Chapter 16 Flashcards
Real Estate Appraisal (86 cards)
1
Q
A property has a value of $240,000 and a net operating income of $30,000. What is the rate of capitalization? A. 12.5% B. 15.5% C. 16.3% D. 17.5%
A
A. 12.5%
2
Q
The sales comparison approach usually CANNOT be used when estimating the value of which of the following? A. income-producing industrial property B. income-producing commercial property C. residential property D. special-purpose properties
A
C. residential property
3
Q
What is the first step of an appraisal? A. gather data B. adjust comparable sales C. reconcile value D. define the problem
A
B. adjust comparable sales
4
Q
The subject property has three bedrooms; the comparable property has four bedrooms. A bedroom is worth $5,000. What is the correct adjustment?
A. add $5000 to the subject property
B. add $5000 to the comparable property
C. subtract $5000 from the subject property
D. subtract $5000 from the comparable property
A
C. subtract $5000 from the subject property
5
Q
A relatively new four bedroom home with only one bathroom is an example of which of the following? A. physical deterioration B. functional obsolescence C. external obsolescence D. accrued depreciation
A
C. external obsolescence
6
Q
What is one example of external obsolescence?
A. missing roof shingles
B. a one-car garage
C. 60-ampere electrical system
D. a freeway constructed adjacent to a lot
A
C. 60-ampere electrical system
7
Q
What type of depreciation cannot be recovered? A. intrinsic B. inherent C. incurable D. innate
A
A. intrinsic
8
Q
Depreciation or obsolescence that results from ordinary wear and tear is called which of the following? A. straight-line depreciation B. external obsolescence C. physical depreciation D. functional obsolescence
A
C. physical depreciation
9
Q
About what should an appraiser who estimates the value of a three-year-old home in a rural area be most concerned? A. physical depreciation B. functional obsolescence C. external obsolescence D. straight-line depreciation
A
A. physical depreciation
10
Q
What appraisal principle states that homes in a neighborhood of similar homes should have similar values? A. absorption B. conformity C. correlation D. utility
A
C. correlation
11
Q
What is the effect on present value when net income increases? A. increases B. decreases C. stabilizes D. varies
A
A. increases
12
Q
A house valued comparably to all houses in the neighborhood was assessed at a tax base $5,000 less than the others. Excluding any special tax exemptions, what should the property sell for? A. less than the others B. more than the others C. the same as the others D. insufficient information
A
A. less than the others
13
Q
What is deducted from potential gross income to calculate effective gross income when performing direct capitalization with the income approach to appraising? A. vacancy and collection loss B. sources of income other than rent C. operating expenses D. reserves for replacement
A
A. vacancy and collection loss
14
Q
If a property's effective gross income is $44,000, operating expenses are $26,000, and the capitalization rate is 10%, what is the value of the property? A. $18,000 B. $80,000 C. $180,000 D. $220,000
A
C. $180,000
15
Q
If a property value equals $120,000, operating expenses are $45,000, and the net operating income is $15,000, what is the capitalization rate? A. 12.25% B. 12.50% C. 12.75% D. 13.25%
A
B. 12.50%
16
Q
The subject property has a garage. The comparable property has no garage. If a garage has a value of $14,500, and the comparable property sold for $149,900, what adjustment should be made?
