Exam Prep Flashcards
The subject is a residential property in a remote location and is accessible only by a dirt road. In the winter months, the road is impassable. The dirt road is a public right of way. This is considered a(n) ________ limitation.
- Governmental
- Social
- Environmental
- Geographic
Governmental
The limitation is caused by government limits on road construction and maintenance.
The current or prior ownership who owns the real estate property is:
- Very important to appraisers in all cases
- Never important to appraisers
- Very important to title insurance companies or abstractors
-Never important to title insurance companies
Very important to title insurance companies or abstractors
The subject real estate is located 28 miles north of downtown Bigville and improved with a single-unit residence. The local brokers have repeatedly stated that this property is too far from the employment centers and the drive time is inhibiting a sale. This is an example of ________ influence on real estate.
- Governmental
- Economic
- Social
- Geographic
Geographic
The government (option a) did not create this problem. Economic conditions (option b) are not responsible for this problem, nor are social norms (option c).
A fee simple interest in real property is limited by the government’s right of
- Taxation, eminent domain, police power, and easements
- Taxation, eminent domain, police power, and escheat
- Eminent domain, police power, leases, and escheat
- Eminent domain, police power, zoning, and escheat
Taxation, eminent domain, police power, and escheat
Zoning is a form of police power (option d).
An appraiser was asked to appraise a 200-acre farm and to give consideration to the productivity of the land. The owner was afraid the appraiser would not credit the property with its superior soil type, drainage, and fertility. There is no potential for any type of use on the land other than farming. If the appraiser did give consideration to the productivity of the land, this appraisal would be best described as
A market value appraisal
An insurable value appraisal
An investment value appraisal
Unethical
A market value appraisal
An REO (real estate owned) sale
- Is the sale of a property by a bank after they have foreclosed and obtained control of the property by a sheriff’s sale or other processes; this type of sale can be made to an investor or owner/user
- Is a sale in which a property transfers from the real estate owner (REO) to the next owner
- Always involves the original mortgagor
- Is between the lender and the court and only occurs at the order of the court
Is the sale of a property by a bank after they have foreclosed and obtained control of the property by a sheriff’s sale or other processes; this type of sale can be made to an investor or owner/user
REO stands for “real estate owned” rather than “real estate mortgaged.” Both types of sales are asset classes for a bank, but REOs involve foreclosed properties or sometimes branch bank properties (option b). In an REO sale, the original mortgagor lost the property through the foreclosure process. The sale occurs after the foreclosure, and the prior owner (mortgagor) has nothing to do with it (option c). The lender and the courts are involved in sheriff’s sales but not REO sales (option d).
Forces that influence real property values are
- The land being mobile, durable, useful, and in infinite supply
- Governmental and legal controls, economic characteristics, social trends, and geographic and environmental conditions
- Land, labor, capital, and capitalism
- Leasehold, leased fee, and fee simple
Governmental and legal controls, economic characteristics, social trends, and geographic and environmental conditions
The loan-to-value ratio refers to
- The amount of a loan on a dollar basis—for example, $750,000
- The ratio between a mortgage loan and the value of the property pledged as security, usually expressed as a percentage
- The equity amount divided by the mortgage amount
- The equity amount divided by the property value
The ratio between a mortgage loan and the value of the property pledged as security, usually expressed as a percentage
Salvage value is
- The value of a property or part of a property (such as a fixture) that is removed from the premises, usually for use elsewhere (such as the value of a fixture as a fixture)
- The value of an item to an auctioneer
- The price expected for a part of a property that is sold and removed from the premises to reclaim the value of the material of which it is made (such as plumbing fixtures sold for their metal content)
- The value of the land after the building has been removed
The value of a property or part of a property (such as a fixture) that is removed from the premises, usually for use elsewhere (such as the value of a fixture as a fixture)
Scrap value is
- The value of a property or part of a property (such as a fixture) that is removed from the premises, usually for use elsewhere (such as the value of a fixture as a fixture)
- The value of an item to an auctioneer
- The price expected for a part of a property that is sold and removed from the premises to reclaim the value of the material it is made of (such as plumbing fixtures sold for their metal content)
- The value of the land after the building has been removed
The price expected for a part of a property that is sold and removed from the premises to reclaim the value of the material it is made of (such as plumbing fixtures sold for their metal content)
The subject real estate is a platted lot located in a subdivision improved with a newer single-unit residence. It is located in a high-demand market with very little land available for development. The existing home market data shows that there have been 33 sales of properties in direct competition with the subject in the last 12 months, and there are currently only four available listings. The sellers clearly have an advantage over the buyers. This is an example of
- An undersupply of demand and therefore increasing prices
- An oversupply of inventory and therefore decreasing prices
- An undersupplied market and decreasing prices
- An undersupplied market and increasing prices
An undersupplied market and increasing prices
The subject property is located in a market where the largest employer just closed its doors and 1,000 people lost their jobs. The city planning department estimates that the loss of the employer will cause 600 families in the community to move elsewhere in order to find other jobs. This represents about 10% of the current housing in the city. This will cause an immediate
- Increase in the demand for housing
- Decrease in the demand for housing
- Increase in the supply of housing
- Decrease in the supply of housing
Decrease in the demand for housing
In a high-demand market, the cost of building new properties increases substantially until
- It becomes impossible for prices to go any higher
- Supply increases because builders’ profits are high and new builders get into the market or existing builders work overtime
- The rates charged by suppliers and subcontractors decrease
- The Federal Reserve System lowers interest rates
Supply increases because builders’ profits are high and new builders get into the market or existing builders work overtime (If profits are high enough, builders and construction workers will work day and night, weekdays and weekends.)
The economic base of a community is
- The lower line in a graph or bar chart illustrating the economy of a community
- The ratio of basic industries to technical industries in a community
- An expensive, large stringed instrument
- The economic activity of a community that enables it to attract income from outside its borders
The economic activity of a community that enables it to attract income from outside its borders
In real estate, the economic base is the primary industries and activities that drive a region’s economy and real estate demand. The economic base includes sectors that: generate income, attract investment, and support employment
When demand for housing increases, the supply
Increases immediately
Increases slowly
Is unaffected
Will diminish
Increases slowly
Linkages are the
- Devices used to change a property from one use to another
- Relationships between a buyer and seller in a real estate deal
- Time-distance relationships between a property use and supporting facilities
- Tools necessary to market real estate
Linkages are the time-distance relationships between a property use and supporting facilities.
The market area life cycle
- Includes three periods: growth, stability, and revitalization
- Describes fixed and equal periods of time that a market area will go through in the future
- Describes variable periods of time that a market area will go through or has gone through in the past
- Consists of periods of time describing balanced supply and demand
Describes variable periods of time that a market area will go through or has gone through in the past
A market area life cycle can be long or short and can be in the past or future. Balanced markets are not a requirement for market area life cycles.
An appraiser is valuing a site for highest and best use or for the cost approach.
The site has a building on it. The appraiser should
- Assume that the subject site is vacant
- Assume that the subject site’s highest and best use is the same as the improvement’s design
- Use comparable sales with a highest and best use that is the same as the subject’s improvement design
- Use comparable sales with the same zoning as the subject
Assume that the subject site is vacant
The land value is always based on the site as though vacant. In highest and best use analysis, the site as though vacant is used and compared to the value of the improved property to ensure that the vacant site value does not exceed the improved property value.
Highest and best use analysis is required in
- All appraisals
- Value in use appraisals
- Investment value appraisals
- Market value appraisals
Market value appraisals
Highest and best use is not required in value in use or other values in which the highest and best use is ignored (option a). Highest and best use is not required in value in use appraisals (option b). Highest and best use may not be required in investment value appraisals because the client stipulates the criteria for analysis (option c).
Highest and best use analysis requires an estimate of the best use as though vacant and the best use as improved to
- Estimate the value of the improvements
- Ensure that appraisers recognize that the property could be worth more without the buildings than with them
- Estimate any functional obsolescence caused by inappropriate improvements
- All of the above
All of the above
The subject is 80% covered with a legal wetland. What type of constraint on development is this an example of?
- Topographical
- Legal
- Physical
- All of the above
All of the above
The highest and best use as though vacant is important in market value appraisals and cannot be ignored because
- If an appraiser ignores this step, it is possible that he or she cannot see that the value of the site as though vacant is higher than the value of the improved property
- It is required to ensure compliance with zoning
- It helps appraisers decide what the value of the improved property is
- It is needed for the estimate of the zoning compliance
The appraiser must develop the highest and best use as though vacant opinion to ensure that the value as though vacant is not higher than the value as improved.
If an appraiser ignores this step, it is possible that he or she cannot see that the value of the site as though vacant is higher than the value of the improved property
In a market value appraisal report, the appraiser stated, “The highest and best use of the site as though vacant is continued use as an office building site.” This also means that
- The land sales used to value the site would likely be office site sales
- The land sales used to value the site could be from any market and have any use
- The land sales used to value the land in the analysis must not be office site sales
- The appraiser has ignored any other uses
The land sales used to value the site would likely be office site sales
If the appraiser states that the highest and best use of the site as though vacant is an office site, then the appraiser is saying that the valuation of the site would be in line with that use and office site sales would be used.
In a highest and best use analysis of a subject property in which the building(s) are obstacles to a higher use, the cost of demolition of the improvements should be
- Subtracted from the vacant land value opinion
- Subtracted from the improved property value opinion
- Added to the vacant land value opinion
- Added to the improved property value opinion
Subtracted from the vacant land value opinion
For an improved property in which the highest and best use is removing the buildings, the demolition cost must be subtracted from the value of the land as though vacant. Because the buildings are obstacles to a higher use in this case, a buyer would compare this site to a vacant site and choose the subject only if it could be purchased at a price low enough to cover the cost of removal.
