Assessment Flashcards
An opinion of value based on supportable evidence and approved methods
Appraisal
An independent professional who is trained to provide an unbiased estimate of value
Appraiser
A way to estimate value based on the present worth of the rights to future income
Income approach
The most probable price that a property should bring in a fair sale
Market value
The principle that value is created by the expectation that certain events will occur
Anticipation
The principle that no physical or economic condition remains constant
Change
The principle that value is created when a property is in harmony with its surroundings
Conformity
The principle that the value of any part of a property is measured by its effect on the value of the whole property
Contribution
The most profitable single use to which property may legally, physically, and financially be put
Highest & best use
The principle that merging or consolidating adjacent lots into a single one will produce a higher total value than the sum of the 2 sites valued separately
Plottage
The process of merging 2 separately owned lots under 1 owner
Assemblage
The principle that the worth of a better quality property is adversely affected by the presence of a nearby lesser-quality property
Regression
The principle that the maximum value of a property tends to be set by how much it would cost to purchase an equally desirable property
Substitution
The economic principle that the value of a property depends on the number of similar propertties available in the marketplace
Supply & Demand
The approach that estimates value by comparing the subject property with recently sold similar properties
Sales Comparison
An estimate of value made by determining the value of the land as if it were vacant, adding the current cost of constructing improvements, and deducting accrued depreciation
Cost Approach
A curable item in need of repair
Physical Deterioration
Depreciation caused by negative factors not on the subject property
External Obsoolescence
A loss in value due to any cause
Depreciation
The period during which a property is expected to remain useful for its original intended purpose
Economic Life
Title XI of FIRREA requires that residential property valued at $250,000 or more in a federally related transaction be appraised by a(n) ___ licensed or certified appraiser.
State
A comparative market analysis should never be represented as a(n) ___.
Appraisal
The ___ price of a property is what it actually sells for in an open market transaction.
Market Price
Cost and market value are the same. True or false?
False - cost and market value MAY BE, but are NOT ALWAYS the same
When the improvements on a property are new, cost and value are likely to be ___, provided that improvements are sought in the marketplace
equal
The ___ of a property may be affected by events that haven’t occurred yet.
Value
The ___ applies when, no matter how much money is spent on a property, the value will not keep pace with the expenditures
law of diminishing returns
According to the economic principal of ___, combining 2 adjacent lots into a large one may produce a higher total land value than the sum of the value of 2 sites if owned separately
Plottage
The economic principle of ___ holds that the maximum value of a property tends to be set by the cost of purchasing a similarly desirable property.
Substitution
Under the principle of ___, the value of any part of a property is measured by its effect on the value of the whole parcel.
Contribution
In the sales approach to value, the value of a feature that is present in the subject property but not present in a comparable property is ___ to the sales price of the comparible.
Added
CBS is… “Comp ___, ___”
Comp Better, Subtract
CPA is… “Comp ___, ___.”
Comp Poorer, Add
Physical deterioration and external obsolescence are both considered in the…
cost approach to value
___ may be curable or incurable, depending on whether the expense required to correct it contributes to the property’s value
Depreciation
Depreciation may be ___ or ___, depending on whether the expense required to correct it contributes to the property’s value
Curable or incurable
Depreciation may be curable or incurable, depending on whether…
the expense required to correct it contributes to the property’s value
External obsolescence is always ___.
Incurable
The income approach to ___ is based on the present value of the rights to future income
Value
The income approach to value is based on the…
present value of the rights to future income
If a buyer is interested in purchasing a one to four unit residential rental property, the ___ based on ___ could be used for a rough approximation of value
gross rent multiplier (GRM)
based on monthly rental income
If a buyer is interested in purchasing a one to four unit residential rental property, the gross rent multiplier (GRM) based on monthly rental income could be used for a rough approximation of ___.
Value
____ involves a detailed and professional analysis and application of the 3 approaches to value, not simply an average of the different values
Reconciliation
Debt services (mortgage payments) is not considered as an expense, so it is not included in ___.
