Chapter 3: Appraising Residential Condominiums Flashcards
If Mary is buying a condominium unit in Calgary, in which of the following elements is Mary purchasing an ownership?
1.) The proportionate share of common property
2.) The individual condominium unit
3.) The proportionate share of reserve fund assets and obligations
4.) All of the above
4.) All of the above
Which of the following statements regarding condominiums is FALSE?
1.) Conversion is the stratification of a building by subdividing it into separate lots of ownership
2.) Base land subdivision is the stratification of a single parcel of land into separate lots of ownership, which can be developed b the owner, subject to strata bylaws
3.) Conversion of a building always decreases the supply of apartments for rent, and increases the supply of condominiums for purchase
4.) In a base land subdivision, the condominium owners are a responsible for the maintenance of all the associated common property of the subdivision
3.) Conversion of a building always decreases the supply of apartments for rent, and increases the supply of condominiums for purchase
Eastern Developments Co. is constructing a mixed-use building that the commercial stores and offices on the lower floors and residential units in the higher floors above. The CEO is evaluating alternatives on how to subdivide the air space rights for this project. Which of the following is FALSE?
1.) If Eastern Development co. plans to retain ownership of the commercial units as an investment they will most likely file a separate condominium plan specifically for the residential units, and retain ownership of all the remaining air space rights within the property boundary
2.) If Eastern Development Co. plans to sell all commercial and residential units after completion they will most likely file a separate condominium plan specifically for the commercial units and all the remaining air space rights within the property boundary will be allotted to the residential units
3.) Eastern Development Co. should not subdivide the air space rights because it is very expensive and there is no advantage for this particular development
4.) Mixed-use condominium buildings with subdivided air space rights typically have more charges, such as easements on the certificate of title
3.) Eastern Development Co. should not subdivide the air space rights because it is very expensive and there is no advantage for this particular development
Karen recently moved to Toronto and is evaluating different housing alternatives. There are two separate condo units she has the option to purchase, or three different housing cooperatives she could purchase shares in. All the alternatives are comparable in quality. Which of the following is MOST likely to be TRUE?
1.) Karen has poor credit and is worried about obtaining financing. Given this, she should buy into one of the cooperatives because it will likely have a lower interest rate of the loan
2.) Karen is worried that she will have to move away from Toronto very suddenly for work sometime in the next ten years. Given this, she should purchase a condominium unit because they are easier to sell than shares in a cooperative
3.) Four shares in one of the cooperatives must be worth twice as much as two condominium units in the condo building
4.) One cooperative owns the land, while the other two have long-term land leases with 48 and 62 years remaining, respectively. However, since Karen only plans on living in Toronto for the next 10 years, these differences will not affect her purchase price or resale value.
2.) Karen is worried that she will have to move away from Toronto very suddenly for work sometime in the next ten years. Given this, she should purchase a condominium unit because they are easier to sell than share in a cooperative.
Aside from the building itself, which of the following is/are an important source(s) of information for an appraiser engaged in valuing a condominium unit?
1.) The condominium bylaws and minutes of council meetings
2.) The official condominium plan from the land title or registry office
3.) The reserve fund study and subsequent reserve fund plan
4.) All of the above
4.) All of the above
Which of the following factors is LEAST likely to influence the value of a condo unit in a high rise building?
1.) The occurrence of a 13th floor
2.) Proximity to service areas such as the elevator or garbage disposal
3.) Proximity to amenity areas such as storage or parking
4.) Orientation and view of the condo unit
1.) The occurrence of a 13th floor
An investor owns an older three-storey walk-up rental apartment building. He is considering tearing down the building and redeveloping into a new mid-rise tower. He has hired you to appraiser the property towards his application for refinancing. You have carried out the highest and best use analysis and confirmed subdivision and sale of condo units is the maximally productive use. As part of this, you need to estimate the market value upon completion as a mid-rise condo tower. What appraisal approach(es) will you use to estimate this market value upon completion?
1.) Direct comparison analysis is the first and only appraisal approach used for all condo buildings
2.) Given the current rental use, direct comparison analysis is not appropriate for this assignment
3.) Direct comparison analysis is the primary method used for most condo buildings, but for new buildings such as this the cost method may be useful to corroborate the market value
4.) The income approach will be the primary method for this new condominium mid-rise project
3.) Direct comparison analysis is the primary method used for most condo buildings, but for new buildings such as this the cost method may be useful to corroborate the market value
Which of the following statements regarding the hybrid adjustment technique within direct comparison appraisal is FALSE?
1.) Hybrid adjustments help appraisers focus their attention on direct support for key value attributes, with the rest considered qualitatively
2.) Generally, qualitative adjustments are made on primary adjustment variables and quantitative adjustments are made on secondary adjustment variables
3.) Quantitative adjustments are most common for the following three primary variables: market conditions, location and size
4.) Residential form reports may not lend themselves to the hybrid approach
2.) FALSE - Generally, qualitative adjustments are made on primary adjustment variables and quantitative adjustments are made on secondary adjustment variables
Consider the following information on three sales of similar single-family dwellings.
