Basic Appraisal Principles Deck

Question 1

Paramount within USPAP is an appraiser’s obligation to promote and preserve

a. adequate compensation for appraisers.
b. appraisal as an honorable profession.
c. his right to advocate for his client.
d. public trust in appraisal practice.

Answer 1

d. public trust in appraisal practice.

[Rationale] There are standards of practice in appraising and within these standards there is an obligation of promoting and preserving public trust in appraisal practice.

Question 2

The Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) recognizes which as the current industry standards for appraisals?

a. appraisal organizations
b. Fannie Mae
c. state regulatory agencies
d. USPAP

Answer 2

d. USPAP

[Rationale] Within the definition for the FIRREA, it states that “…recognizes USPAP as the current industry standard for appraisals…”

Question 3

The act or process limited to the development and reporting of an opinion regarding the quality of another appraiser’s work is an

a. appraisal review assignment.
b. appraisal within an appraisal review.
c. example of advocacy within appraisal practice.
d. unacceptable appraisal practice.

Answer 3

a. appraisal review assignment.

[Rationale] Appraisers perform appraisal reviews which is an opinion of the quality of another appraiser’s work.

Question 4

Within the definition of an appraiser, which is NOT one of the expectations of an appraiser’s performance?

a. advocacy
b. impartiality
c. independence
d. objectivity

Answer 4

a. advocacy

[Rationale] An appraiser is defined as “one who is expected to perform valuation services competently and in a manner that is independent, impartial, and objective.”

Question 5

The appraisal process begins with problem identification and concludes with

a. compensating the appraiser.
b. determining the appropriate scope of work.
c. reconciliation of the appraiser’s conclusions.
d. reporting of the appraiser’s conclusions.

Answer 5

d. reporting of the appraiser’s conclusions.

[Rationale] The appraisal process begins with problem identification and follows the process through reporting of the appraiser’s opinions and conclusions.

Question 6

Which is required in order to establish a person or entity as the appraiser’s client in an assignment?

a. employment contract signed by all parties
b. engagement of the appraiser’s services
c. exchange of confidential information
d. payment for the appraiser’s services

Answer 6

b. engagement of the appraiser’s services

[Rationale] USPAP defines the client as: “the party or parties who engage an appraiser (by employment or contract) in a specific assignment.”

Question 7

At what point in the assignment must other intended users be identified by the client?

a. anytime during or after the conclusion of the appraisal process
b. at the time of the assignment
c. during the scope of work decision
d. within a reasonable time after completion

Answer 7

b. at the time of the assignment

[Rationale] Identification of the intended use and the intended user(s) at the time of the assignment based upon communication with the client.

Question 8

The scope of work in an assignment must include the research and analysis necessary to produce results.

a. conclusive
b. credible
c. indisputable
d. reasonable

Answer 8

b. credible

[Rationale] The scope of work must include the research and analyses necessary to produce credible results. Credible means to be worthy of belief.

Question 9

When an individual offers both appraisal and real estate brokerage services, which statement is TRUE in circumstances when he is acting as a real estate broker?

a. The appraiser is acting contrary to the ETHICS RULE of USPAP.

b. He can perform in that capacity provided he does not misrepresent his role.

c. He must always choose to act in the role of an appraiser when providing any valuation service.

d. Regardless, the service would be considered appraisal practice.

Answer 9

b. He can perform in that capacity provided he does not misrepresent his role.

[Rationale] When an individual is acting in the role of an appraiser, the expectation is that the individual will perform as an appraiser.

Question 10

Which is an obligation of the COMPETENCY RULE of USPAP?

a. decline all assignments for which the appraiser does not initially possess competency
b. disclose the the lack of competency to the client prior to agreeing to perform the assignment
c. keep the lack of knowledge and experience confidential in the appraisal report
d. refer the assignment to an appraiser who possesses competency

Answer 10

b. disclose the the lack of competency to the client prior to agreeing to perform the assignment

[Rationale] An appraiser must disclose the lack of competency to the client prior to agreeing to perform the assignment.

Question 11

The term describing the conversion of personal property to real property is

a. annexation.
b. appropriation.
c. capture.
d. platting.

Answer 11

a. annexation.

[Rationale] Annexation is the term used for conversion of personal property to real property.

Question 12

Which would most likely be considered real property?

a. area rug
b. built-in window seat
c. lawn furniture
d. sleeper sofa

Answer 12

b. built-in window seat

[Rationale] Real property is defined as not only the physical land and everything attached to it (real estate) but also the rights of ownership (bundle rights) in the real estate. Placement of an item such as this typically represents intent to annex the item as real property.

Question 13

Which would be a natural attachment that would be classified as fructus industriales?

a. grass
b. ornamental tree
c. perennial flowers
d. wheat

Answer 13

d. wheat

[Rationale] Fructus industriales represent plants planted and cultivated by people (“fruits of industry”), such as crops or orchards.

Question 14

Which concept elaborates on tenant crops?

a. appropriative rights
b. bundle of rights
c. doctrine of emblements
d. rule of capture

Answer 14

c. doctrine of emblements

[Rationale] A tenant farmer’s crops are referred to as emblements. The doctrine of emblements allows a tenant farmer to re-enter land to harvest the crops he planted even after tenancy has ended.

Question 15

Air rights of land ownership are limited by the federal government relating to the

a. horizontal distance to which a building may be constructed.
b. ownership of gasses contained in the air.
c. prevention of interference with air traffic.
d. prohibition of transfer of air rights to others.

Answer 15

c. prevention of interference with air traffic.

[Rationale] The federal government has active control over air rights; however, the property owner continues to have the right to use the airspace above the property provided there is no interference with air traffic.

Question 16

Water rights dealing primarily with the shoreline of a non-flowing body of water are known as

a. annexation rights.
b. appropriative rights.
c. capture rights.
d. littoral rights.

Answer 16

d. littoral rights.

[Rationale] Littoral rights are associated with non-flowing bodies of water, such as lakes and ponds and primarily addresses how the shoreline of the body of water can be used by the property owner.

Question 17

For a landowner possessing riparian rights, which is typically an accompanying right?

a. Building a dam to stop or divert the water flow.
b. Releasing sewage in reasonable amounts into the water flow.
c. Taking water from the property to irrigate non-riparian property the riparian owner also owns.
d. Using water in reasonable amounts to irrigate crops on the riparian property.

Answer 17

d. Using water in reasonable amounts to irrigate crops on the riparian property.

[Rationale] Riparian rights are associated with bodies of water, such as rivers or streams, where there are flowing waters, and primarily addresses how the water can be used by the property owner. Riparian owners share the right to take water for purposes such as irrigation or power.

Question 18

According to the rule of capture, a property owner

a. is permitted to drain oil or gas from under his own property or from under a neighboring property.
b. may not extract oil or gas that came from under a neighbor’s land.
c. must surrender all of the minerals found under the ground to the federal government.
d. owns none of the oil or gas that was produced on his property.

Answer 18

a. is permitted to drain oil or gas from under his own property or from under a neighboring property.

[Rationale] The rule of capture states that whoever drills a well on his land owns all the oil or gas the well produces, even though it may have migrated from under a neighbor’s land.

Question 19

Which is NOT a physical characteristic of real property?

a. immobility
b. indestructibility
c. transferability
d. uniqueness

Answer 19

c. transferability

[Rationale] Transferability is the ability to freely buy, sell, encumber, or dispose of property in any way the owner sees fit.

