chapter 12 quiz

Question 1

when a property’s value increases due to the impact of physical, governmental, economic, and social forces at work affecting the subject property, that rise in value is called:

Answer 1

unearned increment:

Question 2

The cost approach would be the least reliable method to use in estimating the value of a seventy year old building because of:

Answer 2

the problem associated with estimating depreciation.

Question 3

the actual selling price can be described as which of the following?

Answer 3

Market price: the actual price paid in a market transaction. (contrasts w/market value)

Question 4

in attempting to estimate the market value of a house he is listing, a licensee discovers that the owner paid $310k for the house six yrs ago. what effect will this number have on this estimate?

Answer 4

NO effect at all

Question 5

after a neighborhood expiriences a period of growth, expansion, and rising property values; the next phase of change that it will expirience is:

Answer 5

progression

Question 6

what’s principals of progression?

Answer 6

Principle of progression is the idea that the value of a house increases when more valuable houses are built in the area.

Question 7

what’s principle of regression?

Answer 7

which is based on the concept that larger, more expensive houses lose value when they are near smaller, less valuable homes.

Question 8

in appraising, the term location is most closely associated with:

Answer 8

situs

Question 9

in the capitalization approach, which of the following steps comes first.

Answer 9

Determining potential gross income

Question 10

on an operating statement, the allowance for items that have a useful life of more than one year is called:

Answer 10

reserve for replacements

Question 11

which of the following is used when estimating value by using the gross rent multiplier method?

Answer 11

Market rent of subject property

Question 12

Karlie Sinclair has paid $300,000 for a new house in a neighborhood of properties that are worth a similar price. Now she is considering some major improvements to both the house and lot, which would cost $200,000, which principle of valuation might suggest that this is not a wise move?

Answer 12

Progression and regression

Question 13

using a 12% capitalization rate, an apartment complex is valued at $480,000. what will be the value of the same property if a 10% capitalization rate is used?

Answer 13

$576,000

12% X 480,000 = 5,750,000
5,750,000 X 10% = 576,000

Question 14

a key lot is:

Answer 14

essential for plottage

Question 15

what’s plottage?

Answer 15

creating plottage value of land by assembling small, adjacent parcels of land into a larger, more useful parcel.

Question 16

A method of estimating proposed construction costs by adding the cost of all the building’s component parts is the:

Answer 16

Unit in place method.

Question 17

When using the sales comparison approach, the appraiser would utilize data derived from:

Answer 17

data from multiple listing services

Question 18

The gross rent multiplier produces the best results when used to estimate the value of:

Answer 18

an apartment building

Question 19

When estimating the capitalized value of a property:

Answer 19

the lower the capitalization rate, the higher the estimated value.

Question 20

which of the following would not be considered an operating expense of an apartment building?

Answer 20

collection losses

*manager’s salary, utilities, repairs and reserve for replacements.

Question 21

when selecting comparable for a comparison approach to market value, it is a good practice to:

Answer 21

place emphasis on the ones that require the fewest adjustments.

(like 3 bedroom house instead of 4)

Question 22

an investor wants to purchase a 20 unit apartment complex. 10 units rent $300 per month, 5 for $325, and 5 for $350. Vacancy and collection losses are estimated to be 5% of the potential gross income and operating expenses are expected to be $31,950. using a capitalization rate of 10%, what should the investor pay for the property?

Answer 22

$407,250

step one - find PGI (Potential gross Income)
(10 units X $300 X 12 months)=$36,000.00
(5 units X $325 X 12 months)= $19500.00
(5 units X $350 X 12 months)
= $21,000.00
------
total PGI
36,000
21,000
19,500
=======
76,500
vac and losses = 5% PGI
76,500 X 5% = 3825
EGI = PGI - vac and loss
EGI = 76500-3825
EGI = $72,675.00
NOI = EGI - OPEX
NOI = 72675-31950
NOI = 40725
V = NOI/CAP
V = 40725/10%
V = 407250

Question 23

in the capitalization approach to establishing value, the selection of the cap rate to use reflects all of the following EXCEPT:

Answer 23

HOW SOON THE PROPERTY CAN BE RESOLD FOR PROFIT

• an investment return currently sought by investors.
• how much net income the property will produce.
• how long the property will continue to produce the projected net income.

Question 24

which of the following approaches to value estimation is based upon the calculation of construction cost at current prices of a property that serves the same purpose or function as an original property.

Answer 24

replacement cost.: the cost of erecting a building to replace or serve the functions of a previous structure.

Question 25

which of the following may be used to figure accrued depreciation?

Answer 25

age-life or straight line method

Question 26

in the appraisal of residential property, the cost approach is most reliable in the case of:

Answer 26

a new home

Question 27

the most difficult depreciation to correct would be:

Answer 27

economic

Question 28

in the sales comparison approach, the value of a feature present in the subject property but NOT in the comparable would be:

Answer 28

added to the selling price of comparable property