Chapter 11: Real Estate Appraisal

Question 1

Appraisal

Answer 1

A supported, defended estimate of the value of property rights as of a given date

Question 2

Assemblage

Answer 2

The bringing together of two adjoining parcels of property under one ownership

Question 3

Comparative Market Analysis (CMA)

Answer 3

An informal estimate of market value performed by a real estate licensee for the seller to assist in arriving at an appropriate listing price, or if working with the buyer, an informal estimate of market value to assist the buyer in arriving at an appropriate offering price

Question 4

Cost-Depreciation Approach

Answer 4

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

Question 5

Curable

Answer 5

If corrections of a deficiency or defect result in as much added value to a property as the cost to correct the deficiency or defect

Question 6

Depreciation

Answer 6

A decline or loss in value for any reason

Question 7

Economic Life

Answer 7

The total period over which improvements to real estate contribute to the value of the property

Question 8

Federal related transaction

Answer 8

Any loan that is insured, guaranteed or funded by the federal government or a federally chartered institution

Question 9

Gross rent multiplier (GRM)

Answer 9

The quotient of the sales price by the monthly gross rent

Question 10

Highest and Best Use

Answer 10

A principle of value that focuses on a property’s most profitable, legal use

Question 11

Income Capitalization Approach

Answer 11

A method for estimating the market value of a property based on the income the property can be expected to generate

Question 12

Incurable

Answer 12

When the cost of curing a deficiency or defect is greater than the value added by the cure

Question 13

Market Value

Answer 13

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

Question 14

Over-improvement

Answer 14

An addition or change to a property not consistent with its highest and best use, or a betterment that costs more than the value added to the property

Question 15

Plottage

Answer 15

An increase in value of property experienced through assemblage

Question 16

Principal of Substitution

Answer 16

A valuation principle that states that a prudent purchaser would pay no more for real property than the cost of acquiring an equally desirable substitute on the open market

Question 17

Progression

Answer 17

The tendency of a property to increase in value at a faster rate in order to conform to surrounding properties

Question 18

Reconciliation

Answer 18

The process by which an appraiser evaluates, chooses, weighs, and selects from among two or more alternative conclusions or indications to reach a single answer (final value estimate)

Question 19

Regression

Answer 19

The tendency of a property to decrease in value or at best appreciate at a slower rate in order to conform to surrounding properties

Question 20

Sales Comparison Approach

Answer 20

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

Question 21

Situs

Answer 21

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

Question 22

Special Purpose Property

Answer 22

Properties that are unique and have no comparable, such as a courthouse or church

Question 23

Subject property

Answer 23

The real property under discussion or appraisal

Question 24

The gross rent multiplier multiplied by the monthly rent will be equal to:

Answer 24

Value

Question 25

If a comparable property has a feature that is $5,000 superior to the subject property, how should this difference be reflected in the reconciliation?

Answer 25

The comparable property value should be adjusted by a $5,000 reduction

Question 26

After seven years, a motel building in Lake City, Florida is worth less money due to wear and tear. This is an example of:

Answer 26

Physical deterioration

Question 27

Sales associate Tom is hired to perform an appraisal on his neighbor’s house. May Tom perform the appraisal?

Answer 27

Tom may not perform the appraisal unless he is a certified or state licensed appraiser also

Question 28

Effective gross income less operating expenses (including reserves for replacements) is equal to:

Answer 28

Net operating income

Question 29

Robert is preparing to sell his residence. The interior needs repainting at a cost of $5,000. However, Robert is encouraged because after the interior is repainted, it will add $10,000 to the property’s value. The status of the interior paint condition is known as:

Answer 29

Curable depreciation

Question 30

The expenditure of resources necessary to bring a property into existence is known as:

Answer 30

Cost

Question 31

According to the income capitalization method, if the capitalization rate remains the same, but net operating income is increased, how will value be affected:

Answer 31

Value goes up

Question 32

The amount of money actually spent to acquire a property is known as its:

Answer 32

Price

Question 33

The expense of building a property of equal utility that is similar but not identical to the subject property is known as its:

Answer 33

Replacement cost

Question 34

The concept that an informed buyer will pay no more for a property than the cost of acquiring an equally desirable substitute property is known as:

Answer 34

Principle of substitution

Question 35

Karen owns a large home with a master bedroom that has only a small, single closet. Karen’s home is suffering from a condition known as:

Answer 35

Functional obsolescence