land use and development.
Zoning
Z_____ o_________ are local laws that implement the comprehensive
plan and provide regulation and control of land and structures within a
specified district.
Zoning ordinances
Open spaces, landscaped areas, fences, walls, berms, or any combination thereof used to physically separate
or screen one use or property from another so as to visually shield or block noise, lights, or other nuisances; often associated with a change of land use or density.
Buffer strip
An exception to the general zoning regulations; permits specific, usually small, parcels of land to be zoned for a use that is not permitted in the surrounding area.
Spot zoning
A legally authorized modification in the
use of property at a particular location that does not conform to the regulated use set forth in the zoning ordinance for the surrounding
area; not an exception or change in the legally applicable zoning.
Zoning variance
A use that was lawfully established and maintained, but no longer conforms to the use regulations of its current zoning; also known as a grandfathered use.
Legally nonconforming
Local governments may require a b______ p_____ before any improvements
are constructed on the property owner’s land. The permit serves as
evidence that the application has complied with the various regulations.
building permit
When the improvements have been completed and are in compliance with
all regulations, the local government will issue a c________ of o________
or c_________ indicating the property can now be occupied.
certificate of occupancy or compliance
The right of government that gives the state titular ownership of a
property when its owner dies without a will or any ascertainable heirs.
Escheat
T_____: The condition of dying with a valid will.
I_______: The condition of dying without leaving a valid will.
Testate, Intestate
A charge against property in which the property is the security for payment of the debt. Financial encumbrances.
Lien
Liens fall into two categories:
a. G_____ lien is a type that binds all the assets of the individual debtor (that is, the debtor’s property) to the lien.
b. S_____ lien is a type that is levied against or attaches to a
specified piece of property.
General, specific
G________ l____ include property tax liens and special assessment liens.
They also include liens from other forms of taxation. Are considered s_____ liens.
Government liens, specific
A p_____ t___ l___ attaches to the taxed property on the first day of the year in which the tax is due. A s_____ a______ l___ attaches to each of the properties identified by the government entity as benefiting from the proposed public improvements.
property tax lien, special assessment lien
M______’ liens can arise when someone provides labor, skill, equipment, or
materials while improving, repairing, or maintaining the property. Are s_____ liens.
Mechanics, specific
M_____ l___ are voluntary and is created by a contract between the property owner and a lender. Are s_____ liens.
Mortgage liens, specific
J______ l____ typically result from a lawsuit in which a monetary judgment
is awarded. The party that won the suit and was awarded the judgment is a judgment creditor. The party who lost the lawsuit is a judgment debtor. Are g_____ liens.
Judgment liens, general
L__ p____ is a legal term signifying pending litigation that can affect the ownership title to real estate. Simply a notice of potential lien in the near future.
Lis pendens
An a_________ is a lien that allows a creditor with an interest in an
otherwise unsecured property to prevent the debtor from conveying title
while the dispute is being decided in court. Seizure of property by court order.
attachment
When a financial institution puts together a loan for a property owner, the lender is referred to as the A. grantee. B. mortgagee. C. mortgagor. D. trustor.
B mortgagee
Which of the following limitations on ownership is not an exercise of government power? A. covenants B. escheat C. special assessment lien D. zoning ordinance
A covenants
The Hawthorns bought a condominium unit in a resort area for $500,000. They
use the condo for one month out of every year, and during the remaining months,
they rent it out through an agreement with the property management. What type of
ownership do the Hawthorns have?
A. condominium
B. cooperative
C. leasehold
D. timeshare
A condominium
The form of legal description most often used west of the Mississippi River is A. bearing and azimuth. B. metes and bounds. C. recorded plat. D. rectangular survey.
D rectangular survey
A claim against real property to secure repayment of a debt is A. a deed restriction. B. a lien. C. an easement. D. an encroachment.
B lien
Sam Gates wants to buy a summer home with his sister Jean. Because they are
both retired and have no heirs, they want to be sure that if one of them dies, the
interest of the deceased will pass to the other sibling. Which form of ownership
should they use to acquire title?
A. joint tenancy
B. tenancy by the entirety
C. tenancy in common
D. tenancy in severalty
A joint tenancy
When a corporation purchases real estate, it conducts this business as A. a limited partnership. B. a real estate investment trust. C. a syndicate. D. if it were a single person.
D
Rick and Alice set up a living trust for their children involving a rental property they
own. In this type of agreement, the children are legally referred to as the
A. beneficiaries.
B. fiduciaries.
C. trustees.
D. trustors.
A beneficiaries
Common elements in condominium ownership include all of the following except the A. elevator. B. land. C. shareholder stock. D. swimming pool.
C
Justin owns a property with three other people. When Justin dies, his interest will
be passed according to his will and be part of his estate. In this property, Justin is a
A. joint tenant.
B. tenant by the entirety.
C. tenant in common.
D. tenant in severalty.
C
McKibbin has been approved to have a possessory interest in a property and is
given a proprietary lease. What kind of ownership does McKibbin have?