Question 20

If a site is 152’ x 169’, it contains how many acres?

a. 0.51
b. 0.57
c. 0.59
d. 0.90

Answer 20

c. 0.59

[Rationale] Multiply 152 feet × 169 feet = 25,688 square feet and then divide (there are 43,560 square feet in one acre), so 25, 688 square feet ÷ 43,560 square feet = 0.59 acre.

Question 21

If a property is legally described using the terms “rod” or “pole,” what is the distance being referenced?

a. 3 yards
b. 12 feet
c. 16.5 feet
d. 66 feet

Answer 21

c. 16.5 feet

[Rationale] A rod or pole each consist of 16.5 feet or 5.5 yards.

Question 22

How many linear feet are along one side of the NE 1/4 of a township section?

a. 330
b. 660
c. 1,320
d. 2,640

Answer 22

d. 2,640

[Rationale] Township sections are 1 mile by 1 mile in dimensions and there are 5,280 (linear) feet in a mile. Therefore, the NE 1/4 is 2,640 x 2,640.

Question 23

If Joe leases property that he owns to Susan, what type of ownership interest is held by Joe due to the lease?

a. fee simple absolute
b. fee simple defeasible
c. leased fee
d. leasehold

Answer 23

c. leased fee

[Rationale] A leased fee interest is a the lessor’s (also known as the landlord) interest in a leased the property. So, in this question, Joe is Susan’s landlord or lessor, and Susan is the lessee.

Question 24

Which is a characteristic of a fee simple defeasible estate?

a. The estate is subject to the termination of a lease.
b. The owner possesses the full bundle of rights with no conditions on ownership.
c. Ownership could be forfeited if certain events occur.
d. Possession terminates upon death of the life tenant.

Answer 24

c. Ownership could be forfeited if certain events occur.

[Rationale] A fee simple defeasible estate is a type of real property ownership that may be defeated or undone if certain events occur or certain conditions are not met.

Question 25

If Stephanie conveyed the fee simple estate subject to a condition subsequent to Larry, Stephanie has

a. created a life estate that is conditioned on the duration of the life tenant.
b. forfeited any rights to a potential future interest in the estate which was conveyed.
c. power of termination to re-enter and possibly begin proceedings to recover the real estate.
d. retained the entire bundle of rights until certain conditions have been satisfied.

Answer 25

c. power of termination to re-enter and possibly begin proceedings to recover the real estate.

[Rationale] A fee simple subject to a condition subsequent is when the owner holds title “on the condition that.” Something does or does not happen. The former owner has a power of termination, meaning the former owner can take steps to re- enter the land to see if the condition is being complied with, and if not, legally take possession away from the landowner through due process.

Question 26

If Jerry conveys property subject to a life estate to Samuel, who will gain title in fee simple when the party holding the life estate passes away, Samuel is known as the

a. life tenant.
b. measuring life.
c. remainderman.
d. reverter.

Answer 26

c. remainderman.

[Rationale] Samuel will become the remainderman, which is the party in a life estate who is entitled to the remainder of the property interest after the life estate is terminated. When the life estate ends, the remainderman takes title in fee simple.

Question 27

Which characteristic is common to all freehold estates?

a. Freehold estates do not include future rights of possession.
b. No party possesses the full bundle of rights.
c. Ownership could revert to the previous owner if certain conditions are not met.
d. Possessory interest is of an uncertain duration.

Answer 27

d. Possessory interest is of an uncertain duration.

[Rationale] The primary characteristics of a freehold estate are possession either immediately or in the future, indefinite durations of possession, and property ownership.

Question 28

Surrender is the action of

a. forfeiting title in a fee simple estate subject to a condition subsequent.
b. nullifying a life estate.
c. passing title to a remainderman in a life estate.
d. terminating a lease by mutual consent.

Answer 28

d. terminating a lease by mutual consent.

[Rationale] Ending a lease by mutual consent is called surrender.

Question 29

Which is a characteristic of a tenancy at will that is NOT common to other types of leasehold estates?

a. It automatically terminates at the death of either the landlord or tenant.
b. The landlord must use force to regain possession of the property.
c. Leases are fully assignable.
d. The tenant is a holdover without the landlord’s permission.

Answer 29

a. It automatically terminates at the death of either the landlord or tenant.

[Rationale] A tenancy at will automatically ends on the death of either the landlord or the tenant, which is not true of the other leasehold estates.

Question 30

Felicia has entered into an agreement with her mother, allowing her mother to occupy a property owned by Felicia for a specified duration of six months. What type of estate was created?

a. estate for years
b. life estate
c. periodic tenancy
d. tenancy at will

Answer 30

a. estate for years

[Rationale] An estate for years is any leasehold estate for a fixed time period. The term does not have to be a period of years.

Question 31

Christine has a one-year lease with the property owner, William. When the lease expires Christine continues to pay rent to William at the beginning of each month. What type of arrangement was created when William accepted rent in this manner?

a. estate for years
b. periodic tenancy
c. tenancy at sufferance
d. tenancy at will

Answer 31

b. periodic tenancy

[Rationale] Periodic tenancy is a leasehold estate for a duration of time, not a specific date.

Question 32

Craig holds a life estate in a property owned by his stepfather, Charles. Craig may occupy the property for as long as his mother, Charles’ wife, is alive. When Craig’s mother dies, possession of the property goes back to Charles. What type of arrangement is illustrated?

a. life estate pur autre vie
b. life estate with the possibility of reverter
c. life estate with power of termination
d. ordinary life estate

Answer 32

a. life estate pur autre vie

[Rationale] Pur autre vie, meaning “for another’s life,” is when a life estate is based on the lifetime of someone other than the life tenant.

Question 33

John and Suzanne, a married couple, form a corporation in which to hold title of their real estate assets with no provision for survivorship. How is title to the property being held?

a. joint tenants
b. severalty
c. tenancy in common
d. tenants by the entireties

Answer 33

b. severalty

[Rationale] Ownership in severalty is ownership by one person or entity. Entities can hold ownership in severalty which include corporations and Real Estate Investment trusts (REITs).

Question 34

In co-ownership, reference to an undivided interest emphasizes that the

a. co-ownership provides for survivorship when one of the co-owners dies.
b. exact fractional component of ownership cannot be determined.
c. party holding ownership is an entity rather than an individual.
d. property is not physically divided according to co-owners.

Answer 34

d. property is not physically divided according to co-owners.

[Rationale] Co-ownership is any form of ownership where two or more people share title to real property with each person having an undivided interest in property ownership.

Question 35

Which is NOT one of the four unities of property ownership?

a. investment
b. possession
c. time
d. title

Answer 35

a. investment

[Rationale] The four unities of property ownership are: possession, interest, time, and title. Remember the acronym PITT.

Question 36

Which is a true statement regarding tenancy in common?

a. Only one of the four unities is always present.
b. The ownership includes right of survivorship.
c. Ownership interests cannot be unequal.
d. There may be one or more co-owners.

Answer 36

a. Only one of the four unities is always present.

[Rationale] Tenancy in common is the most basic form of co-ownership. The unity of possession is always present with tenancy in common.

Question 37

Joseph owns property with his wife, Cassandra, in joint tenancy. Joseph’s will specifies that his undivided interest in the property will go to his children, who are Cassandra’s stepchildren. Which is a true statement?

a. Cassandra will continue to be a joint tenant after Joseph’s death.
b. Joseph’s children will become joint tenants with Cassandra.
c. The property will be physically divided upon Joseph’s death automatically.
d. Survivorship will override Joseph’s will.

Answer 37

d. Survivorship will override Joseph’s will.

[Rationale] Joint tenancy includes survivorship so upon the death of a joint tenant that joint tenant’s ownership rights are distributed equally among the remaining (surviving) joint tenants. Survivorship supersedes any direction within a last will and testament.

