Chapter 3

Question 1

In law, the solid surface on the earth, as distinguished from water.

Answer 1

Land

Question 2

Four agents of production

Answer 2

land, labor, capital, entrepreneurial coordination

Question 3

Improved land or a lot in a finished state so that it is ready to be used for a specific purpose.

Answer 3

Site

Question 4

The difference between land and site

Answer 4

Land is raw- site is improved land

Question 5

If we are estimating land value, in most cases, we would compare it with sales of similar parcels on vacant ______. If we are estimating site value we try to compare it to other similar, recently _____ sites.

Answer 5

Land; sold

Question 6

In appraising, there are occasions in which it is necessary or desirable to estimate the value of the site _______ from the total value of the property.

Answer 6

seperately

Question 7

In most residential appraising, we are valuing _____ rather than ____. Land is improved into a site, creating the necessary support for the improvements.

Answer 7

site; land

Question 8

The Cost Approach is sometimes referred to as the _______ ______, although this term is generally considered somewhat outdated.

Answer 8

summation approach

Question 9

The _______ _______ deals with two components, site and improvements, which are added together (i.e., summed) to produce a value indication.

Answer 9

cost approach

Question 10

In developing the Cost Approach we start with the ______ value.

Answer 10

site

Question 11

Second step in the cost approach is to ____ to the site value, the present _______ value of any building improvements and site improvements.

Answer 11

add; depreciated

Question 12

To ascertain the depreciated value of the building improvements, we start with the _____ to build them new and subtract depreciation.

Answer 12

cost

Question 13

The point is, you can’t do a Cost Approach without having a ____ _____. It is an integral part of the approach.

Answer 13

site value

Question 14

The basis for real estate taxation is an ________ value that is placed on the tax roll for each property in the taxing jurisdiction. That _______ value bears a relationship to the value of that parcel of real property.

Answer 14

assessed; assessed

Question 15

In some jurisdictions the assessed value is purported to represent the _____ market value of the real property. In other taxing jurisdictions, the assessed value is applied as a ____ of full market value.

Answer 15

full; ratio

Question 16

The bottom line amount of real estate taxes should be _____ in either situation. The total taxes are the product of ______value multiplied by a _____rate.

Answer 16

equal; assessed; tax

Question 17

Let’s assume that a property is worth $100,000. If it is assessed at $100,000 and the rate per thousand is $5, the taxes would be

Answer 17

$500

Question 18

The process of determining these assessed values varies tremendously from ________ to ________

Answer 18

jurisdiction to jurisdiction

Question 19

At any rate, most states mandate that the total assessed value for each property be broken into two components. What are those components?

Answer 19

land and total values

Question 20

________ appraisals are required when a municipality exercises power of eminent domain.

Answer 20

Condemnation

Question 21

Under eminent domain, any level of government can take a property for the public good, provided there is _____ ________paid to the property owner

Answer 21

just compensation

Question 22

A state department of transportation plans to widen an existing highway for the purpose of straightening a curve. Then, just a portion of a homeowner’s property along the front averaging 35 feet in depth will be taken. What is this an example of?

Answer 22

Eminent domain

Question 23

Several ______ __________techniques require that the value of a site be determined separately from the value of the total property.

Answer 23

income capitalization

Question 24

In the______ _________technique, the starting point is the value of the land. Then, the portion of the net income that is attributable to the land is subtracted and the remaining net income is attributable to the building improvements.

Answer 24

building residual

Question 25

A site has 4.6 acres. You analyze the market and determine it could have four possible uses that would be legally permissible, physically possible and financially feasible. Which one would be the highest and best use of the site?

A. Used as a site for a large single-unit house it would be worth $175,000.

B. Used as a site for two duplexes, it would be worth $45,000 per unit.

C. Used as a site for a small medical center, it would be worth $40,000 per acre.

D. Used as a site for an office complex, it would be worth $25 per SF of rentable space. It could support two buildings that each measure 45’ x 85’.