A. add a $14,500 adjustment to the subject property
B. subtract a $14,500 adjustment from the subject property
C. add a $14,500 adjustment to the comparable property
D. subtract a $14,500 adjustment from the comparable property
A
C. add a $14,500 adjustment to the comparable property
17
Q
All of the following are basic types of depreciation. EXCEPT: A. physical depreciation B. functional obsolescence C. external obsolescence D. component depreciation
A
D. component depreciation
18
Q
The present value of a future cash flow is basis for which appraisal technique? A. cost depreciation B. direct capitalization C. market data D. comparable sales
A
B. direct capitalization
19
Q
A 10 year old home is being appraised. The square footage of gross living area is 3,680 and there is also a 420 square foot garage. If the construction cost is $70 per square foot for living area and $35 for garage, what is the reproduction cost of the structure? A. $128,800 B. $158,200 C. $257,600 D. $272,300
A
D. $272,300
20
Q
Mr. Johnson owns an apartment building that produces an effective gross income of $85,000 per year. What would be the value, given operating expenses of $30,000, and an overall capitalization rate of 11%? A. $272,727 B. $300,000 C. $500,000 D. $772,727
A
C. $500,000
21
Q
An investment property has a potential gross income of $300,000, a vacancy rate of 5% and operating expenses including $13,000 of reserves for replacement totaling $140,000. What is the net operating income? A. $132,000 B. $145,000 C. $155,000 D. $160,000
A
B. $145,000
22
Q
What is the monthly gross rent multiplier for a house that sold for $269,500, and was rented for $2,000 per month? A. 11.23 B. 134.75 C. 145.25 D. 156.10
A
B. 134.75
23
Q
What is the gross income multiplier for an investment property that has a gross income of $550,000 and a net income of $330,000 if the value is $4,125,000? A. 3.4 B. 4.7 C. 7.5 D. 12.5
A
C. 7.5
24
Q
An 8-year old building looks only 3 years old because it has been well maintained. The reproduction cost the building $400,500, and the economic life is 45 years. The land is valued at $80,000. What is building's approximate depreciation? A. $2,700 B. $7,200 C. $26,700 D. $71,200
A
C. $26,700
25
```
A comparable property recently sold for $429,000. The comparable property is built of superior materials valued at $25,000 but has less square footage than the subject property, valued at $35,000. What is the adjusted sale price of the comparable property?
A. $369,000
B. $419,000
C. $439,000
D. $489,000
```
C. $439,000
26
Which combination of appraisal approach and property type would be agreeable to an experienced appraiser?
A. income approach: special-purpose properties
B. income approach: owner-occupied home
C. comparable sales approach: vacant land
D. cost-depreciation approach: residential land
C. comparable sales approach: vacant land
27
```
Which appraisal method values the land separately from the improvements?
A. gross multiplier
B. income
C. comparable sales
D. cost-depreciation
```
D. cost-depreciation
28
Which of the following could be an example of external obsolescence?
A. the architectural design of a building
B. a zoning change in the area
C. peeling paint on the exterior of the building
D. an outdated oil-burning range in the kitchen
B. a zoning change in the area
29
```
What is the term used to refer to the process of arriving at a final estimate of value in appraising?
A. highest and best use
B. averaging
C. reconciliation
D. computation
```
C. reconciliation
30
What are the main steps in direct capitalization when using the income approach to valuation of real estate?
A. estimate the gross income, add in the operating expenses and capitalize the net operation income
B. estimate the cap rate, adjust the gross income for vacancies, and divide
C. estimate gross income, deduct the vacancies and operating expenses and capitalize the net operating income into value by dividing by an overall rate
D. identify the gross income, plan the appraisal and collect the expenses
C. estimate gross income, deduct the vacancies and operating expenses and capitalize the net operating income into value by dividing by an overall rate
31
```
Which principle of value indicates that the value of a property is sustained when the property is harmoniously used with surrounding properties in the same area?
A. contribution
B. conformity
C. balance
D. highest and best use
```
B. conformity
32
```
With the income approach to appraising, the value of the property today is:
A. more than the future value
B. measured in future benefits
C. not considered in an appraisal
D. to be paid to the appraiser
```
B. measured in future benefits
33
```
A house valued comparably to all houses in the neighborhood was assessed at a tax base $5,000.00 less than the others. Excluding any special tax exemptions, what should the property sell for?
A. less than the others
B. more than the others
C. same as the others
D. the property will not sell at all
```
A. less than the others
34
The steps in the cost-depreciation approach to estimating market value include all of the following EXCEPT:
A. finding the current cost to reproduce the building as new
B. finding the land value using comparables
C. subtracting the accrued depreciation from the reproduction cost
D. calculating the net operating income
D. calculating the net operating income
35
```
An appraiser is appraising an apartment building in a college town and finds that the students' leases are below the market. What type of rental income would the appraiser use to value the property?
A. gross rent
B. economic rent
C. contract rent
D. base rent
```
B. economic rent
36
```
Which type of depreciation is usually incurable?