Question 38

The primary intent of marital property rights is to protect the rights of a surviving spouse when

a. both spouses are named as joint tenants.
b. property ownership is held as tenants by the entireties.
c. the surviving spouse is not specified in the property title.
d. survivorship is specified in the particular ownership.

Answer 38

c. the surviving spouse is not specified in the property title.

[Rationale] Marital property rights laws primarily address property rights of surviving spouses when title to a property is held in severalty by the other spouse.

Question 39

Fred has conveyed his property to a trust. His attorney will hold the asset on behalf of Fred’s children, who will receive net proceeds from the property. What participant in the trust is Fred’s attorney?

a. beneficiary
b. guardian
c. trustee
d. trustor

Answer 39

c. trustee

[Rationale] A trust is used for holding and controlling property on behalf of someone else. The trustor (in this scenario, Fred) conveys title to the trustee (his attorney).

Question 40

How many investors, at a minimum, are required to form a REIT?

a. 30
b. 50
c. 100
d. 300

Answer 40

c. 100

[Rationale] A Real Estate Investment Trust (REIT) is a real estate investment corporation or trust with at least 100 investors.

Question 41

Craig, Jason, and Hugh own real estate as joint tenants. If Craig and Jason die simultaneously, Hugh will

a. become a joint tenant with Craig and Jason’s heirs.
b. hold the entire property interest in severalty.
c. own an undivided one-third interest.
d. take title individually as a tenant in common.

Answer 41

b. hold the entire property interest in severalty.

[Rationale] Joint tenancy includes survivorship so upon the death of a joint tenant that joint tenant’s ownership rights are distributed equally among the remaining (surviving) joint tenants.

Question 42

If Paula has the right to use and enjoy a timeshare, which is owned in fee by a hotel corporation, Paula has

a. co-ownership with other timeshare owners.
b. a non-fee ownership of the timeshare.
c. ownership in severalty in the timeshare.
d. a proprietary lease for the specified unit.

Answer 42

b. a non-fee ownership of the timeshare.

[Rationale] A non-fee timeshare there is no real property co-ownership but the non-fee owner has the right to use and enjoy the property and is not restricted to the same property.

Question 43

The basis for governmental regulation of the use of private property is

a. eminent domain.
b. the National Environmental Policy Act.
c. police power.
d. the zoning clause.

Answer 43

c. police power.

[Rationale] Police power is the constitutional power of government to enact and enforce laws that protect he public’s health, safety, morals, and general welfare.

Question 44

A section of the neighborhood has recently been rezoned for residential use only. Zachary’s store is located in this section. Because the property was used as a store prior to the zoning, he will be allowed to continue to use his property as a store. This is known as a

a. conditional use.
b. nonconforming use.
c. spot zone.
d. variance.

Answer 44

b. nonconforming use.

[Rationale] When a new law imposes a zoning designation on a neighborhood, these landowners are permitted to continue using their land the same way they always have under non-conforming use.

Question 45

An easement allows the present and any future owner of “Lot D” to drive across a neighbor’s property “Lot S” to reach her own property. This is an example of a(n)

a. appurtenant easement.
b. defeasible easement.
c. easement in gross.
d. encroachment.

Answer 45

a. appurtenant easement.

[Rationale] Appurtenant easements burden one parcel of land for the benefit of another parcel of land. An appurtenant easement benefits and burdens the same two properties; no matter who owns the land.

Question 46

Ben’s property has an easement in gross that allows Ben to hunt on his neighbor’s land. When the neighbor sells his land to Ben, the easement terminates through

a. abandonment.
b. destruction of the dominant tenement.
c. failure of purpose.
d. merger.

Answer 46

d. merger.

[Rationale] Merger is the uniting of two or more separate properties by transferring ownership of all to one person.

Question 47

If a tax assessor estimated the market value of a property to be $340,000, what are the annual real property taxes if the assessment ratio is 35% and mills are 51.7?a. $5,932.60b. $6,152.30c. $6,847.21d. $7,166.55

Answer 47

b. $6,152.30[Rationale] First, take $340,000 market value of the property × 35% the assessment ratio = $119,000 to find the assessed value. If the mills are 51.7 the calculation would look like this: $119,000 ÷ 1,000 = 119 × 51.7 = $6,152.30

Question 48

Which is NOT a power of government?

a. deed restrictions
b. eminent domain
c. escheat
d. police power

Answer 48

a. deed restrictions

[Rationale] Government has four powers (remember P-E-T-E): police power, eminent domain, taxation, and escheat.

Question 49

A cost for an improvement that is divided among several property owners on a street and billed by a jurisdiction would be an example of

a. escheat.
b. improvement burden.
c. special assessment.
d. special tax bill.

Answer 49

c. special assessment.

[Rationale] With a special assessment the owners of the properties that enjoy the benefit of the improvement divide the cost of the improvement and share in paying for it. In most cases, the cost to each property owner is for a period of years.

Question 50

The county is taking part of Bill’s land for a new park. What is this process called?

a. annexation
b. condemnation
c. eminent domain
d. involuntary takeover

Answer 50

b. condemnation

[Rationale] Condemnation is the action of taking of private property for public use, with just compensation, through the government’s power of eminent domain. This is also called appropriation.

Question 51

Which established power to the government for taking private property with the payment of just compensation?

a. allodial system
b. comprehensive plan
c. covenants, conditions, and restrictions
d. Fifth Amendment of the U.S. Constitution

Answer 51

d. Fifth Amendment of the U.S. Constitution

[Rationale] The U.S. Constitution through its Fifth Amendment provides power to government for takings and requires the government to pay the owner “just compensation” for the property, which is generally market value.

Question 52

Which statement is FALSE regarding a gross easement?

a. A dominant tenant’s rights can be assigned but do not automatically run with the land.
b. If the servient property is transferred, the easement terminates.
c. It always has both a dominant tenant and a servient tenant.
d. There is no dominant tenement.

Answer 52

b. If the servient property is transferred, the easement terminates.

[Rationale] With an easement in gross, if the owner of the property burdened by the easement transfers the servient property, the easement continues to be binding upon the next owner

Question 53

If semi-annual taxes for a property are $1,260, what is the assessed value of the property if the tax rate is 48 mills?

a. $37,000
b. $41,600
c. $52,500
d. $63,900

Answer 53

c. $52,500

[Rationale] Take $1260 the semi annual taxes × 2 = $2,520 ÷ 48 mills = 52.5 × 1,000 = $52,500 the assessed value of the property.

Question 54

A non-possessory interest in real property is also called a(n)

a. encumbrance.
b. leasehold estate.
c. license.
d. servient tenement.

Answer 54

a. encumbrance.

[Rationale] Non-possessory interests in real property are called encumbrances, since they encumber or burden the title or use of the land.

Question 55

Which is an involuntary, specific lien?

a. easement created by an express agreement
b. IRS lien
c. mechanic’s lien
d. mortgage

Answer 55

c. mechanic’s lien

[Rationale] Mechanic’s liens are involuntary, specific liens claimed by someone who performed work on, or supplied materials for, real property—construction, remodeling, repairs, or demolition—and has not been paid.

Question 56

When liens are paid off out of the proceeds of a foreclosure sale,

a. a judgment lien generally has lowest priority.
b. a lien for real property taxes always has highest priority.
c. a mortgage always has highest priority.
d. priority depends on the amount of the lien.

Answer 56

b. a lien for real property taxes always has highest priority.