Answer 25

A. One unit = $175,000

B. 4 units X $45,000 = $180,000

C. 4.6 acres x $40,000 = $184,000

D. 45 x 85 x 2 buildings =
7,650 SF x $25 = $191,250

Answer: D

Question 26

A site has 4.6 acres. You analyze the market and determine it could have four possible uses that would be legally permissible, physically possible and financially feasible. Which one would be the highest and best use of the site?

A. Used as a site for a large single-unit house it would be worth $175,000.

B. Used as a site for two duplexes, it would be worth $45,000 per unit.

C. Used as a site for a small medical center, it would be worth $40,000 per acre.

D. Used as a site for an office complex, it would be worth $25 per SF of rentable space. It could support two buildings that each measure 45’ x 85’.

Answer 26

A. One unit = $175,000

B. 4 units X $45,000 = $180,000

C. 4.6 acres x $40,000 = $184,000

D. 45 x 85 x 2 buildings =
7,650 SF x $25 = $191,250

Answer: D. Produces the highest return to the site

Question 27

A parcel is valued at $160,000 as a large single-family homesite with no further development costs required. Zoning allows it to be subdivided into four lots, and it is estimated that each lot could sell for $50,000. Site development costs (sewer, grading, road, etc.) would cost $60,000. What is the highest and best use?

Answer 27

Leave it alone!

$50,000 x 4 = $200,000
$200,000 - $60,000 = $140,000 value of property as subdivided into 4 lots

$160,000 = value as single parcel

Question 28

A 2.3 acre parcel that can be developed into four smaller lots or two larger lots.

Legal considerations: Zoning will allow two lots per gross acre. The subject parcel is 2.3 acres.

Physical considerations: The town allows septic systems if at least one acre - smaller lots require sewer. The sewer line is 800 feet away. You could develop four smaller lots on sewer or two larger lots on septic systems.

Financial feasibility: Comparable one-half acre lots with sewer sell for $65,000. Comparable one-acre lots without sewer sell for $90,000. The sewer extension will cost $75,000 and a typical septic system costs $7,500.

Which yields the maximum profitability? (Spend some time working this out. Use scratch paper if you have to. Hint: consider the total lot values for each of the two alternatives and then subtract the development costs.)

Answer 28

Answer: Smaller Lots
Small lots:
4 x $65,000 = $260,000
Development costs - 75,000
Value $185,000

Larger lots:
2 x $90,000 = $180,000
Development costs - 15,000
Value $165,000

Question 29

True or False: Condemnation appraisals often require an appraiser to develop a separate opinion of site value.

Answer 29

True

Question 30

Improvements that could be made to raw land in order to make a site would include

permits
grading
fill
any of these

Answer 30

any of these

Question 31

True or False: The difference between land and site is that land is improved, while site is not.

Answer 31

False

Question 32

Most MLS listings today employ ___ ________ in the property description. That makes it a snap for an appraiser to quickly and definitively locate comparable sales when making an inspection.

Answer 32

GPS Coordinates

Question 33

Real property for which the expansion, redevelopment, or reuse of the real estate may be complicated by the presence of environmental contamination that needs to be remediated to appropriate regulatory standards.

Answer 33

Brownfield

Question 34

The EPA estimates there are about ________ brownfields nationwide. __________ is the most common contaminant

Answer 34

500,000; Petroleum

Question 35

George W. Bush signed H.R. 2869, which provides ______ ______ for those who buy brownfield sites. States will handle most lower-level _______, but the Environmental Protection Agency (EPA) will control sites that _____ state lines or that pose an imminent threat to public health or the environment.

Answer 35

liability insurance; clean ups; cross

Question 36

Six ways to develop an opinion of land or site

Answer 36

Sales comparison 
Extraction
Allocation
Subdivision development
Land Residual
Ground rent capitalization

Question 37

The most commonly-used approach for valuing sites is the sales comparison method.

Answer 37

Sales comparison method

Question 38

Assuming there is adequate data available, this is the preferred method for valuing sites because it is the most accurate and most understandable, and should be utilized whenever possible. The only limitation to this approach is that you must have adequate market data.