When an appraiser completes a secondary market residential form (such as a Fannie Mae form), the highest and best use as though vacant is
- Included on the form and in the analysis
- Not included because the form instructions state that the form is only to be used when the highest and best use is to leave the residence on the site; if the highest and best use is to remove the residence from the site, these types of forms should not be used
- Included in an addenda only if the site is zoned residential
- Not needed, not required, and not permitted
Not included because the form instructions state that the form is only to be used when the highest and best use is to leave the residence on the site; if the highest and best use is to remove the residence from the site, these types of forms should not be used
The highest and best use of the site as though vacant is not included on the forms, but the instructions state that the form is not to be used when the highest and best use does not include leaving the residence on site.
If asked to develop an opinion of the market value of a public library, an appraiser
- Must find sales of libraries that were used as libraries before and after the sale; this would include sales of property from a county government to a city government based on appraised value
- Must estimate an alternative use for which a market exists and then find comparable sales of buildings that are similar to the alternative use
- Must find sales of a library property from one governmental organization to another
- Must find comparable sales of bookstores in retail locations
Must estimate an alternative use for which a market exists and then find comparable sales of buildings that are similar to the alternative use
The subject real estate is a five-acre site located near a major river. The site is designated as a flood hazard area. This site is buildable because there is no zoning in this area. However, the site is not worth very much because of
- Governmental limitations
- The fact that properties in flood hazard areas cannot be rented
- Social limitations
- Physical or geographical limitations
Physical or geographical limitations
An appraiser is preparing an appraisal report for a property located in a market where there appears to be a distinct segregation based on the age of the inhabitants—i.e., they are all over 50 years old. The appraiser should
- Define the market by the age of the inhabitants
- Define the market by the age of the potential buyers for the subject property
- Define the market by how old the previous buyers were when they purchased the property
- Refrain from defining a market by demographics such as age, race, religion, etc.
Refrain from defining a market by demographics such as age, race, religion, etc.
Market value can be described as
- The price a person paid for real property
- The cost of the land plus the cost of the building
- The present worth of future benefits as anticipated by market participants
- Whatever someone would pay for something
The present worth of future benefits as anticipated by market participants
The value of improved residential real estate is most influenced by the
- Passage of time
- Brokers’ opinions of the property values
- Changes in shopping patterns for consumers of goods and services
- Increases in the cost of construction
Increases in the cost of construction
A trade area is
- An area where property owners trade rather than sell properties
- A geographic area from which a retail center draws its customers
- An area where the owners/inhabitants are generally employed
- An area where an office building owner will trade tenants with other office building owners
A geographic area from which a retail center draws its customers
Market analysis is important in appraisals because it
- Is needed for market conditions adjustments in the sales comparison approach
- Is needed for future forecasts of income and vacancy in the income capitalization approach
- Is needed in the selection of comparable sales to ensure that they reflect the same market conditions
- All of the above
All of the above
Retail space demand is affected by
- Changes in the gross building area (in square feet) needed per employee
- Changes in parking ratios in shopping centers
- Increases or decreases in disposable income
- All of the above
Increases or decreases in disposable income
The current market in Smallburg is in balance, but the largest employer just shut down operations, resulting in a 10% increase in unemployment and a sharp increase in the number of people moving out of Smallburg. In the short run,
- The overall supply of housing will increase
- The overall supply of housing will decrease
- The overall demand for housing will increase
- The overall demand for housing will decrease
The overall demand for housing will decrease
Lowering mortgage loan interest rates usually
- Increases the demand for apartment rental units
- Decreases the demand for apartment rental units
- Does not cause a change in the demand for apartment rental units
- Increases the supply of single-unit residences in the short run
Decreases the demand for apartment rental units
An appraiser is asked to develop an opinion of market value for an owner-occupied residential property in a volatile market. In this case, it would be appropriate to emphasize
- A cost analysis
- The comparable leases
- The current comparable listings
- The opinions of professional brokers in that market
The current comparable listings
An example of disaggregation in real estate markets would be
- Reclassifying several submarkets into one larger market
- Market segmentation
- Disintermediation
- Market trends
Market segmentation
The subject site measures 125 feet by 255 feet and is improved with a single-unit residence. (Frontage is always the first dimension.) The local planning and zoning department indicated that the zoning classification is single-unit residential. The minimum lot size is 26,000 square feet, and the minimum frontage on the road is 150 feet. The subject would be best described as
- A legal use that conforms to development standards
- A legal nonconforming use
- A legal use that does not conform to development standards
- An illegal use that conforms to development standards
A legal use that does not conform to development standards
The subject is a one-acre site currently zoned for commercial use. The maximum building size according to the floor area ratio rule is 2:1, which means that the building area cannot exceed twice the size of the land. The subject is improved with a 100,000-sq.-ft. commercial building. It was built when the subject site was two acres, but the owner sold off one acre to an adjacent owner. This would best be called a(n)
- Legal use that does not conform to development standards
- Illegal use
- Legal but nonconforming use
- Illegal but conforming use
Illegal use
Paul went to a real estate closing to buy a residential property. At the closing, he signed a document that pledged the real estate as collateral for the loan. This document is called a
Mortgage
Mortgage note
Long-term lease
Debt collector
Mortgage
The Federal Reserve System
Was established by and is now controlled by Congress
Was established by but is now independent of Congress
Was established by the president and is controlled by the president
Was established by and is controlled by the national banks of the United States
Was established by but is now independent of Congress
The term “commercial paper” refers to
- Loans made by commercial banks
- Loans made by the Federal Reserve System to its members
A corporation’s short-term notes
A corporation’s long-term notes
A corporation’s short-term notes
“Commercial paper” refers to short-term notes issued by corporations to generate cash; these notes are not issued by banks (option a) or the Federal Reserve System (option b). This term does not refer to long-term debt (option d).
A monthly amortized mortgage loan has a 7% interest rate and a current balance of $100,000. The payment amount is
- Less than $583.33
- Equal to $583.33
- More than $583.33
- $861.11
You don’t need the term of the loan to answer this. The interest alone on the first payment is $583.33, which does not provide for amortization. Amortization of a mortgage requires a payment that covers the interest plus an amount that allows the mortgage balance to go to $0 over the term (option a). The interest only is $583.33, which is not enough to amortize the loan. Assuming a 30-year loan, the interest on the first month plus 1/360th of the amount of the loan is $861.11. If the balance of the mortgage is divided by the term, assuming 360 months, this ignores the time value of money (option d). The mortgage payment must cover the interest ($583.33) plus something to amortize the loan.
Leslie borrowed money at 6% to buy an investment that should yield 12%. This situation refers to positive leverage, which is:
- The use of borrowed funds to increase equity return
- The use of a lease to increase yield to the owner
- The use of an easement to limit land use
- An architectural tool to build improvements with doors and windows
The use of borrowed funds to increase equity return
Martin owned a 40-acre parcel of land for the last 25 years. He has paid the taxes on the real estate for the first 20 years but has not paid them for the last five years. Which of the following statements is true?
- The government will get the taxes when the property is sold because real estate cannot be sold unless the back taxes are paid.
- The government has the right to force a sale of the real estate to pay the back taxes.
- The government is powerless to collect these taxes.
- The government will sue Martin, and the courts will garnish his wages to get paid.
The government has the right to force a sale of the real estate to pay the back taxes.
The mayor of Smallburg asked an appraiser to prepare an appraisal of Fire Station 3 for the purposes of asset value reporting. The appraiser said that there was no market for the property as a fire station, so she prepared a cost approach to value with the market value of the land plus the current cost of construction less only the physical depreciation deductions. The appraiser is probably providing the client with
Market value
Investment value
Insurable value
Value in use
Value in use
A property productivity analysis is
- The research of supply and demand for competitive properties
- An analysis of the capacity of a property to house economic activities, supply services, and provide amenities to meet human needs
- The analysis of how changes in population will affect the market for nearby properties
- The forecasting of excess supply and the subject’s capture of this excess supply
An analysis of the capacity of a property to house economic activities, supply services, and provide amenities to meet human needs
The subject is a three-acre site that is improved with a multitenant office building. The site was fairly low cost when the building was built, and the adjacent road was two lanes with modest traffic. The highest and best use was office use. Now the adjacent road is six lanes, the highest and best use is retail, and the land value has doubled. The land value (VL) is now $900,000, and the improved property value (VO) is $1,500,000. Most offices in this market have a land value of about 25% rather than 60% like the subject. The extra traffic has not increased the rental rates. This high land-to-property value ratio
- Must be adjusted for in the income capitalization approach
- Must be adjusted for in the sales comparison approach
- Must be adjusted for in the cost approach
- Is irrelevant in all appraisal analyses
Must be adjusted for in the cost approach
The high land value does not change income or expenses, so it will not affect the outcome (option a). The high land value will not be realized until the building is removed and it does not raise the net operation income (IO), so it will not change the market value (VO) (option b). This issue is quite relevant in the cost approach (option d). Note that the cost approach separates the land and buildings, and the land is always valued as though vacant, so the higher land value will come through in this analysis. However, it will not add to the value overall until the land value is more than the improved property value, so there will be functional obsolescence for the wrong improvement on the retail site.
A property sold, and the seller agreed to finance the sale. The buyer paid 10% up front and agreed to a 90% mortgage at a 7.75% interest rate with a 20-year amortization and a five-year balloon (premature payoff). The seller withheld the deed until the mortgage loan balance was paid off. The sale price is $500,000, and the contract had monthly payments in arrears. Which of the following statements is correct?
- This is an example of a purchase money mortgage.
- This is an example of a conditional sales contract.
- The monthly payment amount is $4,104.74
- The monthly payment amount is $8,062.78
This is an example of a conditional sales contract.