[Rationale] Liens are given priority according to the order in which they were attached to the property. However, there is an exception, real property taxes always have the highest lien priority and are paid before any other lien.

Question 57

Which would most likely result in a general lien?

a. IRS lien
b. mechanic’s lien
c. mortgage
d. real estate tax lien

Answer 57

a. IRS lien

[Rationale] Unpaid federal income taxes create another type of tax lien. When payment is overdue, liens attach to all of the taxpayer’s personal and real property. Income tax liens are involuntary, general liens.

Question 58

In a real estate transaction, the grantor is the _________ and the grantee is the ________.

a. buyer / seller
b. lender / buyer
c. seller / buyer
d. seller / lender

Answer 58

c. seller / buyer

[Rationale] When conveying property the party conveying the interest is the grantor, the party receiving the interest is the grantee.

Question 59

All are essential elements for a valid deed EXCEPT

a. competent grantor.
b. delivery and acceptance.
c. grantee’s signature.
d. legal description.

Answer 59

c. grantee’s signature.

[Rationale] A deed must contain the signatures of all grantors.

Question 60

Which clause includes the words “to have and to hold”?

a. conveyance
b. granting
c. habendum
d. recital

Answer 60

c. habendum

[Rationale] Often included after the granting clause, it describes the type of estate granted and must always agree withthe granting clause. The clause is easy to identify; it begins with, “to have and to hold.”

Question 61

When a party signs a document before a notary public stating it was signed voluntarily, it is an

a. accreditation.
b. acknowledgment.
c. alliance.
d. appurtenance.

Answer 61

b. acknowledgment.

[Rationale] Acknowledgement means the party signing the deed declares before a public official, such as a notary public or judge, who acknowledges that the deed was signed voluntarily and the signature is genuine. Attestation is when the grantor(s) signs the deed in front of witnesses.

Question 62

When someone dies without a will, he is said to have died

a. devise.
b. escheat.
c. intestate.
d. testate.

Answer 62

c. intestate

[Rationale] Intestate means someone who dies without a will.

Question 63

Which is an example of voluntary alienation?

a. avulsion
b. condemnation
c. dedication
d. foreclosure

Answer 63

c. dedication

[Rationale] Voluntary alienation is the most common way to transfer ownership and includes sale, gift, dedication, and grant. Dedication is when, for example, a developer dedicates land for streets within a new subdivision or someone dedicates land for a park to a municipality.

Question 64

If one party to a contract fails to perform his contractual obligations without a legal excuse, it is a(n)

a. assignment.
b. breach of contract.
c. lack of substantial performance.
d. novation.

Answer 64

b. breach of contract.

[Rationale] A breach of contract occurs when one party to a contract fails to perform with no legal cause.

Question 65

Where applicable, a particular jurisdiction’s statute of frauds requires contracts conveying real estate to be
a. recorded.
b. reviewed by an attorney.
c. verbal.
d. written.

Answer 65

d. written.

[Rationale] In many states, a law or provision requires certain types of contracts to be in writing and signed to be enforceable.

Question 66

Kim signs a contract agreeing to buy a property from Bob, but Bob does not actually own the property. This contract is

a. unenforceable.
b. valid.
c. void.
d. voidable.

Answer 66

c. void.

[Rationale] If a contract lacks one or more of the essential elements for contract formation then it is void. For example, a sales contract to sell a house does not include the signatures of both owners of the property and is, therefore, lacking an essential element.

Question 67

Lyle contracts to buy Julia’s house, but only if he can sell his house. This type of provision written into a sales contract is called

a. a contingency clause.
b. good consideration.
c. right of specific performance.
d. time is of the essence clause.

Answer 67

a. a contingency clause.

[Rationale] Contingencies are conditions that must occur in order for the contract to be performed.

Question 68

A contract clearly states that $5,000 would be kept by the seller should the buyer breach the contract. The $5,000 is considered

a. the broker’s commission.
b. the down payment.
c. earnest money.
d. liquidated damages.

Answer 68

d. liquidated damages.

[Rationale] Liquidated damages reflect the amount of money specified in a contract to be awarded in the event the agreement is breached. A liquidated damages clause is included in some contracts to lessen the chance of expensive litigation.

Question 69

Carol and Leslie enter into a contract stating that Carol will pay Leslie $650 per month for the next 20 years. Carol will live in the house and pay all expenses including property taxes, insurance, and maintenancecosts. Leslie will continue to hold the title until the property is paid off by Carol. What kind of contract do they have?

a. installment sales contract
b. land lease
c. lease purchase agreement
d. option agreement

Answer 69

a. installment sales contract

[Rationale] An installment sales contract is an agreement in which the buyer makes payments to the seller in exchange for the right to occupy and use the property, but no need or title is transferred until all, or a specified portion of, payments have been made.

Question 70

A contract written for the exchange of illegal substances would be void because

a. consideration was not listed.
b. incompetent parties.
c. legality of object.
d. no signatures.

Answer 70

c. legality of object.

[Rationale] The essential elements of a valid contract: 1. Competent parties, 2. Mutual agreement, 3. Consideration, 4. Description of the object being contracted, 5. Lawful and possible objective, and 6. Written format (when required) and signatures.

Question 71

When a new person takes the place of one of the parties to a contract and the withdrawing party is relieved of all liability, it is called

a. accord and satisfaction.
b. assignment.
c. novation.
d. substantial performance.

Answer 71

c. novation.

[Rationale] Novation is the substitution of a new contract for an earlier contract.

Question 72

When a contract is terminated and each party returns whatever consideration the other had provided, it is called

a. cancellation.
b. repudiation.
c. rescission.
d. a tender offer.

Answer 72

c. rescission.

[Rationale] Rescission is the destruction, annulment, or termination of a contract and all parties to the contract must give back anything acquired under it to the other party. This occurs when one party does not want to enforce the other party’s promise.

Question 73

Sam offers to sell his house to Brenda for $200,000 if Brenda will pay $45,000 in cash and give Sam a 15- year mortgage for the balance at 11% interest. Brenda responds, “I accept your offer, provided that I have to pay only $40,000 down.” This is a

a. counteroffer.
b. defeasible offer.
c. partial acceptance.
d. unilateral acceptance.

Answer 73

a. counteroffer.

[Rationale] A counteroffer represents a change; it is essentially a rejection and a new offer.

Question 74

An option agreement is

a. bilateral in nature.
b. not a contract.
c. the same concept as a right of first redemption.
d. supported by consideration.

Answer 74

d. supported by consideration.

[Rationale] Options are contracts that give one party the right to do something without obligating him to do so.

Question 75

Which type of lease would provide the lessee with the least expense and risk?

a. absolute net—annual increase
b. gross—flat
c. net—variable
d. triple net—flat

Answer 75

b. gross—flat

[Rationale] In a gross lease, the landlord pays for all expenses related to the ownership of the property, and a flat lease is an arrangement where the rent payments to the lessor are consistent throughout the duration of the lease term.

Question 76

A month-to-month lease gives the lessor

a. greater control when it comes to adjusting the rent.
b. less chance of risk that the tenant will leave.
c. a lower rate of rent in short term situations.
d. no opportunity to change the terms of the lease.

Answer 76

a. greater control when it comes to adjusting the rent.

[Rationale] A month-to-month tenancy may give the landlord greater control when it comes to terms and the rent being charged. The landlord may modify the terms of the agreement at any time by giving the tenant 30-day written notice. Therefore, given such language, the rent and other terms may be changed with short notice.

Question 77

In a percentage lease, the amount of rent that is the base or guaranteed minimum the lessee will pay is called

a. breakpoint rent.
b. market rent.
c. overage rent.
d. starting rent.

