Estimating Real Property Value

Question 1

The combining of two or more adjoining properties into one tract.

Answer 1

assemblage

Question 2

A method for estimating the market value of a property based on the cost to buy the site and to construct a new building on the site, less depreciation.

Answer 2

cost-depreciation approach

Question 3

When the correction of a defect results in as much added value as the cost to correct the defect.

Answer 3

curable

Question 4

A loss in value for any reason; a deduction for tax purposes.

Answer 4

depreciation

Question 5

The period of time a property may be expected to be profitable or productive; useful life.

Answer 5

economic life

Question 6

The age indicated by a structure’s condition and utility.

Answer 6

effective age

Question 7

The resulting amount when vacancy and collection losses are subtracted from potential gross income.

Answer 7

effective gross income (EGI)

Question 8

Any sale transaction that ultimately involves a federal agency in either the primary or secondary mortgage market. Under FIRREA, state-certified or state-licensed appraisers must be used for certain loans in federally related transactions.

Answer 8

federally related transaction

Question 9

A rule of thumb for estimating the market value of commercial and industrial properties; the ratio to convert annual income into market value.

Answer 9

gross income multiplier (GIM)

Question 10

A rule of thumb for estimating the market value of income-producing residential property; the ratio to convert rental income into market value.

Answer 10

gross rent multiplier (GRM)

Question 11

A principle of value that focuses on the most profitable legal use to which a property can be put.

Answer 11

highest and best use

Question 12

A method of estimating the market value of property based on the present and future income the property can be expected to generate.

Answer 12

income capitalization approach

Question 13

When the cost to correct a defect is greater than the value of the added by the cure.

Answer 13

incurable

Question 14

The worth of a property to a particular investor based on the investor’s desired rate of return, risk tolerance, etc.

Answer 14

investment value

Question 15

The most probable price a property will bring from a fully informed buyer, willing but not compelled to buy, and the lowest price a fully informed seller will accept if not compelled to sell.

Answer 15

market value

Question 16

The resulting amount when all operating expenses are subtracted from effective gross income.

Answer 16

net operating income (NOI)

Question 17

An addition or change to property not in line with its highest and best use, or a betterment that exceeds that justified by local conditions.

Answer 17

overimprovement

Question 18

The added value as a result of combining two or more properties into one large parcel.

Answer 18

plottage

Question 19

The total annual income a property would produce with 100 percent occupancy and no collection on vacancy losses.

Answer 19

potential gross income (PGI)

Question 20

the maximum value of a property tends to be set by how much it would cost to purchase an equally desirable and valuable substitute property

Answer 20

principle of substitution

Question 21

The principle that states that the value of an inferior property is enhanced by its association with superior properties of the same type.

Answer 21

progression

Question 22

The process of weighting the estimates of value derived from the sales comparison, cost, and income approaches to arrive at a final estimate of market value.

Answer 22

reconciliation

Question 23

The principle that states that the value of a superior property is adversely affected by its association with an inferior property of the same type.

Answer 23

regression

Question 24

The expenditure of constructing a building with current materials and techniques that has the same functional utility as the structure being appraised.

Answer 24

replacement cost

Question 25

Amount required to duplicate the property exactly.

Answer 25

reproduction cost

Question 26

A method for estimating the market value of a property by comparing similar properties to the subject property.

Answer 26

sales comparison approach

Question 27

Relationships and influences created by location of a property that affect value (e.g., accessibility, personal preference).

Answer 27

situs

Question 28

The real property under discussion or appraisal.

Answer 28

subject property

Question 29

A deduction from potential gross income for (1) current or expected future space not rented due to tenant turnover and (2) loss from uncollected rent due from delinquent tenants.

Answer 29

vacancy and collection losses

Question 30

1. Valuation of real property is an a. estimate of cost. b. estimate of value. c. exact value. d. assessment.

Answer 30

B

Question 31

2. The total expenditure required to bring a new improvement into existence is referred to as a. cost. b. price. c. market price. d. market value.

Answer 31

A

Question 32

3. Which assumption does NOT apply to definition of market value? a. Payment is made in cash or its equivalent. b. Neither the buyer or the seller is under any compulsion to act quickly. c. Market value is the median price a property will bring. d. Both buyer and seller are fully informed.

Answer 32

C

Question 33

4. The approach to estimating value that is referred to as the real estate market speaking through past sales because it uses actual sales transactions is the a. transactional comparison method. b. economic indicator method. c. sales comparison method. d. sales transaction method.

Answer 33

C

Question 34

5. When more money is invested in a building than can reasonably be expected to be recaptured, iti si referred to as a. economic lack of utility. b. overimprovement . c. underimprovement. d. depreciation.

Answer 34

B

Question 35

6. The most probable price in terms of money that a property should bring in an open market is called the a. highest and best use b. sale price. c. market value. d. exchange value.

Answer 35

C

Question 36

7. Loss of value for any reason is called a. transferability. b. substitution. c. depreciation. d. economic obsolescence.

Answer 36

C

Question 37

8. All below are characteristics required to create value EXCEPT a. demand. b. supply. c. utility. d. transferability.

Answer 37

B

Question 38

9. The approach to value most likely to be relevant for appraising a community college is the a. comparable market approach. b. cost-depreciation approach. c. income capitalization approach. d. straight-line approach.

Answer 38

B

Question 39

10. The subject property has 200 less square feet of living are than a comparable. The market are value of 200 square feet is $20,000. Which adjustment should the appraiser make? a. Add $20,000 to the subject b. Add $20,000 to the comparable c. Subtract $20,000 from the subject d. Subtract $20,000 from the comparable

Answer 39

D

Question 40

11. The most relevant approach to estimate the value of a vacant lot in a residential neighborhood usually is the a. square-foot approach. b. cost-deprecitaion approach. c. unit-in-place method. d. sales comparison approach.