Personal property that is installed in a permanent way for use in the tenant’s business on leased property is classified as
A fixture
A trade fixture
Personal property
Intangible property
A trade fixture
A deed should be recorded because
- Recording gives public notice of the transaction and sets the priority of the claims
- It is required by law
- The title does not pass until the deed is recorded
- Recording makes the deed a legal document
Recording gives public notice of the transaction and sets the priority of the claims
The term littoral rights refers to
- The rights of property owners to access a river or other navigable body of water
- The access rights for property owners whose property abuts a public street
- The rights of adjacent property owners to pass across a parcel
- The rights of property owners to access a lake or ocean
The rights of property owners to access a lake or ocean
A property owner who fails to pay the real estate taxes levied by the government can
Not sell the real estate without clearing the tax lien
Not live on the property
Not take out a mortgage against the property
Lose his or her interest in the property
Lose his or her interest in the property
A process whereby the owner gives title to the lender voluntarily because he or she is unable to meet its obligations is called
A voluntary foreclosure
A deed in lieu of foreclosure
A sheriff’s sale
A friendly adversarial foreclosure
A deed in lieu of foreclosure
Lance bought a new ceiling fan and light at the hardware store and installed it in his home. It is now screwed into the wall and wired into a junction box with wire nuts. In most cases, this would be considered as
Personal property
A fixture
A trade fixture
Intangible
A fixture
In the measurement of the gross living area (GLA) in single-unit residences, the appraiser should include
All finished areas above and below grade
Finished areas above grade that are heated and/or cooled
All finished areas above and below grade that are heated and/or cooled
All finished areas above grade regardless of whether they are heated or cooled
Finished areas above grade that are heated and/or cooled
Gunite is
Pneumatically placed concrete that is usually associated with in-ground pools
A type of insulating material
A type of roof shingle
A part of a staircase
Pneumatically placed concrete that is usually associated with in-ground pools
Romex is a type of
Material used for window blinds
Material used for electrical wiring
Asphalt paving
Material used for tile flooring
Material used for electrical wiring
A jalousie is a type of
Window with several panes
Furnace
Wood framing
Earthen dam
Window with several panes
A jalousie is a type of window with several panes that are much wider than they are tall.
Superstructure refers to
The area of a building that is not needed to meet minimum standards
A well-built building
An overimprovement
The area of a building that is above grade
The area of a building that is above grade
Superstructure refers to the area of a building that is above the ground.
Footings are usually
The layout of a building’s ground floor
Below the freeze line in most buildings
The foundation walls of a structure
The same thickness as the framing walls
Below the freeze line in most buildings
The layout of the buildings’ ground floor is a floor plan, not a footing (option a). The foundation walls of the structure are above the footings (option c). The footings hold up the foundation and the superstructure. The footings are set in the soil. Therefore, the footings need to be wider than the foundation in order to hold up the weight (option d).
Eaves are the
Portion of a roof projecting beyond the vertical wall of the building
Part of the floor system that is under the framing
Lowest part of the foundation
Top of the roof at its highest point
Portion of a roof projecting beyond the vertical wall of the building
Functional inutility is
A weak market segment
An impairment of the functional capacity of a building due to design or construction
The lack of a utility room in a house
A weak market due to the oversupply of homes
An impairment of the functional capacity of a building due to design or construction
A baluster is
- A person who inflates certain construction vessels
- One of the closely spaced vertical members in a stairway or balcony
- The fabric top in a curtain that is usually located on kitchen windows
- A weak or insignificant performance by an appraiser or other real estate professional
One of the closely spaced vertical members in a stairway or balcony
Ceiling joists are the
Structural members that the ceiling is attached to
Structural members that the roof shingles and underlayment are attached to
Boards that the gutters are attached to
Steel supports that are under the first floor that run between the basement walls
Structural members that the ceiling is attached to
The structural boards that the underlayment is attached to are called rafters (option b). The boards that the gutters are attached to are usually called the gutter boards or belt boards (option c). The steel supports under the first floor that run between the basement walls are often called center supports (option d).
Clapboard is
A type of wood siding
A place to put dishes and other kitchen utensils
A place in a house where the ironing board is usually stored
A type of roofing material
A type of wood siding
Clapboard siding is a type of overlapping wood siding.
A coping is
A type of power saw used to crosscut logs
A small run of caulk around the front door
The space between bricks that is filled with mortar
The masonry cap put on a wall to provide for watershed
The masonry cap put on a wall to provide for watershed
A coping is not a tool; it is a cap on a masonry wall.
The subject is a one-acre site that is currently zoned for commercial use. The maximum building size according to the floor area ratio (FAR) rule is 2:1, which means that the building area cannot exceed two times the land size. The subject is improved with a 100,000-sq.-ft. commercial building. It was built when the building code allowed an FAR of 3:1. This would best be called a(n)
Legal use that does not conform to development standards
Illegal use
Legal but nonconforming use
Illegal but conforming use
Legal use that does not conform to development standards
The use is not illegal since it was established prior to the change in building standards (options b and d). In this case, the use is not the problem because the property is zoned for commercial use and used for commercial purposes. The property’s use is fine, but its adherence to development standards is not (option c). While this may be poorly labeled as a “legal nonconforming use” in many communities, the development standards are the problem rather than the use.
Balloon framing is
A type of window in a residence
A type of roofing structure in office building construction
A type of framing in which the studs extend from the sill to the roof in residential construction; the second floor is supported by a horizontal ribbon or ledger board and joists that are nailed to the studs
The interior walls in a finished basement in which the supporting walls are concrete but the finished walls are constructed of wood studs
A type of framing in which the studs extend from the sill to the roof in residential construction; the second floor is supported by a horizontal ribbon or ledger board and joists that are nailed to the studs
The wall that separates one tenant from another in a multitenant office building is called a
Structural support wall
Curtain wall
Demising partition
Load-bearing wall
Demising partition
A structural support may or may not be a demising wall, and demising walls are often not support walls (option a). A curtain wall is an exterior wall that encloses but does not support the structural frame of a building (option b). The wall that separates one tenant from another in a multitenant of office building is called a demising partition (option d).
The difference between a left-handed and right-handed door is the direction in which the door swings open:
Face the side of the door that swings away from you. If the hinges are on the left, the door is left-handed, and if they are on the right, the door is right-handed.
Effective age is the
Actual age of properties with better-than-normal maintenance
Total economic life minus the remaining economic life
Total utility plus the diminished utility
Total economic life minus the actual age
Total economic life minus the remaining economic life
Jennifer is the owner of a condominium property in Green Acres. She probably owns
- An undivided fee simple interest in her unit and a share in the corporation that has the fee simple interest to the land
- The right to use and occupy her unit and an undivided interest in the common areas
- An undivided interest in the land under her building but no interest in any other property
- The unrestricted right to use her unit and exclusive control of the land under and immediately around the unit
The right to use and occupy her unit and an undivided interest in the common areas
An appraiser is asked to appraise a single-unit residential property and observes that there is a clothes washer and dryer on the property. Which of the following statements is true?
- These items must not be included in the appraisal because they are personal property.
- These items can be included in the appraisal, but the appraiser needs to analyze their impact on the property’s value.
- The appraiser cannot include these items in the appraisal because they could be removed when the current owners leave.
- The appraiser must include these items in the appraisal because they were intended to be left with the property.
These items can be included in the appraisal, but the appraiser needs to analyze their impact on the property’s value.
The Western Washington Township Wastewater Utility owns many miles of easements for pipelines in the service area. These easements would be best classified as
Conservation easements
Easements by necessity
Easements in gross
Preservation easements
Easements in gross
An easement by necessity is an implied easement commonly in favor of a buyer that has no access to his or her land except over other lands owned by the seller (option b). An easement by necessity may be implied when a landowner splits a property and the sold parcel is landlocked.
An easement in gross is similar to most easements used by utilities; it has no dominant estate since no single property is benefited by the easement. The term easement in gross describes an easement that does not favor a particular property owner. This type of easement is used by utility companies for the maintenance of pipes, cables, etc.
Easements are another division of property rights. They usually give the right
To cross over or access another person’s property without obtaining the current owner’s permission
To access the property to perform any task, service, or action
To use the property for any purpose regardless of other land use regulations
To reenter the property if the payments are not made to the lender on time
To cross over or access another person’s property without obtaining the current owner’s permission
The subject real estate is a parcel improved with a single-story home that is attached on two sides and has a slab floor. It includes a common maintenance agreement for the exterior repairs, common snow plowing and street maintenance, and a common pool, clubhouse, and tennis courts. There is a $100 per month fee for maintenance, and the broker said this property is a “condo.” The assessor’s records show that the property is a 4,000-sq.-ft. lot, and its legal description is “Lot 12 in the Calgary Addition.” This form of ownership is a
Fee simple interest in the attached home on a small lot with a mandatory fee
Condominium
Townhouse
Zero lot line
Fee simple interest in the attached home on a small lot with a mandatory fee
A large piece of medical equipment was installed in a medical office building. The equipment is very large, and a section of the building had to be removed for the installation. The equipment was bolted to the floor to prevent movement, and it was wired and plumbed into the building. This equipment is a trade fixture if it
Is owned by the doctor who operates it
Is located on a leased property
Is owned by the same person who owns the building
Must be removed when the building is sold
Is located on a leased property
This equipment was installed in a permanent manner. It would be considered real estate in most legal classifications but is clearly a trade fixture if it is on leased premises (option a). The third option (“the equipment is owned by the same person who owns the building”) implies that the owner of the building owns the medical equipment, but the equipment would not be considered a trade fixture if the unit was leased or if there was a lease for the machinery in place (option c). The machinery could be included with the sale of the real estate if it were not a trade fixture (option d). It could also be considered as leased equipment in an owner-occupied property.
Hilda and Henry bought a real estate property and asked that the deed specify ownership via joint tenancy. Which of the following statements is true?
Hilda and Henry own an undivided interest. If Hilda dies, her heirs receive the property. Her heirs may or may not include Henry.
Hilda and Henry each own a specific potion of the property and may exclude the other owner from it.
Hilda and Henry own an undivided interest. If Hilda dies, Henry receives the property.
Hilda and Henry own a specific portion of the property. If Hilda dies, the property goes to Hilda’s heirs, which may or may not include Henry.
Hilda and Henry own an undivided interest. If Hilda dies, Henry receives the property.
joint tenancy
If one owner dies, their share automatically passes to the surviving owners.