Answer 77

a. breakpoint rent.

[Rationale] With some percentage leases, lessees could be paying a base or guaranteed minimum, which is often called a breakpoint rent, plus a percentage of the sales their business has generated (known as overage rent).

Question 78

Christopher is leasing property from Patricia via an annual increase lease. Which is a characteristic of an annual increase lease?

a. Adjustments to rent are based on fluctuation of market rental rates and owner’s expenses.
b. Annual increase leases only are used with gross leases and reflect change in the Consumer Price Index.
c. Rent increases are a predetermined dollar amount at specified periodic intervals.
d. Rental rate is adjusted by a specified percentage with each adjustment.

Answer 78

c. Rent increases are a predetermined dollar amount at specified periodic intervals.

[Rationale] The annual increase lease operates similarly to a step-up lease with one major exception—rather than a percentage increase, the periodic increase specified in the lease is a specific dollar amount.

Question 79

In a triple-net lease scenario, which is NOT a typical expense of the lessee?

a. fire insurance on the building
b. property taxes
c. repairing a leaky faucet
d. replacing the roof on the structure

Answer 79

d. replacing the roof on the structure

[Rationale] A triple-net lease means the lessor pays for building repairs, and the lessee pays for real estate taxes, insurance, and maintenance.

Question 80

Phillip is leasing an office suite from National Office Properties, Inc., the property owner, via a net/net lease. In this arrangement, the lessor has

a. been granted a leasehold estate.
b. conveyed a temporary possessory interest.
c. no remaining property rights.
d. permanently surrendered the leased fee estate.

Answer 80

b. conveyed a temporary possessory interest.

[Rationale] When the property owner, the lessor, leases a property, he is temporarily (for the term of the lease) giving up, at the very least, all or part of the right of use, and probably some other elements in the bundle of rights as well. The party leasing the property from the owner, the tenant, or lessee, temporarily is conveyed a possessory interest in the property

Question 81

Which is an advantage to the lessee in a percentage lease?

a. If the specified sales volume is not reached, the lease is automatically terminated.
b. Lessor is conveying all property rights during the lease period.
c. Overage rent will always increase at a specified percent each year.
d. Owner of the leased facility is motivated to promote and maintain the property.

Answer 81

d. Owner of the leased facility is motivated to promote and maintain the property.

[Rationale] Percentage leases can be an advantage to the lessee because the arrangement motivates the lessor to adequately promote and maintain the complex or facility.

Question 82

Why would an appraiser be interested in expenses being paid by the landlord when reviewing a lease agreement?

a. clarifies if, in fact, the landlord possesses the leased fee estate
b. defines whether the lease is flat or variable
c. determines the breakpoint rent from overage rent
d. indicates operating expenses for estimating net operating income

Answer 82

d. indicates operating expenses for estimating net operating income

[Rationale] If the lease provides for the landlord to pay for certain operating expenses, those expenses must be estimated at market level (in a market value assignment) in order to estimate the net operating income of the property.

Question 83

If the client is using an appraisal to determine what a property would be worth in a less than typical marketing period, the appropriate type of value would likely be

a. duress value.
b. investment value.
c. liquidation value.
d. time-adjusted market value.

Answer 83

c. liquidation value.

[Rationale] Liquidation value is the value of a property sold in a less than typical marketing period or with less-than-typical market exposure.

Question 84

Which is NOT a condition of a typical arm’s length transaction?

a. no atypical concessions
b. no marketing
c. no relationship of the parties to the transaction
d. no unusual terms

Answer 84

b. no marketing

[Rationale] The conditions in defining an arm’s length transaction are: typical terms and financing, no unusual concessions, parties are not related, parties are acting in their own best interest, parties are not under undue haste or duress, parties are reasonably informed/knowledgeable, and property has been exposed, typically, for a reasonable period of time

Question 85

Market price is what the

a. appraiser thinks the property should sell for.
b. property is listed for.
c. property should have sold for.
d. property sold for.

Answer 85

d. property sold for.

[Rationale] Market Price is the sales price that a property sold for in an actual transaction.

Question 86

An appraiser identifies the definition of market value to be used in an assignment during problem identification and must additionally

a. cite the source of the definition in the appraisal report.
b. document the author of the definition in the work file.
c. obtain permission from the client to use the specific definition.
d. use the specific USPAP definition of market value for financing transactions.

Answer 86

a. cite the source of the definition in the appraisal report.

[Rationale] USPAP requires that the type and definition of value used in an appraisal be stated in the appraisal report along with the source of the definition.

Question 87

A property that sold below market value due to a pending foreclosure is influenced mostly by

a. acceleration and depression.
b. cash equivalency.
c. haste and duress.
d. relationship to the lender.

Answer 87

c. haste and duress.

[Rationale] In foreclosure situations, those selling foreclosed properties are most influenced by haste and duress as cost of holding a property is often a primary consideration.

Question 88

A transaction with no atypical conditions is best described as

a. arm’s length.
b. established market value.
c. liquidated.
d. sterile.

Answer 88

a. arm’s length.

[Rationale] An arm’s length transaction is a transaction that occurred under typical conditions in the marketplace with each of the parties acting in their own best interests.

Question 89

The amount to create, produce, or obtain a property is known as

a. cost.
b. price.
c. reproduction.
d. value.

Answer 89

a. cost.

[Rationale] Cost is the amount required to create, produce, or obtain a property.

Question 90

Radon gas

a. can indicate the presence of a toxic uranium dump close to the property.
b. can present a problem indoors if allowed to build up to dangerous levels.
c. is a man-made waste byproduct.
d. makes a house worthless because it must be condemned by the EPA.

Answer 90

b. can present a problem indoors if allowed to build up to dangerous levels.

[Rationale] Indoors, radon can present a problem because it can build up to a dangerous level, especially in newer homes built to be more airtight.

Question 91

What statement about electromagnetic fields is FALSE?

a. They are created by moving electrical currents.
b. They can affect other charged objects.
c. They can be produced by high-tension power lines.
d. They have been proven to cause cancer.

Answer 91

d. They have been proven to cause cancer.

[Rationale] The larger electromagnetic fields created by high-tension power lines are suspected as the cause of hormonal changes, cancer, and behavioral abnormalities, but have not been proven. The evidence for these health risks is controversial and, in some cases, contradictory.

Question 92

An appraiser is appraising a structure built and used as a special use property. Since the value opinion is to reflect the property’s special use for the particular owner, the appropriate type of value is

a. going concern.
b. market.
c. reproduction.
d. value in use.

Answer 92

d. value in use.

[Rationale] Value in use is the value of property to the owner or other specified party as it is presently being utilized, or for a specific use, without necessarily considering highest and best use or present market value.

Question 93

Going concern value is most accurately described as a valuation of the

a. business assets.
b. liquid and solid assets.
c. real and personal property.
d. tangible and intangible assets.

Answer 93

d. tangible and intangible assets.

[Rationale] Going concern value is the value in use of all property, which includes real property and personal property such as trade fixtures, inventory (all tangible assets), and the intangible assets of an established, operating business with an indefinite life.

Question 94

The highest and best use for a parcel of land that is improved with an old building has changed, and it has been determined the improvements should be razed. The building has many ornate stained glass windows and extensive black walnut wood trim. What value type would be an appropriate in this assignment?

a. liquidation
b. replacement
c. reproduction
d. salvage

Answer 94

d. salvage

[Rationale] Salvage value is the value of the useful components of a property that could be removed and salvaged before demolition.