A. physical deterioration
B. physical obsolescence
C. functional obsolescence
D. external obsolescence
```
D. external obsolescence
37
```
A man lives in a neighborhood of $50,000 homes. He decides to install expensive imported marble tile throughout the home. Of which type of depreciation is this an example of?
A. incurable physical depreciation
B. incurable functional depreciation
C. curable functional depreciation
D. curable physical depreciation
```
B. incurable functional depreciation
38
What is "price"?
A. amount actually paid in a real estate transaction
B. assessed value of a property
C. market value
D. actual or estimated amount to obtain, create, or reproduce a property
A. amount actually paid in a real estate transaction
39
```
Amenities, or features, used to compare properties in an appraisal could include all of the following, EXCEPT:
A. intangible amenities
B. tangible amenities
C. location
D. ethnic makeup
```
D. ethnic makeup
40
```
A house has a bathroom built onto the side of the kitchen. The bathroom has a laundry tub but no room for a bathtub. What is this an example of?
A. physical deterioration
B. functional obsolescence
C. external obsolescence
D. economic obsolescence
```
B. functional obsolescence
41
All of the following are examples of physical depreciation, EXCEPT:
A. peeling paint
B. termites in the woodwork
C. dry rot in the walls
D. a garage detached from a single-family home
D. a garage detached from a single-family home
42
```
Which appraisal approach would usually be requested by insurance companies?
A. cost-depreciation approach
B. sales comparison approach
C. income cap approach
D. land residual approach
```
A. cost-depreciation approach
43
```
All of the following are types of depreciation, EXCEPT:
A. economic obsolescence
B. external obsolescence
C. physical obsolescence
D. functional obsolescence
```
C. physical obsolescence
44
```
Which condition would NOT indicate functional obsolescence?
A. too few electric outlets
B. a house with one bathroom
C. a poor floor plan
D. damaged carpet
```
D. damaged carpet
45
```
When determining the net operating income (NOI) for direct capitalization, all of the following items are subtracted from the potential gross income (PGI), EXCEPT:
A. vacancies and collection losses
B. reserves for replacement
C. mortgage payments
D. property taxes
```
C. mortgage payments
46
A broker was asked by a seller to appraise the seller's home in a residential neighborhood. The seller's home was a three bedroom, two-bath house. Homes have been appreciating in this area at 10% per year. The broker estimates bedrooms in this area to be worth $12,000, and bathrooms are worth $5,000. Using the following three comparables, estimate the approximate market value of the subject home assuming that the comparables are wighted equally.
* no 1: 3/3 sold 1 year ago for $81k
* no 2: 4/2 sold 6 months ago for $91k
* no 3: 2/2 sold recently for $72,500
A. $82k
B. $83k
C. $84k
D. $85k
C. $84k
47
```
A building cost $55 per square foot to build today, but cost $45 per square foot to build when it was new 10 years ago. It was kept in good condition and appears to be only 7 years old. It contains 3,000 square feet. The lot measures 100 feet by 120 feet and comparable sites are selling for $3.10 per square foot. Site improvements are valued at $4,000. using a 35 year useful life, estimate the value of the property.
A. $173,200
B. $159,057
C. $149,200
D. $137,629
```
A. $173,200
48
```
A 5 year old building has a reproduction cost of $100,000. The building requires a new roof, which will cost $4,000. Estimate the accrued depreciation based on a 25 year useful like.
A. $29,000
B. $23,200
C. $19,200
D. $4,000
```
B. $23,200
49
An investment property has 60 identical units. It has an income of $566,000
annually. It has a monthly operating expense of $20,000 and 3% of potential gross income is in reserve. The usual vacancy is 3 units per month. How much is the net operating income (NOI)?
A. $280,720
B. $306,662
C. $308,234
D. $500,720
A. $280,720
50
```
An investor buys an income property for $300,000 that shows a $30,000 income. If the investor could increase the yield to 12%, how much additional money could the investor earn per year?
A. $2,500
B. $3,600
C. $6,000
D. $9,000
```
C. $6,000
51
```
If a property was purchased for $200,000 with a $30,000 down payment and the PGI is $50,000, vacancies are 5% and the expenses are $25,500 (which includes $2,000 in reserves). What is the cap rate?