A. condominium ownership
B. cooperative ownership
C. leasehold ownership
D. timeshare ownership
B
A buyer purchased a quarter acre of land for $5.00 per square foot. What was the price of the parcel? A. $54,450 B. $108,900 C. $125,000 D. $217,800
A (43,560 sq. ft. / 4 = 10,890 × $5.00 = $54,450)
The process used by the government to acquire land for public benefi t is known as A. condemnation. B. eminent domain. C. escheat. D. foreclosure.
A
U______ c_____. Only one of the parties to the contract is legally obligated
to perform. An o_____ a_______ in real estate is a unilateral contract.
Unilateral contract, option agreement
B______ c_____. This type of contract exists when each party makes a binding agreement to perform according to the contract. Most r___ e_____ contracts are bilateral.
Bilateral contracts, real estate
A lender’s agreement to postpone foreclosure proceedings,
allowing a debtor an opportunity to explore financing alternatives. The contract agreement is to not perform in a particular manner.
Forbearance
A legally binding agreement between two or more persons that represents their promise to do or not to do a particular thing. In many
jurisdictions statutes of frauds, or their equivalent, may render a real property contract voidable if it does not consist of a signed, written agreement.
Contract
5 Elements of a Valid Contract
- C____
- O___ and a_______
- L______ c_______ p_____
- C__________
- L____ p_______
Consent, offer and acceptance, legally competent parties, consideration, legal purpose
3 categories of a contract’s legal status
- V___ c_____
- V___ c_____
- V______ c_____
Valid contract, void contract, voidable contract
A written document signed by a buyer and a seller who agree
to the transfer of ownership of real property; also called agreement of sale or
earnest money contract.
Sale contract
A good faith deposit made by a purchaser as the
consideration component of a binding contract. In real property transactions, this deposit is frequently applied to the buyer’s down
payment.
Earnest money
A legal contract, typically purchased for a stated consideration, that
permits but does not require the holder of the option (known as the optionee)
to buy, sell, or lease real estate for a stipulated period of time in accordance
with specified terms; a unilateral right to exercise a privilege.
Option
A contract in which a purchaser of real estate agrees to
pay a small portion of the purchase price when the contract is signed and
additional sums, at intervals and in amounts specified in the contract,
until the total purchase price is paid and the seller delivers the deed; used
primarily to protect the seller’s interest in the unpaid balance because
default can be exercised more quickly than it could be under a mortgage;
also called contract for deed or installment (sale) contract.
Land contract
The ownership interest held by the lessor, which
includes the right to receive the contract rent specified in the lease plus the
reversionary right when the lease expires.
Leased fee interest
The right held by the lessee to use and occupy real
estate for a stated term and under the conditions specified in the lease.
Leasehold interest
A contract in which the rights to use and occupy land, space, or structures are transferred by the owner to another for a specified period of
time in return for a specified rent.
Lease
The lessor pays some or all of the operating
expenses. When a landlord pays most, but not all, of the operating expenses,
this may be referred to as a modified gross rental lease.
Gross rental lease
The tenant pays all the operating expenses.
Net rental lease
A lease with a specified level of rent that continues
throughout the lease term.
Flat rental
A lease that provides for specified changes in rent
at one or more points during the lease term.
Graduated rental
a. S___-___ l____. The payments increase at specified intervals.
b. S____-d____ l____. The payments decrease at specified intervals.
Step-up lease, step-down lease
A lease that provides for periodic rent adjustments
based on the market rental rate of the space. This is sometimes accomplished
through appraisal or arbitration.
Revaluation lease
A lease, usually for a long term, that provides for
periodic rent adjustments based on the change in an economic index.
Index lease
A lease in which the rent or some portion of the
rent represents a specified percentage of the volume of business, productivity,
or use achieved by the tenant. This type of lease is most frequently used for
retail properties. A straight percentage lease may have no minimum rent, but
most specify a guaranteed minimum rent and an overage rent.
Percentage lease
O_____ r___. The percentage rent paid over and above the guaranteed
minimum rent or base rent; calculated as a percentage of sales in excess of
a specified breakpoint sales volume.
Overage rent
A lease in which an intermediate, or sandwich,
leaseholder is the tenant of one party and the landlord of another.
Sandwich lease
The combination of all elements that constitute proof of ownership.
Title
A d____ is a written, legal instrument that conveys an estate or interest in real
property to someone else, assuming it is executed and delivered.
Deed
G_____ w______ deed. A covenant of warranty inserted in a deed that binds
the grantor and heirs to defend the title conveyed to the grantee and his or
her heirs against the lawful claims of all persons.
S______ w______ deed. The grantor provides two covenants: 1) The grantor
received title to the property; 2) The grantor and his heirs will defend title
to the lands against legal claims created by the actions or omissions of the
grantor or his heirs.
B_____ and s___ deed. The grantor conveys the property but does not
guarantee clear title; this is used by court officials and fiduciaries to convey
property they hold by force of law but to which they do not hold title. It is
also used in foreclosure and tax sales. Title insurance is recommended.
