Chapter 16 - Appraising and Estimating Market Value Flashcards
21 Questions
As a component of real estate value, the principle of substitution suggests that
a. if two similar properties are for sale, a buyer will purchase the cheaper of the two.
b. if one of two adjacent homes is more valuable, the price of the other home will tend to rise.
c. if too many properties are built in a market, the prices will tend to go down.
d. people will readily move to another home if it is of equal value.
a. if two similar properties are for sale, a buyer will purchase the cheaper of the two.
Highest and best use of a property is that use which
a. is physically and financially feasible, legal, and the most productive.
b. is legal, feasible, and deemed the most appropriate by zoning authorities.
c. entails the largest building that zoning ordinances will allow developers to erect.
d. conforms to other properties in the area.
a. is physically and financially feasible, legal, and the most productive.
The concept of market value is best described as
a. the price a buyer will pay for a property, assuming other similar properties are within the same price range.
b. the price an informed, unhurried seller will charge for a property assuming a reasonable period of exposure with other competing properties.
c. the price a buyer and seller agree upon for a property assuming stable interest rates, appreciation rates, and prices of other similar properties.
d. the price that a willing, informed, and unpressured seller and buyer agree upon for a property assuming a cash price and the property’s reasonable exposure to the market.
d. the price that a willing, informed, and unpressured seller and buyer agree upon for a property assuming a cash price and the property’s reasonable exposure to the market.
A significant difference between an appraisal and a broker’s opinion of value is
a. the appraiser tends to use only one or two of the approaches to value.
b. the broker may not be a disinterested party.
c. the broker is subject to government regulation in generating the opinion.
d. the appraiser uses less current market data.
b. the broker may not be a disinterested party.
A notable weakness of the sales comparison approach to value is that
a. there may be no recent sale price data in the market.
b. the approach is not based on the principle of substitution.
c. the approach is only accurate with unique, special purpose properties.
d. sale prices cannot be compared, since all real estate is different.
a. there may be no recent sale price data in the market.
The steps in the market data approach are
a. choose nearby comparables, adjust the subject for differences, estimate the value.
b. gather relevant price data, apply the data to the subject, estimate the value.
c. select comparable properties, adjust the comparables, estimate the value.
d. identify previous price paid, apply an appreciation rate, estimate the value.
c. select comparable properties, adjust the comparables, estimate the value.
In the sales comparison approach, an adjustment is warranted if
a. the buyer obtains conventional financing for the property.
b. the seller offers below-market seller financing.
c. a comparable is located in another, albeit similar neighborhood
d. one property has a hip roof and the other has a gabled roof.
b. the seller offers below-market seller financing.
To complete the sales comparison approach, the appraiser
a. averages the adjustments.
b. weights the comparables.
c. discards all comparables having a lower value.
d. identifies the subject’s value as that of the nearest comparable.
b. weights the comparables.
One weakness of the cost approach for appraising market value is that
a. builders may not pay market value for materials or labor.
b. market value is not always the same as what the property cost.
c. comparables used may not have similar quality of construction.
d. new properties have inestimable costs and rates of depreciation.
b. market value is not always the same as what the property cost.
The cost of constructing a functional equivalent of a subject property is known as
a. reproduction cost.
b. replacement cost.
c. restitution cost.
d. reconstruction cost.
b. replacement cost.
An office building lacks sufficient cooling capability to accommodate modern computer equipment. This is an example of
a. physical deterioration.
b. economic obsolescence.
c. incurable depreciation.
d. functional obsolescence.
d. functional obsolescence.
A home is located in a neighborhood where homeowners on the block have failed to maintain their properties. This is an example of
a. curable external obsolescence.
b. incurable economic obsolescence.
c. functional obsolescence.
d. physical deterioration.
b. incurable economic obsolescence.
In appraisal, loss of value in a property from any cause is referred to as
a. deterioration.
b. obsolescence.
c. depreciation.
d. deflation.
c. depreciation.
The first two steps in the cost approach are to estimate the value of the land and the cost of the improvements. The remaining steps are
a. estimate depreciation, subtract depreciation from cost, and add back the land value.
b. subtract deterioration from cost, estimate land depreciation, and total the two values.
c. estimate depreciation of land and improvements, subtract from original cost.
d. estimate obsolescence, subtract from the cost of land and improvements.
a. estimate depreciation, subtract depreciation from cost, and add back the land value.
The roof of a property cost $10,000. The economic life of the roof is 20 years. Assuming the straight-line method of depreciation, what is the depreciated value of the roof after 3 years?
a. $10,000
b. $8,500
c. $7,000
d. $1,500
b. $8,500