Answer 38

Sales comparison method

Question 39

In contrast to improved property, in using the Sales Comparison Approach for vacant land, the appraiser will typically need to use more sales, probably ___ or more comparable sales instead of the minimum of three sales.

Answer 39

6

Question 40

Two similar sites sell within a few months along the same road. One site has many trees, whereas the other has been stripped of trees. The treed site (Sale #1) sells for $55,000, and the bare site (Sale #2) sells for $50,000.

The subject property has plenty of trees, and it is very similar to Sale #3 except that Sale #3 has no trees. Sale #3 sold for $40,000. In comparison, the subject property is worth how much?

Answer 40

The sale is inferior to the subject, so the subject should be worth more. First, we use our paired sales (Sales #1 and #2) to extract the adjustment. $5,000/$50,000 = 10%. That is the percentage adjustment factor we will use. We then apply a positive 10% adjustment to Sale #3. $40,000 X 1.10 = $44,000.

Question 41

When utilizing sales comparison, adjustments to the comparable sales may be made either on a _______ or _______ basis.

Answer 41

quantitative; qualitative

Question 42

These adjustments are usually made on a percentage or dollar basis.

Answer 42

Quantitative

Question 43

As a potential solution to a shortage of land or site sales, it may be possible to study trends among groups of ______ ______ (group data analysis) instead of finding and comparing two individual sales that are similar except for one significant difference (paired sales analysis).

Answer 43

property sales

Question 44

If we look closely enough at two different sites, we could probably distinguish 20 or 30 very minor differences between the two. It is not necessary or appropriate to make that many adjustments. We only need to adjust for items that are _______.

Answer 44

significant

Question 45

Possible reasons for adjustments

Answer 45

Size
shape
traffic
topography
unusable area
zoning
restricitons

Question 46

If your comparable sales are not sufficiently similar so as to allow for direct comparison, then we can resort to breaking the available sales into common ___ __ ________

Answer 46

units of comparison

Question 47

When appraising land or sites, the most common units of comparison are…

Answer 47

Price per sq foot
Price per acre
Price per front foot
Price per lot
Price per buildable unit
Price per animal unit

Question 48

Dividing the sales price of each comparable land sale by the amount of square feet in each.

Answer 48

Price per square foot

Question 49

Dividing the sales price of each comparable sale by the number of acres. Best used for larger parcels.

Answer 49

Price per square acre

Question 50

A primary measure of value for waterfront properties and for commercial properties along a major roadway.

Answer 50

Price per Front Foot

Question 51

In some cases the market may not recognize size differences between lots. As an example, Don Developer may carve up a parcel of 80 acres into 40 lots. Don may simply choose to price all the lots at $60,000 at the beginning, regardless of their individual size, and then increase the per unit price as time goes on. Therefore, if you were using lots in that subdivision for comparable sales, it would make sense to just see what they sold for per lot. Don is using which unit of comparison?

Answer 51

Price per lot

Question 52

This unit of measurement is usually employed with a parcel that is capable of a small subdivision. Most often, it is used with multi-unit properties.

Answer 52

Price per Buildable Unit

Question 53

You will encounter this unit of measurement in ranch or farm land.

Answer 53

Price per Animal Unit

Question 54

When using the sales comparison method in valuing a site, adjustments should be made for differences that are __________.

more than $1
significant
more than $100
noticeable when driving by the property

Answer 54

Significant

Question 55

The most commonly-used land appraisal report form

• was created by Fannie Mae
• is a generic form
• was created jointly by Fannie Mae and Ginnie Mac
• is not recognized by the major appraisal software companies

Answer 55

Is a generic form

Question 56

A rectangular parcel of land has 114 feet of frontage and is 222 feet deep. It sold for $280,000. What did it sell for per square foot?

$12.54
$10.88
$11.06
$24.56

Answer 56

$11.06

222x114= 25,308
280,000 / 25,308 = 11.06

Question 57

True or False: A postal mailing address is equivalent to a legal description.