Q_______ deed. The grantor conveys any interest held in the property to the
grantee without warranty of title. A quitclaim deed offers the least protection
to the buyer. It is often used to clear a defect in the title when someone is
thought to have an interest or right in a particular property.
General warranty, Special warranty, Bargain and Sale, Quitclaim
This involuntary transfer of property takes
place when a party makes a property claim by taking possession over
a period of years, and the owner fails to contest the possession. This
type of transfer is allowed because the law recognizes that possession
and use of the land is an essential component of ownership. The time
required to obtain title legally by this process varies from state to state.
Adverse possession
The right to use another’s land, which is established by exercising this right openly, hostilely, and continuously over
a statutory period of time. The use must be open, notorious, continuous,
exclusive, and without the owner’s permission. In this case, the claimant
gains a legal easement rather than legal title to the land.
Prescriptive easement
An option agreement is a u______ type of contract.
unilateral
The initial payment to bind a sales contract is called e_____ money.
earnest
Parties to a valid contract must enter the agreement voluntarily to satisfy the
element of c_____.
consent
A contract where the seller acts in the role of a lender is called a l____ c_____.
land contract
In a g____ lease, the tenant pays a fixed rent and the landlord pays
the property’s operating expenses.
gross
In a leased property, the landlord has a l______ f___ interest.
leased fee
When a party conveys whatever interest he or she has with no warranties, the type of conveyance used is called a q______ d___.
quitclaim deed
The involuntary transfer process by which a party takes possession and use of
another’s land over a period of years is known as a______ p________.
adverse possession
The type of deed that provides all of the covenants to warrant title is known as a g_____ w______ d___.
General warranty deed
A tenant has an ice cream shop in a shopping mall and pays $2,000 per month
plus 4% in overage rent based on gross sales after the first $100,000. This is an
example of a p________ l____.
percentage lease
- “The actual or estimated amount required to create, reproduce, replace, or obtain a property.” (USPAP, DEFINITIONS)
- The total dollar expenditure to develop an improvement.
IS A FACT
Cost
“The amount asked, offered, or paid for a property.” IS A FACT ONCE STATED
Price
- “The monetary relationship between properties and those who buy, sell, or use
those properties, expressed as an opinion of the worth of a property at a given time.
Comment: In appraisal practice, will always be qualified - for example, market value,
liquidation value, or investment value.” (USPAP, DEFINITIONS). - The present worth of the future benefits that accrue to real property ownership (The
Dictionary of Real Estate Appraisal, 6th ed.)
Value
V____ is an opinion, not a fact.
Value
F___ F_____ of V____:
A. U____ - The ability of a product to satisfy a human want, need, or desire. Amenities.
B. S_____- The present or anticipated undersupply of an item relative to the demand for it.
C. D____- A purchaser’s wish for an item to satisfy human needs.
D. E____ p______ p____- The ability of an individual or group to participate in a market, i.e., to acquire goods and services with cash or its equivalent.
Four Factors of Value, Utility, Scarcity, Desire, Effective Purchasing Power
The value of a property assuming a specific use, which may or may not be the property’s highest and best use on the effective date of
the appraisal. Value in use may or may not be equal to market value but is
different conceptually.
Value in use
The market value of all the tangible and intangible assets
of an established and operating business with an indefinite life, as if sold in
aggregate.
Going-concern value
In 2007, the Financial Accounting Standards Board (FASB) defined fair
value as “the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement
date.”
Fair value
The value based on ad valorem tax rolls is called a_______ value.
assessed
V____ is an opinion of the worth of a property as of a specified time.
Value
A tangible benefit of real estate that enhances its attractiveness or increases the
satisfaction of the user, but is not essential to use is called an a______.
an amenity
Once stated, p____ is a historical fact.
price
When interest rates rise and unemployment is high, it may affect a factor of value
called e_____ p______ p___.
effective purchasing power
A hospital is classified as a s_______ property for valuation purposes.
special-use
I______ v____ is the value of an investment to a particular investor.
Investment value
An appraiser estimates the i______ v____ in the event there is a catastrophic loss such as from a fire or flood.
insurable value
The market value of a business property including the real property and intangible assets is called g______ v____.
going-concern value
D_________ costs are identified with the overall project and include all
the expenditures required to bring a property into an operating state.
Development
“A type of value, stated as an opinion, that presumes
the transfer of a property (i.e., a right of ownership or a bundle of such rights), as of a certain date, under specific conditions set forth in the value definition that is identified by the appraiser as applicable in an appraisal.
Market value
M_____ v____ is based upon the economic concept of e_____ v____.
Is a s_____ o____.
The preferred phrase in use today is v____ o____ when referring to an appraiser’s conclusion.
Market value, exchange value, stated opinion, value opinion
M_____ v____ is expressed as the m____ p_____ price.