Question 95

It is well known that a murder took place in a house 40 years ago. This could be an example of

a. an internal obsolescence.
b. neighborhood decline.
c. a stigmatism.
d. social force.

Answer 95

c. a stigmatism.

[Rationale] Stigmatized property is a property made undesirable to most people by a past event, often a crime or environmental hazard.

Question 96

A trend of moving to a new suburban area is an example of

a. economic forces
b. locational forces
c. physical forces
d. social forces

Answer 96

d. social forces

[Rationale] Social forces that can affect value in real estate markets include demographic changes, migrations of the population, social trends, and buyer tastes and standards.

Question 97

Which is an example of the governmental force of revenue generating laws?

a. cost of credit
b. earnings levels
c. permissibility of zoning
d. specific tax policies

Answer 97

d. specific tax policies

[Rationale] Broadly, governmental forces that can influence value in the real estate market include government services revenue generating law (right of taxation), right to regulate laws (police power), governmental fiscal and monetary policies,

Question 98

Wetlands are protected under what federal Act?

a. Clean Water Act
b. Federal Wetlands Protection and Wildlife Act
c. SARA
d. U.S. Army Corps Act

Answer 98

a. Clean Water Act

[Rationale] Clean Water Act is a federal act which created a regulatory structure for the discharge of pollution into waterways and gave the EPA the right to enact control programs, including those for wetlands.

Question 99

The state’s housing finance authority has just issued a low-interest, first-time homebuyer mortgage program. Sales are spurred as a result of this

a. governmental force.
b. physical force.
c. social force.
d. supply and demand.

Answer 99

a. governmental force.

[Rationale] The actions at all levels of government have a dramatic influence on real estate values.

Question 100

The Comprehensive Environmental Response, Compensation, and Liability Act primarily addresses

a. abandoned waste sites.
b. air quality in public buildings.
c. properties ridden with mold.
d. safe drinking water.

Answer 100

a. abandoned waste sites.

[Rationale] The Comprehensive Environmental Response, Compensation, and Liability Act, or CERCLA, addresses what to do with closed or abandoned waste sites.

Question 101

Which is an example of linkages?

a. estimated driving time from populated areas to major interstate highways
b. known relationship of environmental concerns and terminal illness
c. proximity of hazardous substances to populated areas
d. relationship of household members when analyzing social forces

Answer 101

a. estimated driving time from populated areas to major interstate highways

[Rationale] Linkages refer to the time-distance relationship to services between properties and services that people in the market rely on such as schools, employment, and shopping, etc. Additionally considered is transportation available and the affordability the transportation.

Question 102

Sick building syndrome is a result of

a. a former traumatic act.
b. inadequate soil composition.
c. linkages to toxic waste dumps.
d. poor air quality.

Answer 102

d. poor air quality.

[Rationale] Sick building syndrome is where people suffer from headaches, fatigue, nausea, sore throat, nose and eye irritation, and other symptoms present only while in a building with poor air quality.

Question 103

Highest and best use

a. allocates land resources efficiently.
b. always considers the intended use of the owner.
c. can be several different uses at any given time.
d. results in a minimal loss of income.

Answer 103

a. allocates land resources efficiently.

[Rationale] Highest and best use allocates land resources efficiently; maximizing economic return.

Question 104

Externalities can be a positive or negative influence on value, primarily due to the property characteristic of

a. balance.
b. immobility.
c. level benefits.
d. surplus productivity.

Answer 104

b. immobility.

[Rationale] The economic principle of externalities recognizes that real estate is different from other products in that it is inherently immobile. Further, externalities can be affected by either conditions immediate to (but outside) a property or on a global level. The fact that real estate is immobile can either lead to positive externalities or negative externalities.

Question 105

An interim use might be determined when

a. the appraiser is unable to make a determination due to limited data.
b. the owner cannot make up his mind on what to do.
c. a reasonable and probable change in circumstances is forthcoming.
d. waiting for a volatile market to settle before deciding.

Answer 105

c. a reasonable and probable change in circumstances is forthcoming.

[Rationale] Interim use is the temporary use of a property while it awaits conversion to its highest and best.

Question 106

Regarding “physically possible,” which would NOT be considered?

a. building materials
b. building set back lines
c. parking requirements
d. size of the building

Answer 106

a. building materials

[Rationale] “Physically possible” or physical limitations are asking if the site is large enough for the proposed structure and all of the necessary site accommodations (parking, set-back requirements, etc.), does the topography allow for the ideal proposed structure, or is the soil composition compatible with the proposed structure?

Question 107

A school building might be an example of a(n) __________ property.

a. commercial-use
b. multiple-use
c. special-use
d. utility-use

Answer 107

c. special-use

[Rationale] A special-use property has only a limited and specific use. The value of special-use properties may be difficult to determine because of their limited market. Special-use properties may also be referred to as special-purpose properties. Some examples include museums, historical buildings, and schools.

Question 108

When the highest and best use of the property is “vacant,” the current improvements are

a. in a state of equilibrium.
b. lending no value to the vacant site.
c. taking away from the value of the vacant site.
d. taking away from the vacant site value by more than the cost to raze the improvements.

Answer 108

d. taking away from the vacant site value by more than the cost to raze the improvements.

[Rationale] The appraiser looks at the site as if it were vacant and available for any permitted use. If the land or site is currently improved, the cost of razing (demolition) must be considered in the analysis.

Question 109

When a buyer will not pay more for something than its cost, the buyer is influenced by

a. contribution.
b. opportunity cost.
c. substitution.
d. supply and demand.

Answer 109

c. substitution.

[Rationale] Substitution is a principle that says an informed buyer will not pay more for a property, or a feature in a property than a comparable substitute.

Question 110

Which is NOT one of the four agents of production?

a. capital
b. gross profit
c. labor
d. land

Answer 110

b. gross profit

[Rationale] The four agents of production are capital, entrepreneurship, land, and labor which together create value in real estate. The four agents of production can be remembered by the acronym C-E-L-L.

Question 111

The law of diminishing returns is most directly linked to which economic principle?

a. change
b. competition
c. contribution
d. substitution

Answer 111

c. contribution

[Rationale] Contribution is an economic principle which expresses that value is measured by the benefit of a property element to the whole property, or by how much value would be decreased if that element were not in place.

Question 112

When properties are listed at a certain price in the neighborhood, that price tends to set the limits of value for other properties around it, according to the concept of

a. balance.
b. competition.
c. contribution.
d. substitution

Answer 112

b. competition.

[Rationale] The economic principle of competition reflects the interaction of supply and demand. In the context of demand, the competition can exist between two or more buyers, two or more sellers, two or more landlords, or two or more tenants.

Question 113

Which economic principle suggests that value is created through expectation of future benefits?

a. anticipation
b. balance
c. contribution
d. surplus productivity

Answer 113

a. anticipation

[Rationale] Anticipation is the expectation of future benefits. Value is created by the particular expectation, or anticipation.

Question 114

Which of the following is likely to contribute the most value?

a. adding 500 square feet to a 1,200 square feet house, where 1,200 square feet is the predominant square footage
b. adding a fence where fences are prohibited
c. adding a second bath to a three-bedroom house, where three bedrooms, two baths is the norm
d. changing granite countertops to laminate

Answer 114

c. adding a second bath to a three-bedroom house, where three bedrooms, two baths is the norm

[Rationale] Typical market participants choose properties that are most productive at satisfying their individual wants and needs. Productive real estate decisions occur, and value is created, when certain economic elements come together.