Answer 57

False

Question 58

A method of estimating land value in which the depreciated cost of the improvements on an improved property is calculated and deducted from the total sale price to arrive at an estimated sale price for the land

Answer 58

Extraction Method

Question 59

Improved sales in rural areas are frequently valued using this site valuation method because the building improvements may have a minimum contributory value in comparison to the underlying land value.

Answer 59

extraction method

Question 60

A run-down neighborhood grocery store on a good corner location in a desirable older neighborhood recently sold for $400,000.

The reproduction cost of the improvements today would be $250,000 and the total depreciation is estimated to be 80%.

By extraction, what is the land value?

Answer 60

$250,000 x .80 = $200,000. That amount is lost and gone forever. $250,000 - $200,000 = $50,000. Therefore, the present value of the improvements is only $50,000.

Question 61

After diligent research, you’re unable to come up with vacant land sales in the vicinity of an assignment you have in Old Town. You do uncover a sale of a dilapidated storefront with two apartments upstairs. The sale price was $250,000. Your investigation of the building department’s records allows you to calculate that the reproduction cost of the improvements would currently be $280,000. After an analysis of the property, you conclude that the total accrued depreciation is 60%. On that basis, what would be your conclusion as to the value of the land?

$80,000
$112,000
$138,000
$250,000

Answer 61

$280,000 x .60 (depreciation) = $168,000

$280,000 - $168,000 = $112,000 (value of improvements)

$250,000 (sale price) - $112,000 (value of improvements) =

$138,000 (value of land)

Question 62

A method of estimating land value in which sales of improved properties are analyzed to establish a typical ratio of land value to total property value and this ratio is applied to the property being appraised or the comparable sale being analyzed

Answer 62

Allocation Method

Question 63

The basic assumption in this method is that there is a normal or typical ratio between the land value and total value. So we quantify the value of the land as a percentage of the total value.

Answer 63

Allocation method

Question 64

You are having a hard time finding recent sales of vacant land in an established built-up residential area. You have found several older sales where you have applied the extraction method to their sale prices and determined that the typical land to improvement ratio was 30% land and 70% improvements. The site sizes are similar to your subject property site.

You have several recent good comparable sales of improved sales and need to determine the land value of your subject so you apply that established 30% ratio of land value to the comparable sales then reconcile those land values to determine the land value of the subject of your appraisal. Below are the improved sales.

Sale 1 - Site size: 12,000 sf. $230,000 X 30% = $69,000 = $5.75 sf

Sale 2 - Site size: 11,500 sf. $218,000 X 30% = $65,400 = $5.69 sf

Sale 3 - Site size: 12,500 sf. $242,000 X 30% = $72,600 = $5.81 sf

Sale 4 - Site size: 9,000 sf. $187,000 X 30% = $56,100 = $6.23 sf

Your subject property site size is 12,000 sf. By the allocation method, what is your opinion of the value of the subject site?

Answer 64

Depending of the variables you consider in your reconciliation process, the site value would be somewhere around $5.80 to $5.90 per square foot, or $69,600 to $70,800. In the real world, the hard part is obtaining that 30% ratio.

Question 65

How do we know what percentage to choose for our ratio of land value to total value? Support for an allocation ratio may be derived from:

Answer 65

Mass appraisals
Observed patterns
Consultations with developers on their costs
An appraiser's files
Published studies

Question 66

The application of computer technology and statistical techniques to the solution of appraisal problems; used in assessment administration to derive value indications in the cost and sales comparison approaches and to perform other functions, e.g., assessment ratio analysis.

Answer 66

Mass Appraisals

Question 67

In almost all jurisdictions, assessors are required to place a separate _________ on the land value of each property on the tax roll.

Answer 67

Assessment

Question 68

Real property value is created and sustained when contrasting, opposing, or interacting elements are in a state of equilibrium.

Answer 68

Principle of Balance

Question 69

Real property value is created and sustained when the characteristics of a property conform to the demands of its market.