Market value, most probable
The e_____ d___ is simply the date of the value opinion.
effective date
An analytical process in which the sale price of a transaction with nonmarket financing or financing with unusual
conditions or incentives is converted into a price expressed in terms of
cash or its equivalent.
Cash equivalency analysis
A c_______ is a financial payment, special benefit, or
non-realty item included in the sale contract or rental agreement as an
incentive to the sale or lease. Occur when the seller or
lessor agrees to pay an inducement or to give some credit or property to
a buyer or lessee, who in turn agrees to pay a higher price than the seller or lessor would normally receive for the property. Usually
result in artificially inflated sale prices or lease rates.
Concession
These are also categorized as concessions but are specific to financing the sale.
Financing terms
S_______ p____ are a common concession that appraisers adjust
for when analyzing comparable sales. These discount points are
intended to buy down the buyer’s mortgage amount and lower the
monthly payment.
Seller-paid points
A percentage of the loan amount that a
lender charges a borrower for making a loan; may represent a payment for services rendered in issuing a loan or additional interest to the lender payable in advance.
Discount points
One d______ p____ equals 1 percent of the mortgage amount.
Ex: If a seller agrees to pay 3 points on a $350,000 property and the contract
terms specify the buyer’s mortgage to be $280,000, then the dollar
amount for the points is $8,400 ($280,000 x 0.03 = $8,400).
Ex:If a seller agrees to pay $10,000 in points on a $200,000 property and the contract terms specify the buyer’s mortgage to be $160,000, then the seller paid 6.25 points ($10,000 /
$160,000 = 0.0625 or 6.25%).
Discount point (go over examples)
R_______ e_____ time is the amount of time for which the property is expected to be on the market before selling for its “market value.”
Reasonable exposure
E______ t____ is the time a property was available for sale in the market and
always presumes to occur prior to the effective date of the appraisal. The
concept of reasonable exposure includes not only sufficient and reasonable
time but also reasonable effort to sell the property.
Exposure time
M______ t____ is an opinion of the amount of time it might take to sell a real
or personal property interest at the concluded market value level during the
period immediately after the effective date of an appraisal.
Marketing time
A typical option contract to purchase real property binds which of the following? A. both buyer and seller B. neither buyer nor seller C. only the buyer D. only the seller
D only the seller
The total dollar expenditure to develop an improvement is called A. cost. B. going-concern. C. price. D. use value.
A
An increase in demand will typically affect a commodity in what way? A. a decrease in price B. an increase in market exposure time C. an increase in price D. an increase in supply
C
An agreement that is presumed to exist because of the parties’ actions is called
an implied contract. In contrast, an agreement that is put into words (spoken or
written) is what type of contract?
A. express contract
B. forbearance contract
C. legal purpose contract
D. unilateral contract
A
Jensen has a sale contract on a property, but it does not state the legal description, and it is not signed by the seller. The contract is A. implied B. unilateral C. valid D. void
D
The value according to tax rolls in ad valorem taxation is called A. assessed value B. insurable value C. investment value D. liquidation value
A
A portion of the purchase price given to bind the transaction is known as A. a guarantee certificate B. a purchase receipt C. earnest money D. trust funds
C
Warner is a tenant and pays a fixed rent, while his landlord pays all of the
operating expenses and real estate taxes. What type of lease is this?
A. double net
B. gross
C. net
D. sandwich
B
If demand is constant for a particular commodity, what factor of value would make the commodity more valuable? A. desire B. effective demand C. scarcity D. utility
C
Jill sold her property interest to her sister Joanna, involving land they jointly
owned. Years later, Joanna decided to sell the land, but the buyer wanted
assurance that Jill had no rights to the property. What type of deed would Jill
provide in this situation?
A. bargain and sale deed
B. general warranty deed
C. quitclaim deed
D. special warrant deed
C
The value of an investment property to one particular investor is called A. investment value B. market value C. market value of a going concern D. use value
A
Rita purchased a timeshare property that included a one-week expense-paid trip
to the Cayman Islands as an inducement to buy the property. The trip was valued
at $3,000. If the property sold for $28,000, what is a reasonable cash equivalent
price for the property?
A. $25,000
B. $28,000
C. $31,000
D. none of the above
A
The type of deed that provides the greatest warranty against lawful claims is a A. deed of trust B. general warranty deed C. special warranty deed D. title insurance certificate
B
A sale that takes place between unrelated parties is considered to be what kind of transaction? A. arm’s-length B. cash equivalent C. reasonable exchange D. self-interest
A
Land, labor, capital, and entrepreneurial effort (also
known as coordination).
Agents of production
F___ F____ that I______ V____
- G________ and l____- involves controls and regulations.
- E_____- pertains to the circumstances and trends that affect supply and demand.
- S____- focuses on changes in demographics, social trends, and attitudes.
- E__________ and g_______- involves the environmental surroundings, both natural and man-made.