Annual operating expenses
The art of analyzing and weighing the findings from 3 approaches to value in an appraisal is called ___.
Reconciliation
If a property improvement results in a higher value, the law of ___ applies
Increasing returns
If a property improvement results in ___, the law of increasing returns applies
higher value
The circumstances of the ___ will indicate the number of property sales that are required to serve as comps to the property being appraised.
market at the time
The circumstances of the market at the time will indicate the number of ___ that are required to serve as comps to the property being appraised.
property sales
The circumstances of the market at the time will indicate the number of property sales that are required to serve as ___ to the ___.
comps to the property being appraised
Most appraisals for residential properties include a minimum of ___ comparable sales that are reflective of the subject property
3
An estimate of the rate of return (yield) that an investor would expect for investing in a piece fo property is called the ___ or ___.
Capitalization rate
or
Cap rate
A property listed for sale at $235,000. A buyer’s offer of $220,000 is rejected by the seller. 6 months later, the seller reduces the price to $225,000. Another buyer offers $210,000 and the seller accepts because the seller has found another house to purchase and needs to close quickly. The property is subsequently appraised at $215,000. Which of these figures most accurately represent’s the property’s market value?
a) 210,000
b) 215,000
c) 225,000
d) 235,000
215,000
A property listed for sale at $235,000. A buyer’s offer of $220,000 is rejected by the seller. 6 months later, the seller reduces the price to $225,000. Another buyer offers $210,000 and the seller accepts because the seller has found another house to purchase and needs to close quickly. The property is subsequently appraised at $215,000. What is the property’s market PRICE?
210,000
A property listed for sale at $235,000. A buyer’s offer of $220,000 is rejected by the seller. 6 months later, the seller reduces the price to $225,000. Another buyer offers $210,000 and the seller accepts because the seller has found another house to purchase and needs to close quickly. The property is subsequently appraised at $215,000. What is the property’s MOST probable market value?
$215,000
Which appraisal approach would be best to appraise a 25 year old owner-occupied house in a 30 year old neighborhood?
Sales comparison
When appraising a new, vacant home, an appraiser will likely use…
the cost approach
Assuming that all of the transactions are federally related, which of these properties would NOT have to be appraised by a state licensed or certified appraiser?
a) Commercial property valued at 350,000
b) condo unit with a sale price of 67,850
c) Residential property valued at 262,500
d) commercial property valued over $1 million in a refinance
condo unit with a sale price of 67,850
Assuming that the transaction was federally related, a condo unit with a sale price of 67,850 would NOT have to be appraised by a state licensed or certified appraiser because…
Appraisals of residential & commercial properties valued at $250,000 (raised to 500,000 in 2018) or less in federally related transactions are exempt and do not need to be performed by a state licensed or certified appraiser.
Appraisals of residential & commercial properties valued at $___ (raised to $___ in 2018) or less in federally related transactions are exempt and do not need to be performed by a state licensed or certified appraiser.
$250,000
raised to $500,000
An appraiser’s role is to…
Provide an opinion of value
The principle that maximum value is realized when land use is in harmony with surrounding uses is ___
Conformity
The principle of conformity indicates that ___ is realized when land use is in harmony with surrounding uses
Maximum value
The principle of conformity indicates that maximum value is realized when ___ is in harmony with ___.
land use is in harmony with surrounding uses
A business plans to build a large warehouse store in an area of smaller stores, so the business purchases 5 neighboring lots from their 5 owners. What is the term for this activity?
Assemblage
Wendy buys a small house in a highly desirable neighborhood consisting of large homes and pays $390,000. Xavier buys a nearly identical house in a neighborhood of similarly sized homes and pays $290,000. What economic principal best describes the reason why Wendy paid more than Xavier?