Tenancy in Common
There is no right of survivorship. If one owner dies, their share passes according to their will or state law.
Tenancy by the Entirety
A special form of joint ownership available to married couples. Protects the property from creditors of one spouse, and upon the death of one spouse, the surviving spouse automatically inherits the property.
If the tax rate in an area is 125 mills and the assessment ratio is 1/3, what percentage of the property values would the taxes account for?
The correct calculation is:
0.125 x 0.3333 = 0.04166 = 4.166%
Value in exchange is
The value that is the basis of an IRS 1031 exchange
The value of personal property associated with the sale of a business
The value of an asset as stated on the books at the brokerage agency
The value, in terms of cash, of a property that is bartered for another asset or assets, cash being the “yardstick” by which the comparative value of each can be assessed (used synonymously with market value in some markets)
The value, in terms of cash, of a property that is bartered for another asset or assets, cash being the “yardstick” by which the comparative value of each can be assessed (used synonymously with market value in some markets)
Value in exchange is used in some markets as a synonym for market value; it is the amount a seller will exchange for cash in a sale.
In an economic base analysis, a basic industry is
An industry that services the community and does not generate more income than is consumed in the community
An industry that generates more income than is consumed in the community
Any industry that produces anything
An industry that represents the two highest employers in the community
An industry that generates more income than is consumed in the community
A basic industry is one that generates more income than is consumed in the community. For example, education would be a service industry in most communities but a basic industry in a college town. Manufacturing automobiles is nearly always a basic industry in any community (options a and c). A basic industry can represent the two highest employers in the community, but it doesn’t have to (option d).
A full section of land usually
Measures 4,356 feet by 4,356 feet
Measures 2,640 feet by 2,640 feet
Includes 27,878,400 square feet
Measures 600 acres
A full section of land is one square mile, or:
5,280 × 5,280 = 27,878,400 square feet = 640 acres
A heat pump is
- A heating system that is fueled by oil or natural gas that pumps warm air into the structure
- A cooling system that relies on evaporative cooling
- A heating system that relies on the heat generated by electricity passing through a poor conductor
- A heating or cooling system that relies on a refrigerant (such as Freon) for cooling and a reversed cooling system for heating
A heating or cooling system that relies on a refrigerant (such as Freon) for cooling and a reversed cooling system for heating
A heat pump is fueled by electricity, not oil or natural gas. It may have a gas auxiliary furnace, but the heat pump only needs electricity (option a). Evaporative cooling is a cooling system that relies on the cooling caused by water evaporation (option b). Heat is created by running electricity through poor conductive material; this is known as an electric resistance heater or furnace (option c).
In building construction terms, the veneer on a structure is the
Outside covering that protects the structure from the elements
Wood or steel that holds the upper floors or roof in place
Part of the construction on which the floors are placed
Part of the structure on which the roof underlayment and shingles are placed
Outside covering that protects the structure from the elements
Option b describes the structural framing. Option c describes the foundation system, and option d describes the roof system—e.g., trusses.
A manufactured home is
Any home with any parts made in factories
Any home for which the majority of the parts are made in a factory
A home that has a permanent chassis to provide for transportability initially and thereafter
A home with walls that were built in a factory but have no chassis, axles, or wheels
A home that has a permanent chassis to provide for transportability initially and thereafter
A gravity heating system relies on
A blower fan to move heated air throughout the building
Natural gas to heat the air and a blower fan to move it within the building
Air density and weight to move the warm air throughout the building
The temperature of the earth to extract heat for a building
Air density and weight to move the warm air throughout the building
Lath and plaster walls
Are made of gypsum board that comes in large sheets
Are found in almost all new houses today
Can only be used on curved surfaces
Include small strips of wood (lath) covered with a wet plaster that provide a surface for the walls when dried
Include small strips of wood (lath) covered with a wet plaster that provide a surface for the walls when dried
A 1.5-story home typically has
Mostly vertical interior and exterior walls on the second floor
Interior walls that are built into the roof line of the second floor
Three floor levels that are above grade
Roof pitches of less than 5/12
Interior walls that are built into the roof line of the second floor
A 1.5-story home uses the attic area for the second floor living area (options a and c). The roof pitch must be steep enough to allow for living area below it. The roof pitch usually needs to be more than 5/12 (option d).
Which of the following is the best technique for valuing transferable development rights?
The cost approach
The sales comparison approach
The income capitalization approach
A residual technique comparing the beneficial and diminished estates
The sales comparison approach
A parcel of land was improved with 50 residential units. The units are all attached on one or both sides. There is a large sign on the property that reads “Zero Lot Line Homes for Sale.” Each owner was deeded a property that included the land and the foundation area for that unit. The owners of the units, including the homeowners association (HOA) president, tell all their friends that they live in Greentree Condominiums. This project is
Probably attached homes on small lots that are equal to the foundation; each person has sole ownership of his or her unit as well as membership in the HOA, which is responsible for maintenance
A standard condominium, with each person holding a tenancy-in-common interest
A standard condominium, with each person owning an undivided interest in the real estate
A new concept because attached buildings are a relatively new idea
Probably attached homes on small lots that are equal to the foundation; each person has sole ownership of his or her unit as well as membership in the HOA, which is responsible for maintenance
A property abuts a river that runs from city to city. The river has barge traffic and small recreational traffic. This property probably has
No rights to access this river
Unlimited access to the river, including the right to build a dock, modify the shoreline, and even build a structure over the high-water mark
Riparian rights
Littoral rights
Littoral rights
A property that abuts a navigable body of water has littoral rights to access the water but does not normally include the right to modify the shoreline or build over the body of water (options a and b). Riparian rights refer to properties next to navigable bodies of water that lead from property to property—e.g., streams and rivers (option c).
Charlie owns a parcel of land that is next to a river. The river is used every day for recreation, transport of cargo, and a gambling riverboat. Charlie’s real estate property rights probably
-Extend to the center of the river
- Extend to the high watermark of the riverbank nearest the property
- Extend to the high watermark of the opposite riverbank, thereby including all of the river
- Stop 30 feet short of the riverbank, thereby providing for a maintenance strip
Extend to the high watermark of the riverbank nearest the property
Emblements are
The rights of a franchisee to income from that enterprise
Crops produced annually by the labor of a tenant; this property belongs to the tenant and upon his or her demise will pass to the tenant’s heirs
The signage on a plumbing fixture that indicates who produced that fixture
The right of a tenant to pick wild berries off the land of another
.
Crops produced annually by the labor of a tenant; this property belongs to the tenant and upon his or her demise will pass to the tenant’s heirs
Emblements are the crops produced by a tenant. They are considered the property of the tenant until harvest is possible.
The subject is a five-acre parcel. Party A has owned it and has paid taxes on all five acres for 32 years. The owner to the north of the subject, Party B, obtained a staked survey of her property (adjacent parcel); the surveyor indicated that based on the legal description provided, this parcel extended about 20 feet into the subject parcel (as defined by the owner) to the south. In other words, the owner to the north and the owner to the south are both claiming ownership of a 20-ft. strip between them. The owner to the south (Party A) says that he doesn’t care about the survey; he owns the strip because he fenced it off 30 years ago.
His contention is based on
Eminent domain
Easement by prescription
Flawed thinking
Adverse possession
Adverse possession
Eminent domain is used by governments to acquire property but not to settle disputes between property lines (option a). Easement by prescription is defined in The Dictionary of Real Estate Appraisal (5th ed.) as “The right to use another’s land, which is established by exercising this right openly, hostilely, and continuously over a statutory period of time.” This does not involve ownership but rather the right to use. Easement by prescription is possible, but the owner is claiming the property rather than a right to cross over it (option b). The claim of the owner to the south is not based on flawed thinking due to adverse possession rules (option c). Note that appraisers should not make assertions about the ownership of real estate in scenarios such as this. This scenario would probably be decided in a courtroom or by a private settlement agreement.
The subject real estate is a 2.55-acre site zoned for residential use improved with a 12,000-sq.-ft. retail building. The commercial use was established before the zoning was established and is not permitted within the residential zoning. A similar site with commercial zoning is worth $650,000. A similar site with residential zoning is worth $50,000. The cost of demolition of the improvements is estimated at $25,000. There is no possibility of a zoning change to commercial. The site value is
$50,000
The site is always valued as though vacant. There is probably also an increment of value in the legal nonconforming use, but that is not land value.
A conditions of sale adjustment reflects
The differences in the market on the effective date of the appraisal and the dates of sale of the comparable sales
The differences between the motivations of the seller and buyer on the date of sale of a comparable and the motivations of buyers and sellers as described in the definition of value
The differences in sale prices of properties that sold for cash and the ones that sold with market rate financing
The differences in sale prices of properties that sold from non-related parties
The differences between the motivations of the seller and buyer on the date of sale of a comparable and the motivations of buyers and sellers as described in the definition of value
Graphic analysis is an example of
Quantitative analysis
Qualitative analysis
Computer valuation using a graphics card
A technique used in land valuation only
Quantitative analysis
Which of the following is not a part of the allocation method?
Find comparable sales of improved properties in the same market as the subject.
Divide the site value of each comparable sale by the cash-equivalent sale price of the same comparable sale to get a percentage of site-to-overall value for each comparable.
Divide the reconciled land-to-property value ratio by the improved property value range in the subject market to get a land (site) value opinion.
Make transactional adjustments—e.g., financing, conditions of sale, etc.
Divide the reconciled land-to-property value ratio by the improved property value range in the subject market to get a land (site) value opinion.
Option a describes part of the first step of allocation. Option b describes part of the fourth step of allocation. Option d describes part of the second step of allocation.
Option c is not part of the allocation method; it is incorrect because it involves division when multiplication should be involved.