- Sale #1 was listed for sale at $380,000. After 120 days on the market, the list price was reduced to $350,000. Sixty days later, the house was successfully sold for $340,000. The property was on the market for a total of 180 days.
- Sale #2 was listed for sale at $349,000 and sold after 45 days for $345,000
-The owners of Sale #3 were relocating to a different city and had already committed to purchase another home. They wanted a quick sale of their current home and listed it for sale at $339,000. The house sold in 3 weeks for $338,000.
Based on this information, what is the most reasonable exposure time estimate?
1.) 21-180 days
2.) 21-60 days
3.) 45-80 days
4.) 45-60 days
4.) 45-60 days
You are appraising a condo in a new high-rise building. One of your comparables sold recently in a neighbouring building, also new. However, it sold in a financing promotion that the developer offered to move the last few units. This called for “pay no interest for 6 months!” Given market rates, the interest savings to the purchaser is calculated to be $17,000 in present value terms. Which of the following statements BEST describes how you should proceed with this comparable?
1.) The sale price should be adjusted downward by exactly $17,000
2.) The sale price should be adjusted upward by exactly $17,000
3.) You need to interview the buyer, seller, brokers, or other participants in this sale to better understand if and how the financing may have affected the price paid
4.) You should make no adjustment as appraisal is pre-tax, pre-financing, so this is not an appropriate element of comparison
3.) You need to interview the buyer, seller, brokers, or other participants in this sale to better understand if and how the financing may have affected the price paid
James is a prospective buyer of an attractively prices strata unit located in Victoria, BC. The only issue is that a depreciation report has not been commissioned, and there is no significant reserve fund balance. Which of the following statements regarding this strata building is TRUE?
1.) The lack of a healthy reserve fund is not an issue for James as long as he reads the strata council’s meeting minutes to determines if there are any special levies pending
2.) If James purchases the unit now and a special levy is passed six months from now, the previous owner will be responsible to pay the special levy
3.) Since the building is only four years old, the lack of a healthy reserve fund is inconsequential
4.) The strata unit may be listed at an attractive price to reflect the fact that there is not a healthy reserve fund balance
4.) The strata unit may be listed at an attractive price to reflect the fact that there is not a healthy reserve fund balance
Rachel bought a 3-year old condo located in downtown Toronto for the list price of $550,000. She spent the last 6 months renovating and refurnishing the entire condo unit, at a cost of $150,000. upon completion of the renovations, she assumes that the market value of her condo will now be $700,000, but a newly commissioned appraisal report shows its market value at only $585,000. Which of the following statements BEST describes the improvements that Rachel made to her condo?
1.) The improvements were inadequate
2.) These improvements were highly valued by the market
3.) When renovating condos, cost always equals value
4.) The cost of the improvements did not translate directly into the market value contribution
4.) The cost of the improvements did not translate directly into market value contribution
Freddie is the owner of a condo located in Winnipeg, Manitoba. This past winter, the immense weight of snow build-up on the roof damaged the roof structure and led to building envelope failure. The condominium council has received an $800,000 estimate for repairs. Due to the unexpected nature of this damage, the council is recommendation that the repairs are funded by a special levy of $16,000 per owner. Assume that immediately prior to the roof damage, Freddie’s unit was valued at $350,000. Which of the following statements regarding decision alternatives and the resulting effect on the condo’s market value is TRUE?
1.) If the owners vote in favour of a $300,000 partial repair funded by a special levy of $6,000, this will likely resolve the problem quickly and inexpensively with no future impact on market value.
2.) If the owners vote for the special levy, the current market value of Freddie’s condo may decrease by approximately $16,000
3.) If the owners vote in favour of the special levy and repairs, the history of roof problems will severely affect the long-term marketability of the building
4.) The owners will each be ahead by $16,000 by voting against the special levy and repairs
2.) If the owners vote for the special levy, the current market value of Freddie’s condo may decrease by approximately $16,000
Which of the following statements is TRUE?
1.) Neither cooperatives or condominiums can involve leasehold land
2.) Condominium buildings tend to have higher quality fixtures and common area improvements than otherwise equivalent rental buildings
3.) Residents in a cooperative hold a freehold interest in their unit
4.) One of the advantages of a cooperative over a condominium is ease of financing, typically with lower interest rates
2.) Condominium buildings tend to have higher quality fixtures and common area improvements than otherwise equivalent rental buildings
Which of the following is NOT one of the recommendations for inspecting condo buildings and units?
1.) Complete preliminary research online to learn the legal description of the building, as well as any background information such as problems with the condo board or deferred maintenance
2.) Inspect the mail room to count the number of units in the building and check the resident notice board for any pertinent information
3.) Inspect the subject unit and the other condo units in the building for a comprehensive comparison
4.) Attempt to speak with the property manager to gain more information on the building and management
3.) Inspect the subject unit and the other condo units in the building for a comprehensive comparison