Progression
It would cost approximately $350,000 to build a house and its various improvements on a parcel of property. If the property was vacant, undeveloped land, it would be worth about $100,000. At present, the property’s physical deterioration equals about $60,000. If an appraiser were to apply the cost approach, what would be an estimate of the value of this property?
a) 250,000
b) 390,000
c) 450,000
d) 480,000
390,000
350,000-60,000+100,000=390,000
In the cost approach, the appraiser ___ depreciation from the current cost of improvements, then ___ the value of the land as if it were vacant.
subtracts depreciation
adds land value
a property use that is physically possible, legally permitted, economically feasible, and maximally productive is…
Highest and best use
Air pollution from increased automobile traffic near a building with ornate exterior decoration has deissolved much of the intricate detail work. The cost of restoring the front of the building is roughly 5 times the building’s present value. These facts describe…
Incurable physical deterioration
Which of these reports would a sales associate most likely research and deliver to a prospective seller?
a) comparative market analysis
b) appraisal
c) letter of intent
d) cost benefit analysis
comparative market analysis
What is the GRM for a residential duplex (2 unit building) with a selling price of $234,000 if the monthly rent for each unit is $925?
126.5
234,000 sale price + (2 x 925 rent) = 126.5 GRM
GRM for single and double unit properties is based on…
Gross monthly rent
Which of these approaches is given the greatest weight in reconciling the appraised value of a 2 bedroom, owner occupied home?
a) income approach
b) sales comparison approach
c) cost approach
d) market value approach
sales comparison
Most owner occupied residences are best appraised with what approach?
sales comparison
What are the 4 characteristics of value?
1) demand
2) utility
3) scarcity
4) transferability
A house has been on the market for several months because most buyers do not want to walk through the master bedroom from the garage to reach the kitchen. This floor plan is an example of…
Functional obsolescence
An owner is considering installing a below-ground swimming pool, which will cost many thousands of dollars to build. Before hiring a contractor, the owner should consider its overall ___ to the value of the property, especially compared to neighboring properties.
Contribution
Sometimes improvements do not ___ to its cost.
add value
What is the formula for the income approach?
Value times rate = income
A house sits on the corner of a busy intersection. 2 of the corners are occupied by gas stations, and directly across from the house is a fast food restaurant. The house’s owners have been told that the property would be worth more if the lot were vacant. This is an example of…
Highest and best use
A 2 unit apartment building is being appraised. In this neighborhood, the accepted gross rent multiplier is 144. The annual income generated by the building is $16,800 (both units rented). The monthly expenses are $300. Based on the income approach, what is the estimated market value of the apartment building?
201,600
16,800 divided by 12 = 1400
1400 x 144 = 201,600
An apartment building as 65,000 in potential gross annual income. The vacancy rate is estimated at 5%, total operating expenses are 29,000, and the capitalization rate is 9%. Using the income approach, what is the value of the building?
324,773
65,000 x 0.05 (aka 5%) = 3250
65,000 - 3250 - 29,000 = 32,750
32,750 + 0.09 (aka 9%) = 363,889
Which of these concepts applies to EVERY appraisal?
a) diminishing returns
b) plottage
c) highest and best use
d) assemblage
Highest and best use
The property being appraised is called the ___ property
subject
An empty lot is located in a neighborhood of single family homes. It is the only empty lot in this well maintained neighborhood. A busy street with many stores is located 3 blocks away. An industrial area is about 2 miles away. What is the probable highest and best use of this lot?
Single family home
What are the 3 steps in the process for creating a brokers price opinion?
1) broker drives by property
2) broker takes a picture
3) broker fills out the BPO form
Which of these is an essential assumption in determining market value?
a) buyer and seller can be related
b) payment must be in cash or its equivalent
c) buyers and sellers motivations are not relevant
d) property must be on the market for at least 3 months
payment must be in cash or its equivalent
The principle of value that is the interaction of supply and demand is called ___.
Competition
When a seller offers to pay part of a buyer’s closing costs, this is categorized as ___
Financing concession
New roofing is an example of curing ___.
Physical deterioration
The principle of ___ holds that merging or consolidating adjacent lots into a single, larger one produces a greater total land value than the sum of the 2 sites valued separately
Plottage
According to the principle of ___, value is created by the expectation that certain events will occur
Anticipation
The principle of conformity means that maximum value is created when a property is in ___ with its ___
Harmony with its surroundings
___ is the act of analyzing and effectively weighing the findings from the 3 approaches to value
Reconciliation
What are the 3 approaches to value?