In the process of extracting capitalization rates for land (RL), comparables that are leased but have no building are not generally comparable to a property that was leased as vacant land and has a significant building because
After the building is built, the lease rate on the land must change
The building construction voids the land lease
The construction of the building makes fee simple more salable
The construction of the building lowers the risk to the owner of the leased fee
The construction of the building lowers the risk to the owner of the leased fee
The subject property is located in a market where properties usually sell in 90 days. The subject has been listed for 180 days beginning at $459,000 for 90 days. It was then listed at $449,000 for 45 days and has most recently been listed at $429,900 for 45 days. What conclusion can be drawn from this information?
The subject is probably worth less than $429,900.
If the owner of the property has tried without success to sell it for a reasonable period of time for $429,900 and higher, it is logical to conclude that the market has rejected this price.
A short sale is
A sale in which the lender’s loan balance is more than the net proceeds from a sale
A short sale describes a sale in which the proceeds are not sufficient to pay off the loan balance and the lender agrees to accept less than the balance to release the lien.
A market with only one seller is a
monopoly
A market in which there is only one buyer and one seller is a
bilateral monopoly
a market in which there is only one buyer is
monopsony
A client asked an appraiser for an opinion of the market value of a 1.5-acre site improved with an old one-story commercial building. The appraiser found sales of commercial buildings in better condition than the subject for about $250,000. The appraiser thinks the subject needs $100,000 of updating and repairs to equal the condition of those $250,000 sale properties. The appraiser found three sales of similar land that showed the market value of the site to be $200,000. What is the value of the subject property?
$200,000 less the cost of removal of the building if it can be removed for less than $50,000; otherwise, it is $150,000
A common element of comparison used in residential appraisal is
Price per acre
Price per square foot of GLA
Price per cubic foot
Age of the improvements
Age of the improvements
Elements of comparison are reasons why the prices of real estate vary. The incorrect answer options are all units of comparison rather than elements of comparison.
The subject real estate is a commercial parcel improved with a 10-year-old commercial building located in a small town. It contains 4,000 square feet of gross building area and has an unfinished basement. This property is selling for $350,000, and the seller has agreed to provide a special financing package worth $4,000. Examination of the market has revealed several sales of competitive properties:
Comparable 1 is a commercial property with a 2,800-sq.-ft. building with a basement. It was sold approximately one year ago for $275,000 with market rate financing terms. The seller did not participate in the cost of buyer financing.
Comparable 2 is a commercial property with a 3,000-sq.-ft. building without a basement. It sold one year ago for $280,000 with no seller participation in the buyer’s financing.
Comparable 3 is a commercial property with a 3,000-sq.-ft. building with a basement. It sold one week ago for $300,000 for cash and no seller participation.
What should be the respective magnitude and sign of the adjustments to Comparables 1, 2, and 3 for financing?
Correct Answer
0, 0, 0
+4,000, +4,000, +4,000
-4,000, -4,000, -4,000
+2,000, +2,000, +2,000
0, 0, 0
The subject’s financing does not affect the value. The concessions included in the subject’s price do not make the subject’s value higher. If the subject’s financing did affect the value, the value would depend on the seller’s agreement to pay the buyer’s financing and add it to the comparable’s price. The subject’s value could be 10% higher just based on the seller’s willingness to pay.
In a market value appraisal, when should an appraiser make adjustments for seller contributions to the financing expenses of the sale?
Each and every time they exist
Any time the seller is paying part of the financing cost
When the seller-paid expenses exceed 4% of the sale price
When the seller contributions affect the sale price of the property; if the seller pays some expense but this does not affect the price, no adjustment is needed
When the seller contributions affect the sale price of the property; if the seller pays some expense but this does not affect the price, no adjustment is needed
If the seller-paid expense for financing does not affect the price, no adjustment is necessary.
A comparable sale recently sold for $335,000 with the seller paying $15,000 in financing costs on behalf of the buyer. An appraiser used this comparable in an appraisal analysis and stated that the sale price was not affected by the seller-paid financing expense because the seller was highly motivated to sell and was willing to accept less money. Which of the following statements is correct?
If the seller was motivated and paid financing costs for the buyer, there should be two adjustments: one for the financing concessions and another one for conditions of sale (seller motivations).
This logic is correct; no adjustment is needed.
No financing adjustment is needed, but a conditions of sale adjustment is.
A financing adjustment is needed, but a conditions of sale adjustment is not.
If the seller was motivated and paid financing costs for the buyer, there should be two adjustments: one for the financing concessions and another one for conditions of sale (seller motivations).
An appraiser found a comparable sale in which the seller accepted payment of the sale with a 5% down payment and the remainder to be paid in monthly payments. The buyer stated that he bought this property because he did not qualify to buy with market/bank financing and this was the only seller that would accept a contract sale. The interest rate on the contract was 1.5% higher than bank loans. The appraiser should
Make a financing concessions adjustment for this favorable financing
Make a financing concessions adjustment for this financing if it affected the sale price
Ignore this issue because it is too complicated
Ignore this comparable since the financing is not at the market price
Make a financing concessions adjustment for this financing if it affected the sale price
A financing concessions adjustment is needed if the sale price was affected by the financial arrangement.
If a comparable property is 10% superior to the subject property and the comparable sold for $100,000, what is the indicated value of the subject?
$100,000 x 1.1 = $110,000
$100,000 / 0.9 = $111,111
$100,000 x 0.9 = $90,000
$100,000 / 1.1 = $90,909
$100,000 / 1.1 = $90,909
An appraiser was working on an appraisal and found three comparable sales. For each comparable sale, the seller paid closing costs and other concessions on behalf of the buyer. The amounts that the sellers paid were $7,500, $5,500, and $6,000. If the appraiser does not adjust for these concessions, USPAP requires the appraiser to
Do nothing and report the market value opinion as indicated by the sales
Adjust these concessions but only for the amount above $5,000—which is the limit for concessions in any market value appraisal—and report the value after these adjustments as market value
State that the opinion of value is based on non-market financing or financing with unusual conditions or incentives, describe the assumed concessions for the property being appraised, and report the impact on value of the concessions
Adjust each sale up by the amount of the concession
State that the opinion of value is based on non-market financing or financing with unusual conditions or incentives, describe the assumed concessions for the property being appraised, and report the impact on value of the concessions
USPAP states that if the opinion of value is to be based on non-market financing or financing with unusual conditions or incentives, the terms of such financing must be clearly identified and the appraiser’s opinion of their contributions to or negative influence on value must be developed through the analysis of relevant market data. There is no circumstance in which an upward adjustment would be made.
A comparable sale is 20% inferior to the subject. The comparable sold for $500,000. What is the value of the subject?
$600,000 ($500,000*1.2)
$625,000 ($500,000/0.80)
$625,000
An appraiser found two comparable sales that were identical except that one had 100 more square feet of GLA than the other one. The sale with the extra square feet sold for the same price as the one with less GLA. The sale with less GLA sold with $5,000 in seller-paid concessions. What is the adjustment for the extra GLA?
The correct calculation is:
$5,000 / 100 = $50
An appraiser was researching a comparable sale and found a sale with a price of $450,000 for which the seller paid $25,000 to the buyer for the cost of getting a mortgage. The subject was listed for sale for 90 days at a price of $429,900 at the time of sale. What is the cash-equivalents sale price?
The cash-equivalent sale price is $425,000.
In a tabular sales comparison approach grid, some appraisers use percentages, some use dollars, some add together the adjustment dollars, and others make adjustments and then subtotal after each adjustment. If an appraiser makes dollar adjustments and then sums those dollar adjustments to apply it to the gross price,
The appraiser is adjusting the adjusted price and therefore one adjustment affects the next
The appraiser is making each adjustment independent of the others; an adjustment or lack of adjustment for one element of comparison does not affect the next adjustment
The adjusted price is never the same as the gross price
The prior adjustments lower the impact on the subsequent adjustments
The appraiser is making each adjustment independent of the others; an adjustment or lack of adjustment for one element of comparison does not affect the next adjustment
Units of comparison
Allow appraisers to not adjust for some differences in the property
Allow for meaningful comparisons of seemingly poor data
Usually assimilate the market thinking and behavior of typical buyers
All of the above
All of the above
If an appraiser makes percentage adjustments as well as dollar-based addition and subtraction adjustments and subtotals after each adjustment in a sales comparison tabular grid analysis,
The order of these adjustments will affect the final answer because prior adjustments raise or lower the subsequent adjustment amounts
The final answer is incorrect because this technique adds or subtracts inflated amounts to the price
The first adjustment must be the market conditions adjustment, since all subsequent adjustments need to have been adjusted to the current market
The order of the adjustments will not affect the final value because multiplication is commutative, which means that 2 × 4 × 6 nets the same answer as 2 × 6 × 4
The order of these adjustments will affect the final answer because prior adjustments raise or lower the subsequent adjustment amounts
Nn
The subject site is 3.45 acres and improved with a residence located at the center of the site. The minimum lot size is 1.0 acre with at least 100 feet of frontage. If vacant, this parcel would be two building sites. However, the house cannot be partitioned without a significant loss of privacy, which greatly inhibits both sales. Because of the placement of the house on the parcel, the appraiser thinks this can only serve as one site. This diminished utility and value is known as
External obsolescence
Functional obsolescence
Physical obsolescence
Physical depreciation
Functional obsolescence
The loss in value in this case is due to the placement of the improvements on the site and is functional obsolescence, not external obsolescence (option a). Physical depreciation is an appraisal term, but physical obsolescence is not (option c). The term obsolescence indicates that something is wrong, but physical depreciation is normal (option d).
Reproduction cost is defined as the cost of
Building the improvements exactly as they were on the effective date of appraisal
Building the improvements exactly as they were on the date of the appraisal report
Building the improvements exactly as they would appear if they were new on the effective date of appraisal
Building the improvements with a similar quality and utility as of the date of construction
Building the improvements exactly as they would appear if they were new on the effective date of appraisal
Indirect construction costs include
Architect’s fees
Builder’s overhead
Plumbing and electrical subcontractors’ bids or invoices
The builder’s insurance policy (liability insurance to protect the builder)
Architect’s fees
All of the incorrect answer options (b, c, and d) describe items that would be included in the builder’s contract and would be considered direct or “hard” costs.