Four Forces that Influence Value, Governmental and legal, Economic, Social, Environmental and geographic
Appraisers often consider the influence of various distance
factors. For example, the distance (in time and cost) to schools, public
transportation, employment and business centers, shopping, recreational
and cultural facilities, and religious centers have a significant influence on
real estate values.
Linkages
The result of the cause and effect relationship among the forces that influence real property value.
Change
The perception that value is created by the expectation of
benefits to be derived in the future.
Anticipation
The desire to buy coupled with the ability to pay.
When the term demand is used in economics or real estate analysis, it is usually presumed.
Effective demand
C________ is the interaction of supply and demand.
Competition
The appraisal principle that states that when several similar or commensurate commodities, goods, or services are available, the one with the
lowest price will attract the greatest demand and widest distribution.
Substitution
O_______ c____ is a subprinciple of substitution. It is the cost of options
foregone or opportunities not chosen.
Opportunity cost
The principle that real property value is created and sustained when
contrasting, opposing, or interacting elements are in a state of equilibrium.
Balance
To furnish (as a computer ... or building) with new or modified parts or equipment not available or considered necessary at the time of manufacture.
Retrofit
The concept that successive
increments of one or more agents of production added to fixed amounts
of the other agents will enhance income or value (in dollars, benefits,
or amenities) at an increasing rate until a maximum return is reached.
Increasing and decreasing returns
The concept that the value of a particular component
is measured in terms of the amount it adds to the value of the whole
property or as the amount that its absence would detract from the value
of the whole.
Contribution
The net income that remains after the costs of
various agents of production have been paid.
Surplus productivity
The appraisal principle that real estate value is created and
sustained when the characteristics of a property conform to the demands
of its market.
Conformity
The concept that a lower-priced property will be worth more in a
higher-priced neighborhood than it would in a neighborhood of
comparable properties.
Principle of progression
The concept that a higher-priced property will be worth less in
a lower-priced neighborhood than it would in a neighborhood of
comparable properties.
Principle of regression
The principle that economies outside a property have a positive
effect on its value while diseconomies outside a property have a negative
effect on its value.
Externalities
The reasonably probable use of property that results
in the highest value.
Highest and best use
The temporary use to which a site or improved property is put until a different use becomes maximally productive.
Interim use
The concept that land cannot be valued on the basis of one
use while the improvements are valued on the basis of another use.
Consistent use
E____ l___- land that is not needed to serve or support the existing use.
S____ l___- land that is not currently needed to support the existing use but cannot be separated from the property or sold off for another use.
All e____ l___ could be s____ l____, but s_____ l____ is never e____ l___.
Excess land, surplus land, ALL EXCESS LAND COULD BE SURPLUS LAND, BUT SURPLUS LAND IS NEVER EXCESS LAND
Which principle states that the property with the lowest price attracts the greatest
demand and widest distribution when several competing properties are available?
A. competition
B. contribution
C. increasing and decreasing returns
D. substitution
D
Four forces impact value. Employment levels, wage rates, and interest rates are examples of which force? A. economic B. environmental and geographic C. governmental and legal D. social
A
Which principle states that real estate value is created and sustained when the
characteristics of a property correspond to the demands of its market?
A. balance
B. conformity
C. externalities
D. highest and best use
B
The elements that create wealth, income, or services when they are combined are
known as
A. agents of production.
B. forces that influence real estate value.
C. land and improvements.
D. surplus productivity.
A
A temporary use of a property until a different use becomes maximally productive is A. conditional use. B. excess use. C. interim use. D. nonconforming use.
C
Zoning, public transportation, and sales taxes are examples of which of the four forces impacting value? A. economic B. environmental and geographic C. governmental and legal D. social
C
Avery is beginning a highest and best use analysis of a property with existing
improvements. What is the first analytical step Avery should perform?
A. an analysis of consistent use
B. an analysis of interim use
C. an analysis of the land as though vacant
D. an analysis of whether the property has excess land
C
A small average residence is located in an area of luxury homes. The effect of the
surrounding homes on the small residence is called
A. conformity.
B. excess profi ts.
C. progression.
D. regression.
C
In an office market that has more available space than tenants willing to rent,
what principle will affect pricing the most?
A. anticipation
B. competition
C. conformity
D. contribution
B
Which theory states that land cannot be valued on the basis of one use while the
improvements are valued on the basis of another use?
A. consistent use
B. interim use
C. uniform use
D. value in use
A
An owner continues to make improvements to a property to the point where
the value is no longer enhanced. What subgroup principle of balance does this
illustrate?
A. contribution
B. increasing and decreasing returns
C. opportunity cost
D. surplus productivity
B
Moderate profits attract healthy competition, but excess profits can lead to what? A. decrease in demand B. equilibrium C. increase in supply D. ruinous competition
D
Which of the following could not be considered an interim use?
A. building in a warehouse district currently used as a religious facility
B. manufacturing business operating at 75% of its normal production
C. rural tract of land farmed while awaiting subdivision approval
D. vacant downtown commercial land used for surface parking
B
Ellis built his residence on two lots in a manner that makes it impossible to
subdivide the land. The land site situation that Ellis has is an example of what?