Question 115

The largest and most expensive house in the neighborhood could likely be experiencing regression through which economic principle?

a. anticipation
b. conformity
c. substitution
d. surplus productivity

Answer 115

b. conformity

[Rationale] Conformity is the principle reflects both the physical compatibility of a property and the economic state of the property. Internal conformity is a state of four agents of production in relation to land use and improvements. External conformity is determined by how a property and its characteristics conform to the market and the demands of market participants.

Question 116

When might a residual physical segment of a land parcel be considered surplus site?

a. if it is needed for future expansion of the subject’s improvements
b. if it would be legally permissible to have another house built on it
c. when it cannot be legally sold separately from the subject property
d. when it could freely transfer and be made available to the open market

Answer 116

c. when it cannot be legally sold separately from the subject property

[Rationale] Surplus land is the portion over and above what is necessary for the highest and best use of the subject property and does not have a stand-alone highest and best use. Surplus land is not needed to expand the subject improvements or that of an adjoining property. In other words, it does not have sales potential and value contribution is minimal.

Question 117

Which is included within the test of “legally permissible”?

a. allowable to zoning
b. hazard insurance could be obtained
c. police protection is available
d. title is free of encumbrances

Answer 117

a. allowable to zoning

[Rationale] The ideal use legally permitted on the property refers to zoning compliance or if a zoning change is necessary would it be probable, and asking if there are deed restrictions or other limitations.

Question 118

The federal government influences the money supply through

a. fiscal and monetary policy.
b. physical and social factors.
c. rules of equilibrium.
d. supply and demand.

Answer 118

a. fiscal and monetary policy.

[Rationale] The federal government’s use of fiscal policy, through the U.S. Treasury Department (including taxation), and monetary policy, through the actions of the Federal Reserve Board (which affects interest rates), have direct and indirect influences on interest rates charged by lenders for all types of loans, which include mortgages.

Question 119

The Treasury Department is NOT responsible for

a. federal spending.
b. managing the federal deficit.
c. tax collection.
d. secondary mortgage markets.

Answer 119

d. secondary mortgage markets.

[Rationale] Secondary mortgage markets were originally established by the federal government to moderate local real estate cycles, though some of these agencies have since been privatized.

Question 120

The Federal Reserve System has how many regional Federal Reserve Banks?

a. 6
b. 8
c. 12
d. 14

Answer 120

c. 12

[Rationale] President Woodrow Wilson introduced the Federal Reserve Act of 1913, which established a Federal Reserve System with 12 regional Federal Reserve Banks.

Question 121

Tools used by the Fed to implement monetary policy include

a. Congressional Acts.
b. discount rates and reserve requirements.
c. fiscal assertiveness.
d. prime rates and subprime rates.

Answer 121

b. discount rates and reserve requirements.

[Rationale] There are four tools used by the Fed to implement monetary policy (remembered easily as D-O-R-M): discount rates, open market operations, reserve requirements, and moral suasion.

Question 122

The U.S. Treasury is responsible for __________ policy.

a. economic
b. fiscal
c. monetary
d. social

Answer 122

b. fiscal

[Rationale] The U.S. Treasury is responsible for carrying out the nation’s fiscal policy by doing the actual spending, taxing, and debt financing via an account it keeps with the Federal Reserve.

Question 123

The amount a commercial bank must keep on deposit is known as

a. equilibrium.
b. monetary policy.
c. reserve requirements.
d. supply and demand.

Answer 123

c. reserve requirements.

[Rationale] Reserve requirements are the percentage of customers’ deposits that commercial banks are required to keep on deposit on hand either at the bank or in a bank’s own accounts, in other words, money a bank cannot lend to other people.

Question 124

If the federal government spends less money than revenue, which would likely occur?

a. Interest rates would rise sharply for mortgage loans.
b. Federal Reserve Board would not meet.
c. Market equilibrium would occur in the Federal Reserve.
d. More funds would be available for real estate loans.

Answer 124

d. More funds would be available for real estate loans.

[Rationale] The amount of money the government spends directly affects the amount of money available on an individual basis to purchase real estate. If the government spends more than what is brought in through taxes, then less money is available for people to borrow.

Question 125

Tax credits, such as those created through the American Recovery and Reinvestment Act of 2009, are an example of which force influencing the value of real property?

a. economic
b. governmental
c. physical
d. social

Answer 125

b. governmental

[Rationale] The American Recovery and Reinvestment Act of 2009 was a program passed by Congress authorizing a tax credit for qualified first-time homebuyers.

Question 126

Which is NOT a source of equity used as capital for acquisition of investment real estate?

a. joint ventures
b. mortgages
c. partnerships
d. pensions funds

Answer 126

b. mortgages

[Rationale] A mortgage is a source of debt for capital required for acquisition of investment real estate. The other choices are sources of equity.

Question 127

What is the lump-sum remaining principle balance referred to that is payable when a mortgage loan is not fully amortized?

a. balloon balance
b. deficit balance
c. discount balance
d. passive balance

Answer 127

a. balloon balance

[Rationale] A mortgage which is not fully amortized and becomes due and payable in a lump sum is called a balloon balance.

Question 128

In general, conforming conventional mortgage loans represent

a. less risk of loss to the lender.
b. a loan avenue for borrowers who have a high debt to income ratio.
c. loans that are insured or guaranteed by the government.
d. an opportunity to charge a higher interest rate.

Answer 128

a. less risk of loss to the lender.

[Rationale] Conforming loans generally pose a very low risk for the lender because inherent risk indicators such as the subject property, debt to income ratio, credit history, and employment history fall within industry guidelines.

Question 129

Which is an advantage of the secondary mortgage market?

a. Lenders can sell existing lower interest rate loans to free-up money.
b. The lender is only lending funds from their institutions deposits.
c. Secondary market loans are only for home equity loans, so there is less risk.
d. There are no national requirements for the secondary market.

Answer 129

a. Lenders can sell existing lower interest rate loans to free-up money.

[Rationale] Buying and selling mortgages can also make more funds available to be loaned again, and, thus, stabilizing local real estate markets.

Question 130

__________ factors are NOT a force influencing housing cycles.

a. Economic
b. Social
c. Structure
d. Supply

Answer 130

c. Structure

[Rationale] The four forces that influence the value of all aspects of the real estate market: physical, economic, governmental, and social forces (P-E-G-S).

Question 131

When housing prices fall due to the relocation of a major employer, it is an example of a(n) __________ force influencing value.

a. economic
b. governmental
c. physical
d. social

Answer 131

a. economic

[Rationale] Economic forces can primarily play a role with housing prices and the income level of residents. Additional factors may be the level of business development in an area or even property usage.

Question 132

A neighborhood is undergoing much rehabilitation and property improvement. The movement is not part of any public movement or initiative but rather from a general trend toward people desiring to live there. What phase of the neighborhood life cycle is being evidenced?

a. expansion
b. gentrification
c. growth
d. transition

Answer 132

b. gentrification

[Rationale] Gentrification is a form of revitalization with displacement of current residents that takes place in a more natural fashion and not driven by any public movement.

Question 133

The point in a business cycle when prices fall and production slows until demand catches up with supply is most likely a period of

a. contraction.
b. expansion.
c. peak.
d. trough.

Answer 133

a. contraction.

[Rationale] Contraction often causes job losses, which may cause consumers to stop spending money. This causes a ripple effect, as other businesses must cope with lower demand for their products or services.

Question 134

During the course of a market analysis, an appraiser notes that a particular area which has been predominately residential properties, is rapidly undergoing a complete change of use to commercial due to the widening of a street and increasingly higher traffic counts. What is the appraiser observing?

a. decline
b. equilibrium
c. gentrification
d. transition

Answer 134

d. transition

[Rationale] Transition is a complete change of land use.