Replacement cost is best used
To eliminate some functional obsolescence from the cost approach
To eliminate all functional obsolescence from the cost approach
For nonresidential properties only
For residential properties
To eliminate some functional obsolescence from the cost approach
The unit-in-place cost estimating method is
Based on historical cost
Based on the market-extracted costs per square foot of the building
The cost of a component of the building, including all labor and materials— e.g., linear feet of a wall, sections of the roofing, etc.
Always based on a computerized printout of all labor, materials, and extras
The cost of a component of the building, including all labor and materials— e.g., linear feet of a wall, sections of the roofing, etc.
The subject property is adjacent to active railroad tracks. Comparable sales located next to the railroad tracks appear to be selling for substantially less. If the measured loss via paired sales analysis was $20,000, the adjustment in the cost approach would be
$20,000
More than $20,000
Discounted because some of the measured loss would likely be attributable to a lower land value due to proximity to the railroad tracks
Considered functional obsolescence
Discounted because some of the measured loss would likely be attributable to a lower land value due to proximity to the railroad tracks
Many appraisers develop estimates of construction costs from cost services. Using the price per square foot of building area as a baseline for construction costs is called
Cost index trending
The comparative-unit method
The unit-in-place method
The quantity survey method
The comparative-unit method involves using a cost per square foot estimate from a cost service.
Cost index trending is a technique by which the appraiser bases a more contemporary cost of construction estimate on the actual cost of construction at a prior date.
The unit-in-place method is a modification of the quantity survey method. Cost of labor, materials, overhead, and profit are combined into a unit cost for each portion of the building. Cost per square foot for roofs and walls, and linear foot costs of foundation walls are examples of the unit-in-place method
The quantity survey method requires that the appraiser create a detailed inventory of every item of material, equipment, labor, overhead, and fees involved in the construction of a property. This method is not routinely used by appraisers because it is extremely time consuming
What special problem does a legal nonconforming use create in the cost approach?
It overvalues the land and therefore the property
It undervalues the building and therefore the property
It is not reflected in the site value or improvement value, so it requires another increment of value to be added
It causes the sales comparison approach to undervalue the property
It is not reflected in the site value or improvement value, so it requires another increment of value to be added
A legal nonconforming use does not overvalue the land. The land value is always at the highest and best use as though vacant. Buyers will usually pay for a legal nonconforming use, which in the cost approach leaves out a portion of the property value (option a). A legal nonconforming use does not undervalue the building (option b) or affect the sales comparison analysis (option d). The land is always valued as though vacant, so legal nonconforming uses can mean that the value of the land as though vacant and at the highest and best use may be less than what the value of the land would be considering the legal nonconforming use. The value of the land assumes that a highest and best use is legally allowed. This means that the market value of the property will be the value of the land (with legal use), the value of the building and site improvements, and the value of the grandfathered zoning, which allows the owner to use the property for more than what the zoning allows.
The subject site is improved with a one-story home with a four-bedroom configuration. There was a lot of demand for four-bedroom homes in this market when the subject was built, but two-bedroom configurations have become more popular over the years. After looking at paired sales, the appraiser thinks the loss in value from the lack of a popular configuration is $10,000. The cost to cure would be $25,000. The adjustment for functional obsolescence in the cost approach would be
Less than $10,000
$10,000
More than $10,000 but less than $25,000
$25,000
$10,000
It would be classified as functional incurable because it only costs $10,000 in value but costs $25,000 to remedy, so the prudent buyer would endure the loss rather than fix the problem
A property has a poor floor plan because it has only 1.5 bathrooms in a market that clearly requires 2 or 2.5 bathrooms. This problem could be corrected for about $5,500 by moving some interior walls. The floor plan problem is fairly common in this market, and there is enough data to show that homes with this problem sell for $160,000 and homes without the problem (i.e., homes with two baths) sell for $170,000. This house is 30 years old. Adding the half bath during construction would have cost $1,000. This problem is best identified as
Physical curable depreciation
Functional curable obsolescence
External curable obsolescence
Functional incurable obsolescence
Functional curable obsolescence
The cost to cure is $5,500, and the value added is $10,000. Because it would be logical to cure the problem, this means it is curable.
The equity dividend rate is measured against the
Market value
Purchase price
Mortgage amount
Initial equity investment
Initial equity investment
The equity dividend rate (also known as the cash-on-cash return) is a measure of the return on the equity invested in a property. It’s calculated by dividing the cash flow after debt service by the initial equity investment.
Suppose that a lease contract called for a rent of $10 per square foot. However, similar space in the market rented for $15 per square foot. The amount specified in the lease is known as the ________ rent.
Contract
Market
Economic
Overage
Contract
In real estate appraisal, what is meant by the term capitalization?
The conversion of income expectancy into a capital sum
The estimate of NOI before debt service
The use of upper case symbols for letters of the alphabet
The value developed by one of the methods or techniques commonly used in the income capitalization approach
The value developed by one of the methods or techniques commonly used in the income capitalization approach
How does a projected decline in reversion value and periodic income affect capitalization rates (Ro)?
It raises them.
Capitalization rates are the ratio of the first year’s income to value. Therefore, if the future is better than the present, buyers will pay more, which is facilitated by a lower capitalization rate. If the value is decreasing, buyers will pay less, which shows a higher capitalization rate.
How do you calculate equity dividend rate ( also known as the equity capitalization rate (Re)?
It is calculated by dividing the equity cash flow (Ie) by the down payment (the value of the equity).
When calculating Pre-tax Cash Flow, which expenses do you deduct from Effective Gross Income (EGI)?
Fixed Expenses
Variable Expenses
Annual Debt Service
All
What does “ annual rental payments (in arrears)” mean?
“in arrears” means that payments are made after the period to which they apply. So, if annual rental payments are made “in arrears,” the tenant pays the rent at the end of the rental period rather than at the beginning.
When an investment has no change in value from the purchase to the resale, the capitalization and yield rates are _____
the same, because R = Y − Δn
What is the best conclusion when market evidence shows overall capitalization rates below anticipated yield rates?
Investors expect future NOI and/or property values to __________
increase
If the property value is declining, the yield would be _____ than the capitalization rate
lower
You have net income multiplier (Example 16.55). How do you calculate overall capitalization rate (Ro)
The reciprocal of the net income multiplier is the capitalization rate:
1 / 16.55 = 0.0604 or 6.04%
How do you calculate debt coverage ratio?
Debt Coverage Ratio = NOI / ADS
NOI - Net Operating Income
ADS - Annual Debt Service
How Do you calculate Equity Dividend Rate (Re)
EquityDividendRate(RE)= AnnualCashFlowAfterDebtService /
InitialEquityInvestment
How do you calculate Initial Equity Investment?
You know
- sale price
- mortgage amount
Determine the Initial Equity Investment
Purchase Price of the Property = $1,235,000
Mortgage Amount = 75% of the Purchase Price, aka 926,250
Initial Equity Investment = Purchase Price - Mortgage Amount
InitialEquityInvestment=1,235,000−926,250=308,750
Determine the Annual Cash Flow After Debt Service
You know
- NOI
- Monthly Mortgage Payment
Annual Net Operating Income (NOI) = $96,000
Monthly Mortgage Payment = $6,546.54
Annual Debt Service = Monthly Payment × 12
AnnualDebtService=6,546.54×12=78,558.48
Annual Cash Flow After Debt Service = NOI - Annual Debt Service
AnnualCashFlowAfterDebtService=96,000−78,558.48=17,441.52
What are primary uses of discounted cash flow (DCF) analysis?
To calculate the future value and payment
To calculate the present value and historical value
To calculate the rate of return and future value
To calculate the present value and rate of return
To calculate the present value and rate of return
what is the difference between yield rate and internal rate of return
The yield rate generally represents the annual rate of return on an investment based on expected or required returns
the IRR is the discount rate that makes the net present value (NPV) of all cash flows from an investment equal to zero. It represents the actual rate of return based on the timing and magnitude of all future cash flows, including both positive (income) and negative (expenses) ones.
An investor requires an 11% yield on all investments in a particular market and property type. What could be said about the investor’s expectations if the overall capitalization rates (RO) are 12%-14%?
The investor thinks property values are declining.
debt service coverage ratio formula
Market Value = NOI / (DSCR * Loan-To-Value-Ratio * Mortgage Constant)
DSCR - Debt service coverage ratio
There are three approaches used to develop an opinion of market value because
Purchasers have three alternative options available
Purchasers have three alternative options available: they can choose to build a new property (cost approach), rent an existing property (income capitalization approach), or buy an existing property (sales comparison approach).
What is the final step of the valuation process?
Final reconciliation and determining the single value estimate
Final reconciliation and determining the range of value or the single point value estimate
Preparing and delivering the report with the defined value
Applying the three approaches to value
Preparing and delivering the report with the defined value
When reporting real property appraisal assignment results, the appraiser must report the effective date of the value opinion and what other date?
date the completed report was transmitted to the client
Advisory Opinions in the USPAP publication
illustrate the applicability of USPAP in specific situations.
are an integral part of USPAP.
carry the same weight as a Rule or Standards Rule.
help interpret existing USPAP Rules and Standards.
illustrate the applicability of USPAP in specific situations.
Advisory Opinions (AOs) are a form of guidance issued by the ASB to illustrate the applicability of USPAP in specific situations. AOs are not are part of USPAP and therefore do not establish new standards or interpret existing standards.
In an appraisal assignment an appraiser must take reasonable steps to safeguard access by unauthorized persons to confidential information and what else?
assignment results
the identity of the subject
the identity of the client
public data sources
assignment results
The appraiser must not share assignment results and confidential information with unauthorized persons as addressed in the Confidentiality section of the ETHICS RULE.