Answer 69

Principle of Conformity

Question 70

The subject has a total value of $300,000 by the sales comparison approach.
One neighborhood across town has home sales from $260,000 to $270,000, and recent lot sales average $63,000.

Another nearby neighborhood has $340,000 home sales, and recent lot sales of $70,000.

A builder in the area says his lots typically run about 25% of total value on new construction.

What is the subject land worth, based on allocation?

Answer 70

In the first neighborhood, let’s choose an average of $265,000 for improved property sales. $63,000 divided by $265,000 = .24 or 24%

In the second neighborhood let’s divide $70,000 by $340,000 = .21 or 21%

The indication from the builder is 25%. Let’s convert those percentages to dollars. The subject total value is $300,000.

$300,000 x .21 = $63,000
$300,000 x .24 = $72,000
$300,000 x .25 = $75,000

Therefore, the indicated value of the subject lot ranges from $63,000 to $75,000.

Question 71

A method of estimating land value in which the net operating income attributable to the land is isolated and capitalized to produce an indication of the land’s contribution to the total property.

Answer 71

Land Residual Method

Question 72

In the _____ _______ method, the basis is that part of the income from real property comes from the land and that part of the income stream is attributable to the improvements. If we can isolate the portion of the income stream that is attributable to the land, then we can capitalize that into a value for the land.

Answer 72

land residual

Question 73

basic income capitalization formula

Answer 73

Income/Rate= value

Value = Market value
Income = Net operating income
Rate = Capitalization rate

Question 74

A method of estimating land value; applied by capitalizing ground rent at a market-derived rate. This method is useful when comparable rents, rates, and factors can be developed from an analysis of sales of leased land or other market sources.

Answer 74

Ground Rent Capitalization Method

Question 75

Ground Rent Capitalization method:

We have a ground rent of $135,000 and a market derived rate of 9%. What is the value of the land?

Answer 75

$135,000 divided by .09 = $1,500,000. That’s all there is to it at this point but again it’s not that easy to find the appropriate rate. We also need to investigate the terms of the ground lease to see if the contract rent represents market.

Question 76

Which two methods should only be utilized when the subject property is income producing by nature?

Answer 76

Land Residual and Ground Rent Capitalization

Question 77

Relative comparison analysis and ranking analysis are quantitative or qualitative methods?

Answer 77

Qualitative

Question 78

This method analyzes the comparables to determine whether each one is, overall, superior, equal to, or inferior in comparison to the subject.

Answer 78

Relative comparison analysis

Question 79

This method is a variant of relative comparison analysis, in which the comparable sales are ranked in ascending or descending order. Then the relative position of the subject is determined within the array.

Answer 79

Ranking Analysis

Question 80

True or False: The extraction method of site valuation typically has good applicability in older urban areas.

Answer 80

True

Question 81

Relative comparison analysis and ranking analysis are __________ methods.

qualitative
quantitative
non-recognized
precise numeric

Answer 81

Qualitative

Question 82

The subdivision development method of land valuation is a variation of

the sales comparison method
discounted cash flow analysis
allocation
residual

Answer 82

Discounted cash flow analysis.

The subdivision development method is a variation of a discounted cash flow analysis. It involves complex calculations over a future time frame and then discounts projected income and expenses back to present worth estimates.

Question 83

Another name for the extraction method of site valuation is

ground rent capitalization
abstraction
absorption
regression analysis

Answer 83

abstraction

Question 84

The summation approach is another name for the _________ approach.

cost
market
income capitalization
None of the above

Answer 84

Cost

Question 85

Property in built-­up urban residential areas is usually valued on the basis of price per

square foot
acre
front foot
lot

Answer 85

Square foot

Question 86

“A method of estimating land value in which sales of improved properties are analyzed to establish a typical ratio of land value to total property value…” is the definition of the __________ method.

extraction
subdivision development
allocation
sales comparison

Answer 86

allocation

Question 87

“Improved land or a lot in a finished state so that it is ready to be used for a specific purpose” is the definition of

improved land
situs
site improvements
site

Answer 87

site

Question 88

Which of these is NOT a technique used for site valuation?