Question 135

The various complimentary land uses present in an area are being examined as part of a larger market. What component of a market area is being analyzed?

a. district
b. neighborhood
c. quadrant
d. zone

Answer 135

b. neighborhood

[Rationale] A neighborhood is a compilation or a group of complimentary land uses. When describing a neighborhood the appraiser is looking at all of the uses, even though varied, which create the overall environment.

Question 136

An appraiser primarily considers general data concerning the overall conditions of the real estate marketplace when performing a

a. economic base analysis.
b. household study.
c. market analysis.
d. productivity analysis.

Answer 136

c. market analysis.

[Rationale] An appraiser performs market analysis on a general level and addresses the conditions in the marketplace for the market area in which the property is located, and they also perform on a specific level for the particular property being analyzed when compared with all other properties against which it competes.

Question 137

Existing inventory of houses and planned new construction are elements of what type of analysis?

a. competitive supply analysis
b. economic base analysis
c. market segmentation
d. productivity analysis

Answer 137

a. competitive supply analysis

[Rationale] When determining the amount of supply in the market, the appraiser must consider not only properties presently available but also properties in the process of being completed and, in some cases, even those that are planned.

Question 138

Analysis indicates that 170 residential lots are needed for sale in the next four years based on projected demographics. There are currently 80 residential lots available with another 28 soon to be completed. If 50% of the demand will come in year one and 30% of the demand will come in year two, how many lots are projected to be needed to satisfy demand in year three?

a. 27
b. 31
c. 34
d. 51

Answer 138

c. 34

[Rationale] To start, 50 % + 30% = 80% for the first two years. This leaves 20% (100 – 80 = 20) for year three, therefore, 170 × 0.20 (20%) = 34 lot to satisfy demand in year three.

Question 139

A study is being performed that will examine the benefit of a proposed real estate project in relation to the project’s cost. What type of analysis is being performed?

a. absorption study
b. feasibility study
c. marketability study
d. productivity analysis

Answer 139

b. feasibility study

[Rationale] A feasibility study is a study of the cost-benefit relationship of an economic endeavor.

Question 140

Jack appraised a residential dwelling located across the street from a factory that he determined is negatively affecting the value of the subject property. Jack applied a location adjustment in his sales comparison approach. However, the client asked that the factory not be discussed in the appraisal report. Since Jack addressed the condition with an adjustment, has he complied with USPAP?

a. No, because USPAP requires an explanation for each adjustment.
b. No, omitting the discussion could produce a misleading report.
c. Yes, since an adjustment was included.
d. Yes, since the client requested the omission.

Answer 140

b. No, omitting the discussion could produce a misleading report.

[Rationale] Compliance with the client’s request could cause the resulting report to be misleading and/or fraudulent, which is not in compliance with USPAP.

Question 141

If a property is known by the appraiser, on the effective date of the appraisal, to have an inoperative mechanical system component, but the appraiser is considering the component as if it were operating properly on that date for the purpose of his analysis, what is the appraiser basing his opinions and conclusions on?

a. anticipated condition
b. extraordinary assumption
c. hypothetical condition
d. hypothetical exception

Answer 141

c. hypothetical condition

[Rationale] A hypothetical condition is something that the appraiser knows to be false, but he is considering it as being true for the purpose of his analysis and obtaining credible results.

Question 142

Josh received an appraisal request from a lender-client who told him to immediately call if the value on the property is less than the amount stipulated by the lender, as he doesn’t intend to pay for an appraisal that won’t benefit his position. Will performance of this assignment be in compliance with USPAP?

a. Yes, it is permissible for a client to call the client with the value prior to adequately supporting the opinion.

b. Yes, this would be a hypothetical condition, which is acceptable.

c. No, an appraiser may not agree to perform an assignment with unacceptable assignment conditions.

d. No, it is not permissible unless Josh discloses this fact in the report.

Answer 142

c. No, an appraiser may not agree to perform an assignment with unacceptable assignment conditions.

[Rationale] The client’s assertion that he does not intend to pay of the appraisal that does not meet his objectives is an unacceptable assignment condition. USPAP prohibits appraisers from performing assignments with unacceptable assignment conditions.

Question 143

What information is NOT required to be in an appraisal workfile?

a. copy of the bill sent to the client
b. documentation to support the appraiser’s opinions and conclusions
c. references to the location of other documentation not in the workfile
d. true copies of any written reports

Answer 143

a. copy of the bill sent to the client

[Rationale] Items that must be included in the workfile for a written appraisal include: name of the client and the identity, by name or type, of any other intended users, true copies of any written reports, documented on any type of media, and all other data, information and documentation necessary to support the appraiser’s opinions and conclusions and to show compliance with USPAP or references to the location(s) of such other documentation.

Question 144

The scope of work disclosed in an appraisal report must include the

a. appraiser’s final conclusions and value opinion.
b. initially planned scope of work at the onset of the assignment.
c. intended use in the assignment.
d. scope of work that was actually performed.

Answer 144

d. scope of work that was actually performed.

[Rationale] For reporting the scope of work, professional standards require that the scope of work actually performed in the assignment be (depending on the reporting option chosen) described, summarized, or stated.

Question 145

Appraisers must analyze agreements of sale, options, and listings of the subject property current as of the effective date of an appraisal, in a market value assignment, if it is

a. available in the normal course of business.
b. a matter of public record.
c. not deemed confidential information.
d. required by the client.

Answer 145

a. available in the normal course of business.

[Rationale] Appraisal development standards require, in market value assignment, for the appraiser to analyze all agreements of sale, options, and listings of the subject property current as of the effective date of the appraisal, if available in the normal course of business.

Question 146

While appraising a property, Lydia could not check the furnace to see if it is in good working order due to the utilities being off at the time of the inspection. Since the home is relatively new and the components appear to be in good condition, Lydia has a reasonable basis to believe that the furnace is in satisfactory operating condition, but she is uncertain. Therefore, Lydia bases her conclusion on a(n)

a. expected condition.
b. extraordinary assumption.
c. hypothetical assumption.
d. hypothetical condition.

Answer 146

b. extraordinary assumption.

[Rationale] An extraordinary assumption is used in a specific assignment when the appraiser has a reasonable basis to believe what he is considering is true, but it is uncertain.

Question 147

For reconciliation, in addition to reconciling the quality and quantity of data available within the approaches used, USPAP also requires an appraiser to ________ the approaches, methods, and techniques used to arrive at the value conclusion.

a. mathematically average the results of
b. not rely solely on
c. reconcile the applicability and relevance of
d. report the conclusions individually of

Answer 147

c. reconcile the applicability and relevance of

[Rationale] Appraisal development standards of USPAP require the appraiser to address reconciliation as a two-part process. An appraiser must: reconcile the quality and quantity of data available and analyzed within the approaches and reconcile the applicability and relevance of the approaches, methods, and techniques used to arrive at the value conclusion(s).

Question 148

In an appraisal report, sufficient information regarding the scope of work includes disclosure of research and analyses performed and might also include disclosure of

a. the client’s objectives for the assignment’s results.
b. confidential information used in development.
c. fees and things of value paid to the appraiser.
d. research and analyses not performed.

Answer 148

d. research and analyses not performed.

[Rationale] Disclosure of the scope of work might also include reasoning why certain research and analysis was not performed.

Question 149

An appraiser determines the appropriate definition of market value to be used in the assignment during

a. market analysis.
b. problem identification.
c. reconciliation.
d. valuation analysis.

Answer 149

b. problem identification.

[Rationale] The appraiser must identify the type of value and the specific definition of value during problem identification.