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Real Estate > Ch. 15 Estimating Real Property Value > Flashcards

Ch. 15 Estimating Real Property Value Flashcards

To appraise real property means to estimate its value. Appraising is considered to be an art, not a science, because although the appraisal process involves mathematical calculations, appraisers also use their own judgement when appraising real property. There are many reasons for appraising real property. Local communities hire appeasers to estimate the value of property for assessment of property taxes (chapter 18) and to determine the amount of compensation in a condemnation proceeding that i

1
Q

The combining of two or more adjoining properties into one tract.

A

assemblage

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2
Q

A method for estimating the market value of a property based on the cost to buy the site and to construct a new building on the site, less depreciation.

A

cost-depreciation approach

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3
Q

When the correction of a defect results in as much added value as the cost to correct the defect.

A

curable

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4
Q

A loss in value for any reason; a deduction for tax purposes.

A

depreciation

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5
Q

The period of time a property may be expected to be profitable or productive; useful life.

A

economic life

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6
Q

The age indicated by a structure’s condition and utility.

A

effective age

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7
Q

The resulting amount when vacancy and collection losses are subtracted from potential gross income.

A

effective gross income (EGI)

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8
Q

Any sale transaction that ultimately involves a federal agency in either the primary or secondary mortgage market. Under FIRREA, state-certified or state-licensed appraisers must be used for certain loans in federally related transactions.

A

federally related transaction

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9
Q

A rule of thumb for estimating the market value of commercial and industrial properties; the ratio to convert annual income into market value.

A

gross income multiplier (GIM)

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10
Q

A rule of thumb for estimating the market value of income-producing residential property; the ratio to convert rental income into market value.

A

gross rent multiplier (GRM)

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11
Q

A principle of value that focuses on the most profitable legal use to which a property can be put.

A

highest and best use

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12
Q

A method of estimating the market value of property based on the present and future income the property can be expected to generate.

A

income capitalization approach

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13
Q

When the cost to correct a defect is greater than the value of the added by the cure.

A

incurable

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14
Q

The worth of a property to a particular investor based on the investor’s desired rate of return, risk tolerance, etc.

A

investment value

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15
Q

The most probable price a property will bring from a fully informed buyer, willing but not compelled to buy, and the lowest price a fully informed seller will accept if not compelled to sell.

A

market value

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16
Q

The resulting amount when all operating expenses are subtracted from effective gross income.

A

net operating income (NOI)

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17
Q

An addition or change to property not in line with its highest and best use, or a betterment that exceeds that justified by local conditions.

A

overimprovement

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18
Q

The added value as a result of combining two or more properties into one large parcel.

A

plottage

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19
Q

The total annual income a property would produce with 100 percent occupancy and no collection on vacancy losses.

A

potential gross income (PGI)

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20
Q

1

A

principle of substitution

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21
Q

The principle that states that the value of an inferior property is enhanced by its association with superior properties of the same type.

A

progression

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22
Q

The process of weighting the estimates of value derived from the sales comparison, cost, and income approaches to arrive at a final estimate of market value.

A

reconciliation

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23
Q

The principle that states that the value of a superior property is adversely affected by its association with an inferior property of the same type.

A

regression

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24
Q

The expenditure of constructing a building with current materials and techniques that has the same functional utility as the structure being appraised.

A

replacement cost

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25
Q

Amount required to duplicate the property exactly.

A

reproduction cost

26
Q

A method for estimating the market value of a property by comparing similar properties to the subject property.

A

sales comparison approach

27
Q

Relationships and influences created by location of a property that affect value (e.g., accessibility, personal preference).

A

situs

28
Q

The real property under discussion or appraisal.

A

subject property

29
Q

1

A

transaction value

30
Q

A deduction from potential gross income for (1) current or expected future space not rented due to tenant turnover and (2) loss from uncollected rent due from delinquent tenants.