Sales comparison
Breakdown method
Ground rent capitalization
Extraction

Answer 88

Breakdown method

Question 89

A property with an old house sold for $220,000. The cost new of the house was $280,000 and it was 75% depreciated. What is the site value of the property by extraction?

Answer 89

150,000

280,000 x .75 = 210,000
280,000 - 210,000 = 70,000
220,000 - 70,000 = 150,000

Question 90

A site is currently rented for $600 per month and the ground rent capitalization rate is 7.5%. What is the indicated value of the site?

$20,000
$80,000
$96,000
$115,000

Answer 90

96,000

Ground Rent Capitalization Method. $600 month X 12 months = $7,200 per year. $7,200 ÷ .075 = $96,000.

Question 91

The ___________method has good application in valuing land in rural areas and in older, urban areas.

extraction
subdivision development
land residual
ground rent capitalization

Answer 91

extraction

Question 92

The tax rate per thousand in a municipality is $12.80. If the property taxes are $1,984 for a particular property, what is the property’s assessed value?

$125,000
$155,000
$195,000
$310,000

Answer 92

$155,000***

Question 93

The ground rent capitalization method is most applicable when appraising a _______ interest.

leased fee
leasehold
fee simple
land residual

Answer 93

leased fee

Question 94

Which would NOT be considered to be a site improvement?

grading
sub-soil composition
fill
permits

Answer 94

sub-soil composition

The composition of the sub-soil would be a factor of the site itself – not improvements to the site.

Question 95

What is another name for the cost approach?

Market approach
Reproduction approach
Summation approach
Qualitative approach

Answer 95

summation approach

Question 96

A property sold for $50,000. The reproduction cost of the building was $80,000 and it was 60% depreciated. By extraction, what is the value of the land?

$12,000
$18,000
$22,000
$32,000

Answer 96

$18,000

Extraction Method. $80,000 X 60% (0.60) = $48,000. $80,000 - $48,000 = $32,000 (which represents the current depreciated value of the improvements). Total sale price of $50,000 - $32,000 depreciated value of improvements = $18,000 land value.

Question 97

What is the name of the process that the government uses when it takes private property for public good?

Condemnation
Adverse possession
Escheat
Seizure

Answer 97

condemnation

Question 98

Which of the following is a technique for site valuation?

Subdivision development
Sales comparison
Allocation
All of the above

Answer 98

all of the above

Question 99

Property that fronts on a lake is often valued using what unit of comparison?

Price per acre
Price per front foot
Price per fish or animal unit
Price per buildable unit

Answer 99

price per front

Question 100

A parcel is valued at $450,000 as a single entity. Zoning allows it to be subdivided into 8 lots and it is estimated that each lot could sell for $60,000. Site development costs (sewer, grading, road, etc.) would cost $50,000. What is the highest and best use?

Leave it as one parcel
Subdivide it
There is not enough information
Both are highest and best use – both are equally profitable

Answer 100

Leave it as one parcel

Question 101

If a property is assessed at $222,000 and the rate per thousand is $6.20, how much are total property taxes?

Answer 101

$1376.40

Assessments and Taxation. 222 (thousands) X $6.20 = $1,376.40.

Question 102

A commercial site currently rents for $4,000 per month. The applicable land capitalization rate is 6%. What is the value of the site by the ground rent capitalization method?

Answer 102

$800,000

4,000 x 12 =48,000
48,000 / .06 = 800,000

Question 103

The ground rent capitalization method is most applicable when appraising which of the following __________.

vacant land
subdivision land
a residential building
land under a McDonalds restaurant where McDonalds owns the building

Answer 103

land under a McDonalds restaurant where McDonalds owns the building

Question 104

GPS stands for

Geographic Positioning Satellite
Geological Positioning Society
Global Positioning System
Geographic Positioning Service

Answer 104

Global Positioning System