1) Sales comparison approach
2) Cost approach
3) Income approach
A commercial building with potholes in the parking lot is an example of ___ depreciation
physical
An apartment building with peeling paint on the hallways is an example of ___ depreciation
physical
A strip mall in a deteriorating neighborhood is an example of ___ depreciation
external
An office building with a poor floor plan due to load-bearing walls is an example of ___ depreciation
functional
An apartment building near a landfill is an example of ___ depreciation
external
Outdated light fixtures is an example of ___ depreciation
Functional
The ___ approach to value is usually given the greatest weight in valuing single family residences
sales comparison
The ___ is an appraisal report form required by many governmental agencies
Uniform Residential Appraisal Report
___ is the process by which annual net operating income is used to estimate value
Capitalization
Capitalization is the process by which annual net operating income is used to…
estimate value
The appraised value of a residence with 4 bedrooms and 1 bathroom would probably be reduced because of ___
Functional obsolescence
A building was purchased 5 years ago for 240,000. It currently has an estimated remaining useful life of 60 years. What is the property’s total depreciation to date?
$18,462
240,000 divided by 65 times 5 = 18,462
An individual wants to be an appraiser in the NW suburbs of Chicago. While she is willing to appraise residential properties, her real interest is in appraising commercial properties. If she wants to be qualified to conduct appraisals under FIRREA, she must…
become a certified general real estate appraiser
If a property’s annual net income is $24,000 and it is valued at $300,000, what is the capitalization rate?
8%
24000 divided by 300,000 = 0.08 or 8%
The ___ approach uses a rate of investment return.
Income
Certain figures must be determined by an appraiser before value can be computed by the income approach. Which of these is NOT used by an appraiser applying the income approach to value?
a) annual gross income
b) capitalization rate
c) accrued depreciation
d) annual net operating income
Accrued depreciation
The amount of money a property commands in the marketplace
Market value
For appraisal purposes, depreciation is NOT caused by which of the following?
a) functional obsolescence
b) external obsolescence
c) accelerated capitalization
d) physical deterioration
Accelerated capitalization
The ___ of a parcel of real estate is an estimate of the most probable price it should bring
Market value
The market value of a parcel of real estate is an estimate of the ___ price it should bring
most probable
The term ___ refers to analyzing the results obtained by different approaches to value to determine a final estimate of value
Reconciliation
The term reconciliation refers to ___ obtained by ____ to value to determine a(n) ___
analyzing the results
different approaches
final estimate of value
2 adjacent vacant lots are each worth $50,000. However if they are sold together as one single lot, the combined parcel is worth $120,000. What principle is this?
Plottage
Which of the following is a characteristic of value?
a) balance
b) progression
c) scarcity
d) anticipation
Scarcity
A homeowner constructs an 8 bedroom brick house with a tennis court, green house, and indoor pool in a neighborhood of modest 2 and 3 bedroom frame houses on narrow lots. The value of this house is likely to be effected by what principle?
Regression
A homeowner constructs an 8 bedroom brick house with a tennis court, green house, and indoor pool in a neighborhood of modest 2 and 3 bedroom frame houses on narrow lots. The owners of the lesser valued houses may find that the values of their homes are affected by what principle?
Progression
The act of analyzing and effectively weighing the findings from the 3 approaches to appraisal
Reconciliation
Which of these is an important factor in comparing properties under the sales comparison approach to value?
a) date of sale
b) depreciation
c) property rent roll
d) active listings
date of sale
An appraiser who is asked to determine the value of an existing shopping center would probably give the most weight to which approach to value?
Income
The effective gross annual income from a property is $112,000. Total expenses for this year are $53,700. What capitalization rate was used to obtain a valuation of 542,325?
10.75%
112,000 - 53,700 divided by 542,000 = 10.75%