A

vacancy and collection losses

31
Q
  1. Valuation of real property is an
    a. estimate of cost.
    b. estimate of value.
    c. exact value.
    d. assessment.
A

B

32
Q
  1. The total expenditure required to bring a new improvement into existence is referred to as
    a. cost.
    b. price.
    c. market price.
    d. market value.
A

A

33
Q
  1. Which assumption does NOT apply to definition of market value?
    a. Payment is made in cash or its equivalent.
    b. Neither the buyer or the seller is under any compulsion to act quickly.
    c. Market value is the median price a property will bring.
    d. Both buyer and seller are fully informed.
A

C

34
Q
  1. The approach to estimating value that is referred to as the real estate market speaking through past sales because it uses actual sales transactions is the
    a. transactional comparison method.
    b. economic indicator method.
    c. sales comparison method.
    d. sales transaction method.
A

C

35
Q
  1. When more money is invested in a building than can reasonably be expected to be recaptured, iti si referred to as
    a. economic lack of utility.
    b. overimprovement .
    c. underimprovement.
    d. depreciation.
A

B

36
Q
  1. The most probable price in terms of money that a property should bring in an open market is called the
    a. highest and best use
    b. sale price.
    c. market value.
    d. exchange value.
A

C

37
Q
  1. Loss of value for any reason is called
    a. transferability.
    b. substitution.
    c. depreciation.
    d. economic obsolescence.
A

C

38
Q
  1. All below are characteristics required to create value EXCEPT
    a. demand.
    b. supply.
    c. utility.
    d. transferability.
A

B

39
Q
  1. The approach to value most likely to be relevant for appraising a community college is the
    a. comparable market approach.
    b. cost-depreciation approach.
    c. income capitalization approach.
    d. straight-line approach.
A

B

40
Q
  1. The subject property has 200 less square feet of living are than a comparable. The market are value of 200 square feet is $20,000. Which adjustment should the appraiser make?
    a. Add $20,000 to the subject
    b. Add $20,000 to the comparable
    c. Subtract $20,000 from the subject
    d. Subtract $20,000 from the comparable
A

D

41
Q
  1. The most relevant approach to estimate the value of a vacant lot in a residential neighborhood usually is the
    a. square-foot approach.
    b. cost-deprecitaion approach.
    c. unit-in-place method.
    d. sales comparison approach.
A

D

42
Q
  1. In the comparable sales approach
    a. adjustments are made to the subject properties.
    b. adjustments are made to the comparable properties.
    c. the subject property must have sold recently in the same market area as the comparable property.
    d. the result is considered to be the median value.
A

B

43
Q
  1. The basis of all three approaches to market value is the principle of
    a. situs.
    b. substitution.
    c. overimprovement.
    d. economic potential.
A

B

44
Q
  1. When applying the cost-deprecitation approach which item is NOT subject to depreciation?
    a. A poor traffic pattern in a home
    b. New solid oak wood cabinets and marble tile floors in a neighborhood of $80,000 homes
    c. Older site improvements
    d. Land
A

D

45
Q
  1. Which would be considered to be external obsolescence?
    a. Peeling exterior paint
    b. One bathroom in a three-bedroom home
    c. Metal utility shed that is in poor condition located just inside the property line
    d. A residential property’s proximity to an industrial area
A

D

46
Q
  1. Loss in value due to operational inadequacies, poor design, or changing tastes is referred to as
    a. physical deterioration.
    b. functional obsolescence.
    c. external obsolescence.
    d. underimprovement.
A

B

47
Q
  1. A small income-producing property has a projected effective gross income of $48,000. Expenses are estimated at 20 percent of effective gross income. An appraiser has determined that an appropriate capitalization rate, based on property type and competing properties, is 9 percent. The estimated market value of this property (rounded to the nearest dollar) is
    a. $106,667
    b. $311,111.
    c. $426,667.
    d. $533,333.
A