What type of assignment requires a reasonable exposure time opinion to be developed by the appraiser?
when the value developed includes reasonable exposure time in its definition
only in assignments when the purpose is market value
in all assignments involving the valuation of real property
whenever the value developed is current rather than prospective or retrospective
when the value developed includes reasonable exposure time in its definition
When necessary for credible assignment results in developing a market value opinion for real property, what component of the appraisal process must be analyzed?
highest and best use
scope of work
identification of the problem
reconciliation
highest and best use
Which entity has a supervisory role over state appraiser regulatory agencies and real property appraisers?
Appraisal Subcommittee
Appraiser Qualifications Board
Federal Housing Finance Agency
Appraisal Foundation
The Appraisal Subcommittee (ASC) maintains a supervisory role over state appraiser regulatory agencies and real property appraisers, and this includes monitoring the activities of the Appraisal Foundation.
In the same month, an appraiser prepared an appraisal report and testified in court as to the value opinion. How long must the appraiser, at a minimum, retain the workfile for the assignment after final disposition of the judicial proceeding?
five years after preparation and at least two years after the final disposition
What provides the context for the depth of the analysis required in development, and the level of detail required in reporting?
intended use
scope of work
purpose of the assignment
intended users
intended use
AO-36 clearly states that, “the intended use provide[s] the context for the depth of the analysis required in development and the level of detail required in reporting.”
In a personal property appraisal assignment, the appraiser must define and analyze the appropriate market consistent with the type and definition of value. What must the appraiser recognize in this analysis of the market?
There are distinct levels of trade and each may generate its own data.
An outside resource study must be used to identify the market for the subject.
The market analysis must directly connect to the highest and best use for the subject.
The market analysis must be modified to the definition of value used in the appraisal.
There are distinct levels of trade and each may generate its own data.
The Comment to Standard Rule 7-3(b) states that, “the appraiser must recognize that there are distinct levels of trade (measurable marketplaces), and each may generate its own data.”
For assignments involving personal property based on a market value opinion, the appraiser must analyze prior sales of the subject property over what time period?
within a reasonable and applicable time period
within a three-year period only
within the time period identified by the client
at least two years after final disposition of the property
within a reasonable and applicable time period
For personal property, Standard Rule 7-5(b) states the appraiser must, “analyze all prior sales of the subject property that occurred within a reasonable and applicable time period if relevant given the intended use of the appraisal and property type.” Of course, this assumes such information is available to the appraiser in the normal course of business.
When must a service performed by an appraiser comply with USPAP?
when required by law, regulation, or agreement with the client
when performing a valuation service
when the client is aware the individual is an appraiser
when the services include a written report transmitted to the client
when required by law, regulation, or agreement with the client
The PREAMBLE states that, “an appraiser must comply with USPAP when either the service or the appraiser is required by law, regulation, or agreement with the client.”
An individual acting in the capacity of an appraiser has been asked to collect general market data for a client. Which Rule of USPAP does NOT apply in this assignment?
SCOPE OF WORK RULE
COMPETENCY RULE
ETHICS RULE
JURISDICTIONAL EXCEPTION RULE
SCOPE OF WORK RULE
The SCOPE OF WORK RULE applies only to appraisal and appraisal review. Since collecting general market data would not be identified as an appraisal or appraisal review, the SCOPE OF WORK RULE would not apply.
Appraiser A specializes in the valuation of retail properties for tax appeals while Appraiser B specializes in the valuation of office buildings for financial institutions. What is true about the relationship between these two appraisers?
The two would not be defined as appraiser’s peers of each other.
The two cannot be considered to have the same level of competency.
The two must only take assignments within their specialization.
The two will have similar scopes of work for their assignments.
The two would not be defined as appraiser’s peers of each other.
The DEFINITIONS section defines an appraiser’s peers as, “other appraisers who have expertise and competency in a similar type of assignment.” Therefore, the two appraisers would not be defined as appraiser’s peers of each other given their specialization.
What property type(s) are covered in USPAP for mass appraisal assignments?
real and personal property
tangible property and intangible assets
business enterprise
all property types
real and personal property
Calculate leased fee. You know:
- The term of the lease (10 years)
- Lease $ ($55,000)
- Required yield rate (11%)
- Expected decline of property value (10% over 10 years)
- Calculate cap rate:
- N = 10
- I = 11 (the yield rate)
- PV = -1
- FV = 0.9 (1-10%)
- Solve for PMT = 0.11598 => 11.598% is the cap rate
- Apply cap rate to the lease $ and you get $474,219 value
Calculate Value of property. You know
- NOI ($75,000)
- Annual debt service ($60,000)
- LTV (Loan to Value Ratio) (75%)
- Mortgage constant (0.1281)
1) Mortgage Value ($468,384) = Annual Debt Service / Mortgage constant
2) Mortgage is 75% of the value, therefore Value = 468,384/0.75=624,512
3) NOTE – You don’t need NOI!
Calculate adjustment for billboard lease when comparing to a property that does not have a billboard lease. You know:
Subject without billboard lease:
- Size: 100 acres
- Typical sale price $10,000/acre for agricultural use
Billboard lease:
- Size: 0.5 acres (non-tillable)
- Lease $500/month (NNN)
- Terms: 15 years +2x 20 years renewal
- Discount rate 7%
- Reversion in 15 years is estimated to be equal to the current value
Rate = Yield – Change (per unit). Here the Change is 0 (the estimate in 15 year is same as now) => R = Y = 7%
So Value of the lease is $6,000 (annual Lease)/.07 = 85,714
Land lost to the billboard if 0.5 (ac) *10,000 ($ per ac) = 5,000
Total adjustment is $85,714-5000=80,714
Calculate Capitalization Rate for leasehold interest (RLH), You know:
Lease: 45 years, $3,000/month; built a building for $500,000
Sublease: $100,000/year, NNN, 40 years (no renewals)
Yield Rate of Leased Fee is 6%
Yield Rate of Leasehold is 9.25%
We only need the term (40 years), Leasehold yield rate (9.5%) and the fact there are no renewals at the end of the lease, aka the future value is 0.
On HP12C:
N=40
I=9.5
PV=-1
FV = 0
Solve for PMT = 0.097587 = Cap Rate
Utilize Equity Residual Technique and calculate value of property. You know
- Mortgage Amount ($400,000)
- Annual Mortgage Payment ($44,000)
- NOI - $50,000
- Equity Cap Rate – 8%
NOI – Debt = 50000 – 44000 = 6,000
Equity = 6000/Equity Cap Rate (8%) = 75,000
Add Equity and Mortgage = Value of Property = 75,000 + 400,000 = 475,000
Use Income Capitalization and calculate leased fee interest. You know:
- Total monthly rent - $5000 (NNN)
- Rate 9%
- Prospective value of the property at the end of 5 years - $650,000
PMT = Annual Rent = $60,000
N = 5
I = 9
FV= 650000
Calculate PV=655,834.48
Calculate value of property
- Total acres 25, price today $50,000/acres, no change in value in next 20 months
- Out of which – lease on 5 acres + house, $500/month 20 months remaining
- Discount rate 12%
- Taxes - $6,000/year
FV = 25 * 50,000 = 1,250,000 (as there is no change in value indicated in the future)
I = 12/12
N=20
PMT = 0
Solve for PV = 1,0244,431
Which of the following demand-side economic factors creates value?
desire
utility
scarity
effective purchasing power
demand side:
desire and effective purchasing power
Which of the following supply-side economic factors creates value?
desire
utility
scarcity
effective purchasing power
supply side:
scarcity and utility
Our subject is a 30,000 square foot warehouse without any loading docks. Typical warehouses that size would have a minimum of 5 loading docks. To install 5 loading docks with doors and hydraulic levels would cost $60,000. If they had been installed when the building was built, it would have cost $40,000.
Market evidence suggests that the presence of the loading docks would increase the annual rent by 30 cents per square foot. The Gross Income Multiplier for that type of property is 5.0.
What is the depreciation for functional obsolescence?
Functional Incurable - Caused by a Deficiency:
Cost of existing item $ 0
Less depreciation previously charged - 0
Plus value of loss 45,000
Less cost if installed new - 40,000
Equals depreciation for functional obsolescence $ 5,000
Steps 1 and 2 are zero because the item does not exist now.
Step 3 is the value of the income lost. Step 4 is what the cost would have been if the docks had been installed when the warehouse was originally built.
Step 5 is the amount of incurable functional depreciation because the building was built without an important ingredient.
Net Operating Income (NOI) = $296,440
Debt Service = $237,000
Purchase Price = $3,300,000
Loan Amount = $2,475,000
What is the equity dividend rate?
Also known as the Cash-on-Cash Return
EquityDividendRate(EDR)=(NetOperatingIncome(NOI)−DebtService)/ (EquityInvestment)
EDR=($3,300,000-$2,475,000)/($296,440-237,000)
EDR=7.21%
Note: (NetOperatingIncome(NOI)−DebtService) also called Pre-tax cash flow
The building capitalization rate for a commercial building is 11.0%. The rate of land appreciation is 3.0%, and the yield rate is 7.0%. What is the useful life of the building?
A) 10 years
B) 30 years
C) 14 years
D) 25 years
D) 25 years
Y = R + CR
7% = 11% + CR
-4% = CR (building depreciates 4% annually
1/4% = 25 years until building deteriorate fully.
What type of value relates mostly to cost?
Insurable value
A property sold for $850,000 with a net operating income of $97,800, a down payment of $350,000, and an annual debt service of $55,084.
What is the mortgage capitalization rate?
11.0%
Rm = annual debt pmt/initial loan amount
$55,084/$500,000
What is the net income that remains after costs of various agents of production have been paid?
Surplus productivity
The subject is a building with eight apartments that has air conditioning but it is inefficient and breaks down frequently. The reproduction cost of the existing unit is $6,000 and it is 30% depreciated. If it had been installed when the building was built, it would have cost $10,000
It will cost $2,000 to remove the old system but there is a salvage value of $1,000. It will cost $12,000 to install an appropriate, more efficient system ($10,000 for the equipment + $2,000 in additional retrofit costs).
Installing reliable A/C would allow the owner to raise rents and increase his gross monthly rents by $20 per unit. The current gross income multiplier (GIM) is 7.5.