A. excess land
B. opportunity cost
C. surplus land
D. surplus productivity
C
Which of the following is not a test of highest and best use? A. environmental viability B. legal permissibility C. maximum productivity D. physical possibility
A
Four tests of highest and best use
- L____ p_________
- P_____ p________
- F______ f______
- M______ p_________
Legal permissibility, physical possibility, financial feasibility, maximum productivity
Three primary markets - M____, c____, r___ e____
Two primary agencies - the F_____ R____, the D_______ of the T_____
Two primary sources of capital - E____, d___
Money, capital, real estate
Federal Reserve, Department of the Treasury
Equity, Debt
M___ m____ is comprised of s___-term m____ instruments.
C_____ m____ is comprised of l___-term or i_______-term instruments
Money market, short term money, capital market, long term or intermediate term
Short-term money instruments include: F____ f___, T______ n____, C__s, commercial paper, municipal notes, and eurodollars
Federal funds, treasury notes, CDs
Capital instruments can include: B____, S____, R___s, M_____, Deeds of trust/land contracts
Bonds, Stocks, REITs, Mortgages
The d_____ for money is a function of economic forces.
The s____ of money is largely a function of the Federal Reserve as it
regulates the money supply.
This relationships set the price (or cost) of money.
Demand, Supply
The interaction of buyers and sellers who trade short-term
money instruments.
Money market
The interaction of buyers and sellers trading long- or
intermediate-term money instruments.
Capital market
A pledge of a described property interest as collateral
or security for the repayment of a loan under certain terms and conditions.
Mortgage
Second and third mortgages are referred to as j____ l____.
Junior liens
The repayment of debt by installments is called…
amortization
G_______ mortgage aka V__ L___
I_____ mortgage aka F___ program or P____ m____ i____ (PMI) for conv mortgages
E____-e______ mortgage (EEM) may be conv., FHA, VA
B_____ mortgage - mortgage that is not fully amortized at maturity and requires lump sum payment
Guaranteed mortgage, VA Loan, Insured mortgage, FHA, Private mortgage insurance, Energy- efficient, Balloon
Buyers and sellers of particular real estate and the
transactions that occur among them.
Real estate market
The F_____ R_____ carries out the nation’s monetary policy.
The Federal Reserve
The D______ of the T______ implements fiscal policy.
Department of the Treasury
An erosion of the purchasing power of currency characterized by
price escalation and an increase in the volume of money.
Inflation
An increase in the price or value of a property or
commodity resulting from an excess of demand over supply or other factors.
Appreciation
A n_____ i_____ r___ is a stated or contract rate.
A r___ i_____ r___ is a nominal interest rate that has been adjusted for expected inflation
Nominal interest rate. real interest rate
The p______ m_____ is where borrowers and mortgage originators come
together, and the mortgage lenders include banks, thrifts (such as savings
and loan associations and savings banks), mortgage companies, and credit
unions.
primary market
The s_______ m_____ is where lender mortgages are assembled and packaged into pools of mortgage-backed securities to be traded to investors.
secondary market
The interaction of buyers and sellers who trade short-term money instruments is
referred to as a m____ m_____.
money market
Bonds, stocks, and mortgages are c_____ instruments.
capital
A pledge of a described property interest as security for repayment of a loan is
called a m______.
mortgage
An FHA loan is an example of an i_____ mortgage.
insured
The U__ T_____ implements the fiscal policy of the United States.
US Treasury
T or F: Inflation and appreciation are terms that describe the
same thing.
False
T or F: The Federal Reserve carries out the nation’s
monetary policy.
True
T or F: Treasury bills are considered to be short-term
money instruments.
True
T or F: The two sources of capital for real estate are
federal funds and the secondary mortgage market.
False
T or F: Risk plays a significant role in how investments
compete against each other.
True
Mosley is appraising a vacant land site that is
two thirds of an acre in size and has 112.3 feet of frontage on the street. The
appraiser’s market data indicates a price of $2.90 per square foot. What is
the price per foot for the 112.3 feet of road frontage?
1 acre = 43,560 / 3 = 14,520 × 2 = 29,040 sq. ft. for the land
29,040 × $2.90 = $84,216 value of the land
$84,216 / 112.3 frontage = $749.92 per front foot (or $750)
A property owner discounted his asking price by 12% in
order to attract market interest in the property.
If the original asking price was $250,000, how much was the price reduction?
$30,000
Culver discounted his asking price by $45,000.
If the original asking price was $300,000, what was the
percentage price reduction?
15%
McDaniel lowered his asking price by 10%.
If the original asking price was $450,000, what was the revised asking
price of the property?
$405,000
A tenant gave the landlord a damage deposit that was 150% of the monthly rent.
If the monthly rent is $2,100, what is the amount of the damage deposit?
$3,150
A seller was charged a $43,500 commission fee by her real estate broker.