A. 11.0%
B. 11.6%
C. 12.9%
D. 22.5%
```
A. 11.0%
52
```
A house is valued at $65,000.00. The monthly rent is $500.00, monthly debt service is $375.00, and annual taxes are $840.00. If there are no other expenses, what is the GRM?
A. 75
B. 80
C. 130
D. 108.3
```
C. 130
53
```
An apartment complex has three apartments rented for $600.00 each, six apartments rented for $400.00 each, and six apartments rented at $300.00 each. All apartments are rented on a monthly basis, with rental payments due on or before the first of each month. If the gross rent multiplier is 85, what is the value of the property?
A. $612,000
B. $510,000
C. $425,300
D. $357,000
```
B. $510,000
54
```
12,000 square feet of warehouse space is leased at $.075 per square foot per month. The gross income multiplier is 7.5. What is the market value of the property?
A. $6,750
B. $10,800
C. $81,000
D. $108,000
```
C. $81,000
55
```
The principal of substitution is used in all appraisal approaches for estimating market value but is best illustrated with which valuation approach?
A. comparable sales
B. cost-depreciation
C. income
D. 4/3/2/1
```
A. comparable sales
56
```
A building that cost $662,000 ten years ago would cost $770,000 to build today. The building is in excellent condition and looks about 5 years old. The carpeting needs to be replaced for $20,000. What is the total accrued depreciation based on a 25 year useful life?
A. $150,000
B. $154,000
C. $170,000
D. $174,000
```
C. $170,000
57
```
When estimating the value of a business, an appraiser would normally use which approach?
A. market approach
B. liquidation approach
C. income approach
D. GRM technique
```
C. income approach
58
```
What is the most probable price that a property will bring in an open and competitive market?
A. market value
B. cost
C. replacement cost
D. reproduction cost
```
A. market value
59
Which condition is an example of functional obsolescence?
A. high unemployment in an area
B. damage due to infestation of termites
C. plumbing not functioning properly
D. a five bedroom house with one bathroom
D. a five bedroom house with one bathroom
60
Three houses recently sold with the following amenities:
(1) $84,500, three bedrooms, two baths, good location, family room, garage
(2) $76,500, three bedrooms, two baths, fair locations, family room, car port
(3) $80,000, three bedrooms, two baths, good location, carport
if a good location adds $5,000 and a garage adds $3,000, what would be the value of a family room?
A. $1,000
B. $1,200
C. $1,500
D. $2,000
C. $1,500
61
```
A property is purchased based on a $50,000 a year income, with a 15% cap rate (yield). if the new owner can sell the building based on a 12% yield, what would be his profit?
A. $83,334
B. $60,000
C. $15,000
D. $6,000
```
A. $83,334
62
```
A house rents for $350 per month in an area where the GRM is 134. A similar home next door just sold for $55,000. On this bases, the rent could be:
A. decreased by $119
B. increased by $119
C. decreased by $60
D. increased by $60
```
D. increased by $60
63
```
What approach is most often used for the valuation of a business?
A. comparable sales approach
B. cost-depreciation approach
C. market approach
D. income approach
```
D. income approach
64
With what would an appraiser utilizing the cost depreciation approach be most concerned?
A. reproduction cost
B. replacement value
C. assessed value
D. the price the seller paid for the property
A. reproduction cost
65
```
Which expense is an example of a fixed operating expense?
A. real estate taxes
B. maintenance
C. management
D. utilities
```
A. real estate taxes
66
```
Which term refers to the estimated time that an improvement will be profitably useful?
A. economic life
B. market age
C. effective age
D. actual age
```
A. economic life
67
```
While using the cost-depreciation approach, the appraiser may compare the subject property to recently built buildings. What are these new buildings referred to as?
A. benchmark structures
B. contemporary structures
C. comparable structures
D. modern structures
```
A. benchmark structures
68
```
A property has a net operating income of $20,000.00 and $15,000 in expenses that include $2,000.00 in property taxes. If property taxes were to increase by 45%, by what percentage will the expenses increase?
A. 6.0%
B. 5.3%
C. 4.5%
D. 2.5%
```
A. 6.0%
69
```
796. A 20 unit building is rented for $2,000 a month less than the comparable buildings since it is too close to the railroad tracks. If the cap rate is 12%, how much is the loss of the value?