What is the depreciation for functional obsolescence?
Cost of existing item $ 6,000
Less depreciation previously charged - 1,800
Plus cost to cure (all costs) 13,000
Less cost if installed new - 10,000
Equals depreciation for functional obsolescence $ 7,200
In Step 2, the depreciation was calculated as .30 x $6,000, or $1,800.
In Step 3, the cost to cure will be $12,000 to retrofit the installation plus $2,000 to remove the old system - minus $1,000 that can be reclaimed as salvage value of the old equipment.
Essentially Steps 1 and 2 calculate the loss for disposing of equipment that still has 70% of its life left, and Steps 3 and 4 calculate the penalty for not installing the proper system when the building was new.
An office building is expected to generate the following income stream over its 5-year holding period:
Year 1: $120,000
Year 2: $130,000
Year 3: $120,000
Year 4: $140,000
Year 5: $145,000
If the appropriate yield rate is 13%, what is the level income equivalent of this income stream?
A) $129,572
Find NPV using blue CF keys and then plug NPV into PV, i = 13% N = 5 and find PMT.
A property’s site is leased for $40,000 per year, which is considered the market rate. The site represents 35% of the total value. The overall capitalization rate is 10% and the building capitalization rate is 11%. What is the site value?
Overall Cap Rate = 10% = Income/Value
0.1 = (40,000 + Ib)/Vo (Ib= Income from building, Vo = Overall Value)
We will split the fraction into two:
0.1=40000/Vo+Ib/Vo
We know site representes 35% of the total value => the building is 65% of the total value. Therefore, we found x for 1=x*.65 so we can write Ib/Vo differently as:
Ib/Vo = Ib/(1.53850.65Vo)
We know cap rate for the building is 11%, so we will replace Ib/(0.65*Vo) for 11% (That is the building income divided by building value, aka cap rate) and we will get
0.1=40000Vo + 0.11/1.5385**
**0.1=40000Vo+0.071498
0.0285018 = 40,000*Vo
Vo=1,403420.75
Land is 35% of the overall value so
~ 491,000
What principle is a combination of a want for and ability to participate in a market
effective demand
Township - how many sections?
How many sq. miles in a section?
How many acres in a section
Length of a section in miles and feet?
Township = 6 x 6 sections (36 total)
Each section 1 square mile = 640 acres
Length = 1 mile = 660 x 8 feet = 5280 feet
The subject is a building with eight apartments without air conditioning, in a market where air conditioning is standard and expected by purchasers. If it had been installed when the building was built, it would have cost $10,000, but the cost of retrofitting now is $12,400.
Installing A/C would allow the owner to raise rents and increase his gross monthly rents by $20 per unit. The current gross income multiplier (GIM) is 7.5. What is the depreciation for functional obsolescence?
$2,400
Functional Curable - Requiring an Addition Procedure:
Cost of existing item 0
Less depreciation previously charged - 0
Plus cost to cure (all costs) OR value of the loss 12,400
Less cost if installed new -10,000
Equals depreciation for functional obsolescence $2,400
Steps 1 and 2 are zero because the item does not currently exist in the property.
In Step 3, the cost to cure is $12,400.
In Step 4, the cost, if it had been installed when the building was new, is $10,000.
Step 5 represents the excess cost to cure at this point in time. This penalty is curable functional obsolescence.
Formula for calculating functional obsolescence
Cost of existing item
Less depreciation previously charged
Plus cost to cure (all costs) OR value of the loss
Less cost if installed new
Equals depreciation for functional obsolescence
The subject property is a 5,000 sf single tenant office building that is currently leased for $9.00 per sf per year with three years remaining on the lease. The current lease is assignable. Typical total vacancy credit loss for this type of property is 10% per year. Owner expenses are typically found to be 25% of the effective gross income. Market rent rates are $ 12.00 per sf per year. Market overall rates are 9.5% in the data collection, a sale of a leasehold interest sold for $29,000 with a net leasehold income of $12,000 per year with
three years remaining.
What is the value of the leasehold estate, rounded to the nearest $1,000?
A) $34,000
B) $38,000
C) $45,000
D) $36,000
D) $36,000
The overall rate of 9.5% is misleading.
Calculate Rate using the recent sale,aka:
N=3, PMT -12,000; PV=29,000-solve for I=11.64
Used that for calculation for the subject
(12-9)*5000=15,000 (Leasehold Income)
N=3; I=11.64; Pmt=15,000 solve for PV =36,250
A lender requires 2 points on a $250,000 loan with a 7% rate amortization over a 25 year-term, payable monthly. What is the effective yield to the lender if the loan runs full term?
A) 9.0%
B) 6.8%
C) 7.2%
D) 6.0%
C) 7.2%
Note: In this case the 7% amortization rate is already after the points were applied! One point = 1% of the loan
Calculate monthly payment:
N=25 x 12, I=7/12, PV=-250,000, solve for pmt=1,767
Calculate yield rate by inputting the loan amt lender actually gave out (aka $250,000 loan - $5,000 for the points)
N=25 x 12, PV=245,000, PMT=1767, solve for i=0.602
this is monthly(!) yield. Multiply by 12 = 7.2% for annual
The subject property sold for $300,000 with a 20% down payment. The balance is seller financed for 20% down payment. The balance is seller financed for 25 years at 8%. Market research finds that sales of mortgage notes with a face value of $275,000 at 8% are in the range of $250,000. What is the subject’s sale price adjusted for seller financing, rounded to the nearest $100?
A) $300,000
B) $261,800
C) $218,200
D) $278,200
1) Sale price: $300,000
Down payment: 20% of $300,000 = $60,000
Loan amount (balance): $300,000 - $60,000 = $240,000
2)Market value of the note: $250,000 for a face value of $275,000.
Calculate the Discount Rate on the Note:
Discount rate = (Face value - Market value) / Face value
Discount rate = ($275,000 - $250,000) / $275,000 = 0.09091 (approximately 9.09%).
3)Determine the Adjusted Value of the Loan Amount:
The seller’s loan ($240,000) will be discounted by the same rate.
$240,000 × 0.90909 ≈ $218,182.
4)Add the Down Payment to Get the Adjusted Sale Price:
Adjusted sale price = Adjusted loan value + Down payment.
Adjusted sale price = $218,182 + $60,000 ≈ $278,200.
Answer: D) $278,200
Brief difference for each replacement cost new method:
- Comparative unit
- Unit in place
- Quantity survey
- Comparative unit
Estimates the cost of construction based on costs per unit area (e.g., square foot) - Unit in place
Breaks the building into functional elements (e.g., walls, roof, foundation) and estimates the cost of each element separately. More accurate than comparative unit - Quantity survey
it accounts for every material, cost, and labor detail; highly accurate and time consuming (typically not used in appraisals)
The subject is a building with eight apartments that has air conditioning but it is inefficient and breaks down frequently. The reproduction cost of the existing unit is $6,000 and it is 30% depreciated. If it had been installed when the building was built, it would have cost $10,000
It will cost $2,000 to remove the old system but there is a salvage value of $1,000. It will cost $12,000 to install an appropriate, more efficient system ($10,000 for the equipment + $2,000 in additional retrofit costs).
Installing reliable A/C would allow the owner to raise rents and increase his gross monthly rents by $20 per unit. The current gross income multiplier (GIM) is 7.5.
What is the depreciation for functional obsolescence?
Cost of existing item $ 6,000
Less depreciation previously charged - 1,800
Plus cost to cure (all costs) 13,000
Less cost if installed new - 10,000
Equals depreciation for functional obsolescence $ 7,200
In Step 2, the depreciation was calculated as .30 x $6,000, or $1,800.
In Step 3, the cost to cure will be $12,000 to retrofit the installation plus $2,000 to remove the old system - minus $1,000 that can be reclaimed as salvage value of the old equipment.
Essentially Steps 1 and 2 calculate the loss for disposing of equipment that still has 70% of its life left, and Steps 3 and 4 calculate the penalty for not installing the proper system when the building was new.
What is Coefficient of Variation?
standard deviation divided by mean
If the overall capitalization rate for the fee simple interest is 10% and the leased fee capitalization rate 8.5%, market net operating income is $20,000 and contract net operating income is $12,500. What is the implied leasehold capitalization rate?
A) 10%
B) 8.75%
C) 14.17%
D) 8.5%
C) 14.17%
$20,000/.10 = $200,000 (Value of FS)
$12,500/.085 = $147,059 (Value of LF)
$200,000-$147,059 = $52,941 (Value of LH)
$20,000-$12,500 = $7,500 (Income of LH)
$7,500 (Income of LH) / $52,941 (Value of LH)= .1417
What economic principle is represented by the power trend line graph of the price per unit of local apartment complex sales?
A) Decreasing marginal return
B) Anticipation
C) Contribution
D) Surplus Productivity
A) Decreasing marginal return
What is always presumed in an assignment that requires an opinion of reasonable exposure time?
Exposure time precedes the effective date of the appraisal.
The assignment requires a market value opinion.
The exposure time is both retrospective and prospective from the effective date.
Exposure time is not based on a hypothetical consummation of a sale at market value.
Exposure time precedes the effective date of the appraisal.
Which entity has a supervisory role over state appraiser regulatory agencies and real property appraisers?
The Appraisal Subcommittee (ASC) maintains a supervisory role over state appraiser regulatory agencies and real property appraisers, and this includes monitoring the activities of the Appraisal Foundation.
What provides the context for the depth of the analysis required in development, and the level of detail required in reporting?
AO-36 clearly states that, “the intended use provide[s] the context for the depth of the analysis required in development and the level of detail required in reporting.”
An individual acting in the capacity of an appraiser has been asked to collect general market data for a client. Which Rule of USPAP does NOT apply in this assignment?
The SCOPE OF WORK RULE applies only to appraisal and appraisal review. Since collecting general market data would not be identified as an appraisal or appraisal review, the SCOPE OF WORK RULE would not apply