If the sale price was $725,000, what was the broker’s commission
percentage?
6%
A client included $5,000 rush service in the overall assignment fee
of $25,000.
What is the percent attributable to the rush service fee?
20%
How much money does Torres need to deposit to earn $3,000 in
annual interest if the annual interest rate is 5%?
$60,000
Conventional financing requires 20% as a down payment, and a
pre-qualifi ed buyer has $70,000 cash available.
What is the maximum price the buyer can afford?
$350,000
Jeter paid $10,800 in debt service last year (principal
and interest) based on an original mortgage amount of
$150,000.
What percent is the annual debt service to the mortgage amount?
7.2%
The median sale price for one-unit properties in the city
of Lynwood is currently $182,000. The median price two years earlier was $227,500.
What is the change in median price from two years ago expressed as a
percent? Pg 92 in solutions book, use HP12C
-20%
An investor experienced a loss of 20% in her REIT mutual fund during the previous two quarters.
If the investor’s REIT portfolio was valued at $50,000 prior to the loss, how much of a percentage gain in the fund does she need to fully recover? Pg 92 in solutions book, use HP12C
25%
A property owner sold her 3/4-acre site for $3.50 per square foot. What was the
final selling price of the land?
43,560 sq. ft. × 0.75 = 32,670 sq. ft. × $3.50 per sq. ft. = $114,345
The property taxes on a land parcel increased by $984 in the last year. If the taxes
were $12,300, what is the percentage of increase?
8%
An existing building cost $450,000 when it was new. Over the years, the
building has depreciated 15% due to wear and tear. What is the depreciated
cost of the building?
$382,500
The Fairchilds’ property was listed for $525,000, but it was reduced in price to
$493,500 due to a lack of market interest. What is the price discount expressed
as a percentage?
6%
A property listed on an Internet auction Web site had a minimum reserve of
$160,000, which is the price not revealed to online bidders. After the bidding
opened, the offers exceeded the reserve, and the property eventually sold for
$174,400. What percent over their reserve price did the sellers receive?
9%
Sue purchased a property for $100,000. After making
improvements, she sold the property for 10% more than she
paid for it.
What is the new sale price?
$110,000
100,000 x 1.10 =
Jim purchased a property for $100,000. He later sold the property during a
down market period for 10% less.
What is the new price?
100,000 x 0.90 = $90,000
Sue sold her property for $110,000. This price is 10% more
than what she paid for it.
What was the original purchase price?
$110,000/1.10 = $100,000
Jim sold his property for $90,000 during a down market period. This price was
10% less than what he paid for it.
What was the original purchase price?
$90,000/0.90 = $100,000
Jacquelyn sold her condominium for $126,000. This price was 5%
more than she paid for it.
What was the original purchase price?
$126,000/1.05 = $120,000
An appraiser selected a property that sold for $253,000 as a comparable sale in
an assignment.
If the sale is 15% superior to the subject property, what is the value of the subject property?
$253,000/1.15 = $220,000
A farm property sold for $1.35 million. The sale was 10% below
market due to a forced sale situation.
What is the market price for the property?
$1,350,000/0.90 = $1,500,000
A commercial property sold for $850,000, but the sale fell through and the
property eventually sold for $816,000.
What is the discount as a percent?
4%
Property taxes are often expressed as a m___ r____.
- A mill is equal to one-thousandth of a dollar (1 mill = $1.00 / 1,000 = $0.001)
- Another way to express a mill is $1.00 of tax for every $1,000 of assessed value.
mill rate
If the mill rate in the area is 25, and the assessed value is $125,000. What are the taxes?
125,000 x 0.025 = $3,125
M____ v____ x a_______ r____ = a_____ v____
market value x assessment ratio = assessed value
E______ t__ r___ = mill rate x assessment ratio
effective tax rate
Petrie’s property has a market value of $140,000 and is assessed at 60% of its value
for tax purposes. If the mill rate is 18 mills, what is the annual tax on the Petrie property?
$140,000 (MV) x 0.60 (assessment ratio) = $84,000
If Express Bank has a loan limit of 75% on qualified properties,
what is the maximum mortgage available on a $215,000 sale?
0.75 x 215,000 = 161,250
A percentage of the loan amount that a lender charges a borrower for making a loan; may represent a payment for services rendered in issuing a loan or additional interest to the lender payable in advance; also called loan fee.
Points
Each p___ is equal to ____ of the mortgage amount.
point, 1%
A borrower obtained a loan from a lender who charged an
origination fee of 1 point.
How much did the borrower have to pay on a $150,000 mortgage?
0.01 x 150,000 = $1,500 for 1 point
The relationship between the above-ground
floor area of a building, as described by the zoning or building code, and
the area of the plot on which it stands; in planning and zoning, often
expressed as a decimal, e.g., a ratio of 2.0 indicates that the permissible
floor area of a building is twice the total land area.