Answer 40

D

Question 41

12. In the comparable sales approach a. adjustments are made to the subject properties. b. adjustments are made to the comparable properties. c. the subject property must have sold recently in the same market area as the comparable property. d. the result is considered to be the median value.

Answer 41

B

Question 42

13. The basis of all three approaches to market value is the principle of a. situs. b. substitution. c. overimprovement. d. economic potential.

Answer 42

B

Question 43

14. When applying the cost-deprecitation approach which item is NOT subject to depreciation? a. A poor traffic pattern in a home b. New solid oak wood cabinets and marble tile floors in a neighborhood of $80,000 homes c. Older site improvements d. Land

Answer 43

D

Question 44

15. Which would be considered to be external obsolescence? a. Peeling exterior paint b. One bathroom in a three-bedroom home c. Metal utility shed that is in poor condition located just inside the property line d. A residential property’s proximity to an industrial area

Answer 44

D

Question 45

16. Loss in value due to operational inadequacies, poor design, or changing tastes is referred to as a. physical deterioration. b. functional obsolescence. c. external obsolescence. d. underimprovement.

Answer 45

B

Question 46

17. A small income-producing property has a projected effective gross income of $48,000. Expenses are estimated at 20 percent of effective gross income. An appraiser has determined that an appropriate capitalization rate, based on property type and competing properties, is 9 percent. The estimated market value of this property (rounded to the nearest dollar) is a. $106,667 b. $311,111. c. $426,667. d. $533,333.

Answer 46

C

48000 X .80 = 38400

38400 / .09 = 426667

Question 47

18. The economic characteristic that refers to the preference for a certain location owing to various factors such as climate, employment outlook, and so forth, is called a. highest and best use. b. plottage. c. economic preference. d. situs.

Answer 47

D

Question 48

19. The total estimated time in years that an improvement can be profitably useful is referred to as a. effective age. b. economic life. c. accrued depreciation. d. chronological age of the improvement.

Answer 48

B

Question 49

20. In the income capitalization approach, if the capitalization rate is increased and the net income is unchanged, the a. present value will be less. b. future value will be less. c. present value will be more. d. future value will be more.

Answer 49

A

Question 50

21. A home has 1,800 square feet of living area and 200 sq feet of garage. The reproduction cost new is $48 per sq foot for living area and $28 per sq foot for finished garage area. The site measure 75 feet wide by 110 feet deep and is valued at $3 per sq foot. The economic life of the home is estimated to be 50 years. The house is 10 years old. The value of the property using the cost-depreciation approach is a. $73,600. b. $86,400. c. $92,000. d. $92,350.

Answer 50

D

Question 51

22. A limited partnership wishes to purchase an apartment building that has a monthly net income of $4,000 and monthly expenses of $1,000. If the partnership is to get a 12 percent return on its investment, what should it pay for the property? a. $25,000 b. $33,000 c. $300,000 d. $400,000

Answer 51

D

Question 52

23. An income-producing property has a potential annual gross income of $81,420. Vacancy and collection losses are estimated at 10 percent of potential gross income. Expenses are estimated at $40,000. The estimated value of the property is $250,000. The capitalization rate for this property is a. 13.31 percent. b. 14.91 percent. c. 16.57 percent. d. 17.5 percent.

Answer 52

A

Question 53

24. A home recently sold for $58,500. The rent on the home is $450 per month. The GRM for the home is a. 130. b. 108. c. 10.83. d. 1.08.

Answer 53

A

Question 54

25. An appraiser is calculating the reproduction cost new of a home, suing the comparative square-foot method. The appraiser measures the exterior dimensions of the home, which are 27 feet by 52 feet, plus a detached garage measuring 22 feet by 24 feet. The appraiser consults an accepted cost manual and estimates the reproduction cost for heated and air-conditioned living area to be $52.50 per square foot and the new of the improvements is a. $62,790. b. $73,710. c. $90,870. d. $101,430.

Answer 54

C

Question 55

26. Effective gross income is a. net operating income divided by an appropriate capitalization rate. b. potential gross income minus vacancy and collection losses. c. net operating income minus annual mortgage expense. d. before-tax cash flow divided by equity invested.

Answer 55

B

Question 56

27. You are preparing a CMA for a single-family home that has a two-car garage. You have located a comparable house that sold for $226,000, but it does not have a garage. If a two-car garage is valued at $18,000, which adjustment would you make? a. Add $18,000 to the comparable b. Subtract $18,000 from the comparable c. Add $18,000 to the subject d. Subtract $18,000 from the subject

Answer 56

A

Question 57

28. A building is valued at $150,000 when NOI is capitalized at a rate of 8 percent. NOI is 40 percent of effective gross income. The effective gross income is a. $12,000. b. $22,000. c. $30,000. d. $32,000.

Answer 57

C

Question 58

29. A commercial property has a potential gross income of $40,000. Vacancy and collection losses are 5 percent of PGI. Additional operating expenses total $12,920. The property has a first mortgage requiring payments of $1,070.75 per month. Using a capitalization rate of 12 percent, which amount is an accurate estimate of the property’s value? a. $101,333 b. $107,667 c. $209,000 d. $316,667

Answer 58

C

Question 59

30. The annual income earned on a commercial property is $85,000 and the sale price is $722,500. What is the GIM? a. 6.5 b. 7.5 c. 8.5 d. 9.5

Answer 59

C