C

48
Q
  1. The economic characteristic that refers to the preference for a certain location owing to various factors such as climate, employment outlook, and so forth, is called
    a. highest and best use.
    b. plottage.
    c. economic preference.
    d. situs.
A

D

49
Q
  1. The total estimated time in years that an improvement can be profitably useful is referred to as
    a. effective age.
    b. economic life.
    c. accrued depreciation.
    d. chronological age of the improvement.
A

B

50
Q
  1. In the income capitalization approach, if the capitalization rate is increased and the net income is unchanged, the
    a. present value will be less.
    b. future value will be less.
    c. present value will be more.
    d. future value will be more.
A

A

51
Q
  1. A home has 1,800 square feet of living area and 200 sq feet of garage. The reproduction cost new is $48 per sq foot for living area and $28 per sq foot for finished garage area. The site measure 75 feet wide by 110 feet deep and is valued at $3 per sq foot. The economic life of the home is estimated to be 50 years. The house is 10 years old. The value of the property using the cost-depreciation approach is
    a. $73,600.
    b. $86,400.
    c. $92,000.
    d. $92,350.
A

D

52
Q
  1. A limited partnership wishes to purchase an apartment building that has a monthly net income of $4,000 and monthly expenses of $1,000. If the partnership is to get a 12 percent return on its investment, what should it pay for the property?
    a. $25,000
    b. $33,000
    c. $300,000
    d. $400,000
A

D

53
Q
  1. An income-producing property has a potential annual gross income of $81,420. Vacancy and collection losses are estimated at 10 percent of potential gross income. Expenses are estimated at $40,000. The estimated value of the property is $250,000. The capitalization rate for this property is
    a. 13.31 percent.
    b. 14.91 percent.
    c. 16.57 percent.
    d. 17.5 percent.
A

A

54
Q
  1. A home recently sold for $58,500. The rent on the home is $450 per month. The GRM for the home is
    a. 130.
    b. 108.
    c. 10.83.
    d. 1.08.
A

A

55
Q
  1. An appraiser is calculating the reproduction cost new of a home, suing the comparative square-foot method. The appraiser measures the exterior dimensions of the home, which are 27 feet by 52 feet, plus a detached garage measuring 22 feet by 24 feet. The appraiser consults an accepted cost manual and estimates the reproduction cost for heated and air-conditioned living area to be $52.50 per square foot and the new of the improvements is
    a. $62,790.
    b. $73,710.
    c. $90,870.
    d. $101,430.
A

C

56
Q
  1. Effective gross income is
    a. net operating income divided by an appropriate capitalization rate.
    b. potential gross income minus vacancy and collection losses.
    c. net operating income minus annual mortgage expense.
    d. before-tax cash flow divided by equity invested.
A

B

57
Q
  1. You are preparing a CMA for a single-family home that has a two-car garage. You have located a comparable house that sold for $226,000, but it does not have a garage. If a two-car garage is valued at $18,000, which adjustment would you make?
    a. Add $18,000 to the comparable
    b. Subtract $18,000 from the comparable
    c. Add $18,000 to the subject
    d. Subtract $18,000 from the subject
A

A

58
Q
  1. A building is valued at $150,000 when NOI is capitalized at a rate of 8 percent. NOI is 40 percent of effective gross income. The effective gross income is
    a. $12,000.
    b. $22,000.
    c. $30,000.
    d. $32,000.
A

C

59
Q
  1. A commercial property has a potential gross income of $40,000. Vacancy and collection losses are 5 percent of PGI. Additional operating expenses total $12,920. The property has a first mortgage requiring payments of $1,070.75 per month. Using a capitalization rate of 12 percent, which amount is an accurate estimate of the property’s value?
    a. $101,333
    b. $107,667
    c. $209,000
    d. $316,667
A

C

60
Q
  1. The annual income earned on a commercial property is $85,000 and the sale price is $722,500. What is the GIM?
    a. 6.5
    b. 7.5
    c. 8.5
    d. 9.5
A

C

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