A. $333,333.33
B. $200,000.00
C. $57,600.00
D. $16,666.67
```
B. $200,000.00
70
```
An appraiser using the direct cap technique would deduct which of the following from PGI to obtain the EGI?
A. NOI
B. DS
C. V&C
D. depreciation
```
C. V&C
71
```
Which appraisal approach would carry the most weight in the appraiser's final decision when appraising a vacant lot?
A. building residual approach
B. income cap approach
C. cost-depreciation approach
D. market or sales comparison approach
```
D. market or sales comparison approach
72
```
Four apartment houses recently sold with the following statistics:
-Sales price & AGI
(1) $1,200,000 , $171,400
(2) $1,520,400 , $202,720
(3) $1,244,000 , $191,380
(4) $1,748,800 , $218,600
The subject property has a gross income of $169,000. What is the subject property worth?
A. $1,218,000
B. $1,225,250
C. $1,428,300
D. $2,344,900
```
B. $1,225,250
73
```
A four unit apartment building is valued at $150,000 with $30,000 in expenses and no vacancies. The owner requires a 20% return. What is the monthly rent per unit?
A. $1,000
B. $1,250
C. $1,500
D. $1,750
```
B. $1,250
74
```
An apartment building has expenses of $700,000, effective gross income of $1,000,000 and a cap rate of 8%. What is its value?
A. $3,750,000
B. $8,750,000
C. $12,500,000
D. $80,000,000
```
A. $3,750,000
75
```
A property has a potential income of $100,000, with vacancies and expenses of $51,000 and debt service of $30,000. Based on a 14% rate, what is the value of the property?
A. $140,000
B. $350,000
C. $364,286
D. $686,000
```
B. $350,000
76
```
896. An investor put $50,000 down on a $200,000 property. The NOI is $30,000 and the mortgage payments are $22,000 per year. What is the cap rate?
A. 26%
B. 16%
C. 15%
D. 11%
```
C. 15%
77
```
Three bedroom, two bath homes in an area rent for $450 per month. In the same area, three bedroom one bath homes rent for $400 per month. If the GRM is 120, what is the estimated value of a bathroom?
A. $6,000
B. $5,500
C. $5,000
D. $4,167
```
A. $6,000
78
```
Taxes are $30,000 a year, and gross income is $237,000 a year, with other expenses and reserves of $20,000. If taxes go up 25% and all else remains the same, by what percentage will the net operating income be reduced?
A. 25%
B. 15%
C. 4.2%
D. 4.0%
```
D. 4.0%
79
```
What is the term that is used to refer to the data that an appraiser accumulates and updates, including such things as maps, cost info, and previous appraisals?
A. data plant
B. database
C. data file
D. stock
```
A. data plant
80
```
Which condition exists when the cost of an improvement exceeds the value?
A. an over improvement
B. physical deterioration
C. external obsolescence
D. component obsolescence
```
A. an over improvement
81
```
What term refers to the amount of money necessary to duplicate an existing building?
A. actual cost
B. replacement cost
C. reproduction cost
D. market cost
```
C. reproduction cost
82
Which of the following would be the proper formula for the cap rate?
A. purchase price divided by the net operating income
B. effective gross income divided by the sales price
C. net operating income divided by the original equity investment
D. net operating income divided by the total sales price
D. net operating income divided by the total sales price
83
```
With the income approach to value, if the cap rate is decreased and the income remains constant, what is the effect on the value?
A. value increases
B. value remains constant
C. value decreases
D. value may increase or decrease
```
A. value increases
84
If the comparable property were better than the subject property in size, what adjustment would be appropriate?
A. add to the comparable property
B. add to the subject property
C. subtracts from the comparable property
D. subtracts from the subject property
C. subtracts from the comparable property
85
```
A home has a poor interior traffic pattern. What type of adjustment might be applied when valuing the property?
A. physical deterioration
B. external obsolescence
C. locational obsolescence
D. functional obsolescence
```
D. functional obsolescence
86
```
A comparable property sold 2 years ago for $80,000. Since then, properties have been appreciating at 5% annually. How much would the comparable property be worth today?
A. $88,200
B. $88,000
C. $86,000
D. $84,000
```
A. $88,200
