Chapter 6 Quiz Flashcards
What principle of value is represented by a developer purchasing a parking lot in a busy downtown area and replacing it with an office building?
A. Substitution
B. Highest and best use
C. Increasing and decreasing returns
D. Conformity
B. A property’s highest and best use is its most profitable use that is legal, financially feasible, physically possible and maximally productive.
Which of the following does an appraisal NOT help determine?
A. The amount of a loan a seller can transfer to a buyer.
B. Whether the owner of a home has enough quite to take out another loan.
C. The amount a lender will lend to a buyer.
D. The listing price of the property.
A. An appraisal can influence a listing price and determine what a lender is willing to lend to a buyer. A lender uses an appraisal to evaluate a seller’s equity in the home if a seller applies for another loan. It does not determine the terms of a transferable loan.
What is the difference between an appraisal and market value?
A. Creativity
B. Objectivity
C. Accountability
D. Suitability
B. Some functions or a real estate licensee and an appraiser are similar. Both develop an opinion of value based on the current real estate market, but they do not determine or create value. The difference between a licensee’s market analysis and an appraisal is that the appraiser does not have an interest in the value of the property and an be objective in the process.
Which condition would have the least effect on a home’s value?
A. Homes significantly lower in value.
B. Large homes converted to small apartments.
C. Vacant lots in good condition.
D. Mixed residential and commercial uses.
C. The principle of regression and progression means that a home’s value would be more affected by nearby commercial development, conversion of neighboring homes to apartments, and nearby homes with significantly lower values than it would be by existing vacant lots.
What principle of value states that the maximum value of a property is established by the value of other similar properties?
A. Supply and demand
B. Substitution
C. Anticipation
D. Conformity
B. The principle of substitution states that the maximum value of a property is established by the value of similar properties. Substitution is the most commonly used principle to determine value.
Why does a licensee conduct a comparative market analysis?
A. To determine the insurable value of a property.
B. To estimate the most probable selling price of a property.
C. To evaluate current market conditions.
D. To anticipate future market conditions.
B. A licensee conducts a comparable market analysis to determine the likely value of a property.
Which property is the most suitable comparison property if the subject property is a six-year-old home with three bedrooms, one and a half baths, and 1,500 square feet of living space?
A. A house with the same floor plan, which is located in a subdivision on the other side of town.
B. A house with the same floor plan and in the same community, which sold five years earlier.
C. A house with the same floor plan located in the same subdivision, which sold a month ago.
D. A house that has 3,500 square feet of living space located in the same community that sold last week.
C. The market analysis approach to value compares the subject property to recently sold comparable properties. The selected comparable properties should be similar to the subject property in features, date of sale, age, condition and location. A house with the same floor plan located in the same subdivision that recently sold will most accurately reflect the subject property’s value.
Which value is more similar to a property’s market price?
A. Depreciated value
B. Insured value
C. Mortgage value
D. Market value
D. A property sells for its market price. An estimation of the price for which a property will sell is its market value.
For which property is the direct market comparison most useful when determining market value?
A. An apartment building
B. An older residence
C. A store building
D. A remodeled office building
B. The market data approach is the most reliable approach to value for a single-family home.
To realize maximum value, a property should be in line with existing neighborhood standards of design, construction, size and age. Which principle of value does this demonstrate?
A. Conformity
B. Contribution
C. Anticipation
D. Highest and best use
A. The principle of conformity states that a building’s value in an area is higher if neighboring buildings are a similar age, construction, use and size.
What should a salesperson do when a seller asks for a comparison of recent neighborhood sales?
A. A market feasibility study.
B. A comparative market analysis.
C. An appraisal of market conditions.
D. A local area appraisal.
B. A salesperson can perform a comparative market analysis, but only a licensed appraiser can conduct an appraisal.
A builder developed a subdivision in which the demand for homes was great. The last home sold for a much higher price than the first log had sold in the area. Which principle of value does this illustrate?
A. Conformity
B. Substitution
C. Highest and best use
D. Supply and demand
D. When a property is in high demand and low supply, it will sell for a higher price than if it was in low demand with a high supply. As the availability of lots in the subdivision decreased and the demand stayed the same, the price increased.
What is the best comparable property for appraising a subject property?
A. A similar recently sold home in the same neighborhood.
B. A similar recently sold home in a neighborhood across town.
C. A similar home sold with favorable owner financing to the seller’s sister.
D. A home sold by a seller facing foreclosure.
A. The market analysis approach to value compares the subject property to recently sold comparable properties. The selected comparable properties should be similar to the subject property in features, date of sale, age, condition and location. A licensee must account for the terms of a property’s sale when deciding whether it is an appropriate comparison property. A property that sold at foreclosure, with owner financing to a relative, or with a significant defect such as a tax lien is not a suitable comparable property unless the subject property shares the same characteristics.
Which of the following is NOT part of the definition of market value?
A. Both the buyer and seller must be well informed.
B. Payment must be made in cash or its equivalent.
C. Both the buyer and seller must act without undue pressure.
D. Market value is the average price a property will bring.
D. Market value is not an estimate of the average price a property will bring, but rather it’s an opinion of value for which a property would likely sell to a buyer.