Floor area ratio (FAR)
F____ a___ r____ = g___ s_____ f____ of all structures on a site/g____ s_____ f_____ of the land site
floor area ratio
gross square footage x 2
building /site = FAR
site x FAR = building area
L___ to b_____ r___ = site/building
land to building ratio
Which of the following is NOT a money market instrument? A. certifi cates of deposit B. Eurodollars C. stocks D. treasury bills
C
Fannie Mae, Freddie Mac, and Ginnie Mae participate in a market known as the A. equity market. B. money market. C. primary market. D. secondary market.
D
What entity guarantees mortgages? A. Department of Housing and Urban Development (HUD) B. Fannie Mae C. Federal Housing Administration (FHA) D. Department of Veterans Affairs (VA)
D
A property has taxes of $3,200 and a market value of $200,000. What is the effective tax rate? A. 1.6% B. 2.0% C. 10.5% D. 62.5%
$3,200 / $200,000 = 0.016 (or 1.6% effective tax rate)
E________ is the application of mathematics and statistics to the interpretation of economic data, testing of economic theories, and solution of
economic problems.
Econometrics
M___ is the average. M___= total of all the numbers/number of numbers
Mean
M____ is the number in the middle.
Median
M____ is the most frequently occurring number.
Mode
R____ the difference between the highest and lowest value
Range
Withdrawn money is p____ in a cash flow. Money deposited is n_____.
Positive, negative
Interest in each period calculated based on the original
deposit or investment. The interest does not compound.
Simple interest
Interest earned on the original investment amount
and on previously earned interest.
Compound interest
The capitalization rate for debt; the ratio of the annual debt service to the principal amount of the mortgage
loan.
Mortgage capitalization rate
What does RPN represent? A. rational positive numbers B. really powerful numbers C. return on net principal D. Reverse Polish notation
D
An annuity functions in a similar manner to what time value component? A. future of $1 B. future of $1 per period C. present value of $1 per period D. sinking fund factor
B
The geographic region from which a majority of demand comes and in which the majority of that competition is located.
Market area
A group of complementary land uses; a congruous
grouping of inhabitants, buildings, or business enterprises.
Neighborhood
A neighborhood characterized by homogeneous land use, e.g., apartment, commercial, industrial, agricultural.
District
Changes in neighborhood use, e.g., agricultural to residential,
residential to commercial.
Transition
Life cycle of the subject neighborhood: G_____, S____, D____, R_______
Growth, Stability, Decline, Revitalization
A process of community change in which middle- and upper- income persons purchase properties in a neighborhood and renovate or rehabilitate them, causing property values to rise and often displacing earlier, usually poorer (low-income) residents.
Gentrification
“A service pertaining to an aspect of property value,
regardless of the type of service and whether it is performed by appraisers
or by others.”
Valuation service
A group of complementary land uses defines a A. community. B. district. C. market area. D. neighborhood.
D
A fully developed neighborhood continues to experience good demand and a modest
rise in property values. How would you classify the life cycle period of this area?
A. decline
B. growth
C. revitalization
D. stability
D
Appraiser Mills described the market area as a blue-collar area with good pride of
ownership in the area residences. This is an example of
A. conformity.
B. homogeneity.
C. lessor interest.
D. stereotyping.
D
A district has a research center, high-tech companies, and a university. This describes what kind of district? A. commercial B. industrial C. office D. specialty
D
In a scope of work decision, an opinion of market value and its defi nition are the elements that are also known as A. intended use. B. objective. C. opinion type. D. purpose.
D
Partners Bank had questions about an appraisal, so it decided to get a
second opinion from another independent appraiser. What is this second
assignment called?
A. appraisal
B. appraisal review
C. broker’s price opinion
D. real property consulting
A
What is the process called when a market area goes from agricultural to residential? A. change B. conversion C. transformation D. transition
D
An appraiser provided advice on various commercial building sites to a client,
including a value opinion on the optimum recommended site. What type of
appraisal practice did the appraiser perform?
A. appraisal
B. appraisal review
C. property management
D. real property consulting
A
Trotter performed an appraisal with an “exterior-only” inspection. The degree to
which a property is inspected is which part of the appraisal development process?
A. appraiser’s certifi cation
B. appraiser’s statement of disclosure
C. limiting conditions statement
D. scope of work
D
Moyer completed an appraisal for a bank on a property that was being refinanced.
The owners of the property paid for the appraisal when they completed the
application at the bank and were promised a copy of the appraisal report. In this
case, what is the property owner?
A. an intended user only
B. a party who is neither the client nor an intended user
C. both the client and an intended user
D. the client only
B
A declining market area experiences resurgence in demand due to buyers wanting
to move closer to the center of the city. As a result, the current tenants are
gradually displaced from the area. What is this process called?
A. gentrification
B. growth
C. market cycle
D. renaissance
A
A real estate agent who is not an appraiser provides a client with an asking price
that will be used to list a property on the market. The agent
A. cannot provide this service.
B. has performed appraisal practice.
C. has performed a valuation service.
D. is practicing appraisal without a license.
C
