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Basic Appraisal Procedures > Final Review - Problem Questions > Flashcards

Final Review - Problem Questions Flashcards

1
Q

Intended use affects both appraisal ____ and reporting.

A

development

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2
Q

A prospective appraisal has an effective date contemporaneous with the date of the report.

True
False

A

False

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3
Q

While appraising an income property, an appraiser separates the rent between the land and the improvements and then converts the net income of the land into a value opinion. Which land valuation technique is the appraiser using?

ground rent capitalization
extraction
land residual
allocation

A

land residual

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4
Q

In a land valuation assignment, an appraiser subtracts the depreciated cost of the improvements from the sale price to obtain the value of the land. Which land valuation technique is the appraiser using?

ground rent capitalization
extraction
land residual
allocation

A

extraction

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5
Q

Non-realty components of value are an element of comparison considered within the sales comparison approach.

True
False

A

True

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6
Q

Which of the following is another term for yield capitalization?

equity capitalization
discounted cash flow analysis
direct capitalization
compounding

A

discounted cash flow analysis

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7
Q

What are the two primary methods of income capitalization that are differentiated by the duration of their income streams?

residual and independent capitalization
yield capitalization and summation capitalization
direct capitalization and residual capitalization
direct capitalization and yield capitalization

A

direct capitalization and yield capitalization

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8
Q

What characteristics based on investment value are identifiable in an income producing property?

  • has value based on construction costs
  • has objective, impersonal parameters, and also reflects what typical investors in the market might do
  • has value that favors the client’s cause
  • has value to a particular investor and also has personal, subjective parameters
A

has value to a particular investor and also has personal, subjective parameters

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9
Q

Which of the following descriptions provides a simple explanation of the process used in direct capitalization?

  • discounting future cash flows at a discount rate
  • adding all future cash flows together
  • dividing the net operating income by a capitalization rate
  • taking a weighted average of all cash flows
A
  • dividing the net operating income by a capitalization rate
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10
Q

A 200 unit apartment just sold for $9,000,000. Rents averaged $900 per month, and the market vacancy was 10%. The property had an operating expense ratio of 35%, and typical overall capitalization rates are 10%.
What effective gross income multiplier (EGIM) is indicated by this sale?

  1. 63
  2. 50
  3. 25
  4. 09
A

4.63

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11
Q 
If the overall rate is 10%, what is its corresponding factor?
10
100
1
1,000
A

10

A factor is the reciprocal of a rate. One divided by any number is it’s reciprocal. 1 / 0.10 = 10. Dividing by 0.10 is the same as multiplying by 10.

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12
Q

Which of the following do you need to know in order to solve for an operating expense ratio?

EGI and Factor
EGI and value
EGI and overall rate
operating expenses and EGI

A

operating expenses and EGI

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13
Q

A three-unit residential property sells for $232,000. Two units rent for $725 per month, and one unit rents for $550 per month. If the overall rate is 9.5%, what is the equivalent factor?

10.53
190
116
9.5

A

10.53

A lot of the information given here was not necessary to answer the specific question. A factor is the reciprocal of a rate. A reciprocal is one divided by the number. The question is asking for the factor that is equivalent to the overall rate of 9.5%, so 1 / 0.095 = 0.1052631, or 10.53 is the factor to 9.5%.

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14
Q

What is the capitalization rate (R) for a property that has a net operating income of $40,000 and a net income multiplier (NIM) of 12.5?
Note: A NIM is based on the same concepts as a gross income multiplier (GIM).

9%
8%
7%
12.5%

A

8%

Note: $40,000 X 12.5 = $500,000.
$40,000/$500,000 = 0.08 or 8% capitalization rate.
You may have also used the reciprocal to solve this problem

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15
Q

What is the ratio of net operating income to annual debt service called?

debt coverage ratio
operating expense ratio
net income ratio
mortgage expense ratio

A

debt coverage ratio

Ch5

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16
Q

Which of the following expenses that may be found on a property owner’s financial statements, should be excluded in the appraiser’s reconstructed operating statement?

mortgage Interest expense
utilities
replacement reserves
property repairs

A

mortgage Interest expense

Ch 5&6

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17
Q

A bed and breakfast lodging facility has an effective gross income of $255,000 and collection loss of 2%. If the market-derived PGIM is 7.2, what is the indicated value of the property?

$1,821,428
$1,872,720
$1,873,469
$1,799,280

A

$1,873,469

$255,000 / 0.98 = $260,204
$184,210 x 7.2 = $1,873,469

(Ch5&6)

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18
Q

Foundation walls are generally built on ____

A

footings

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19
Q

the two wall framing types are:

A

platform and ballon

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20
Q

If an appraiser estimates the current cost of individual units of construction and adds them up, what method is the appraiser using?

unit-in-place
comparative unit
cost-index trending
quantity survey

A

unit-in-place

The appraiser is using the unit-in-place method, which segregates the building into units of construction (e.g. exterior wall, foundation, insulation, etc.)

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21
Q

When an appraiser estimates cost using a cost manual, which method is being used?

unit-in-place
quantity survey
comparative unit
cost-index trending

A

comparative unit

The use of a cost manual is an example of the comparative unit method
of cost estimating. For example; per square foot.

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22
Q

The cost of a structure was $300,000 when it was built 18 months ago. The cost index at that time was 150.5. What is the estimated cost today if the cost index is 168.56?

A. $267,857
B. $327,587
C. $336,000
D. $354,180

A

C. $336,000

168.56 / 150.5 = 1.12 x $300,000 = answer

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23
Q

Condon has estimated the cost of excavation, the floor, wall, and roof components, and the packaged costs for the electrical, heating, and plumbing. What cost method is Condon using?

A. comparative unit method
B. price-index method
C. quantity survey method
D. unit-in-place method

A

D. unit-in-place method

24
Q

Fogarty knows that the original cost of the building three years ago was $750,000. If the cost index was 235 when the structure was built, what is the estimated cost now if the index is at 267.9?

A. $657,895
B. $855,000
C. $996,750
D. $1,117,735

A

B. $855,000 (267.9 / 235 = 1.14 x $750,000 = answer)

25
Q

An appraiser is analyzing the cost on a 1,500 sq.-ft., one-story residence and has estimated the base cost at $75 per sq. ft. If the local multiplier is 1.10 and the current cost multiplier is 1.05, what is the cost for the dwelling?

A. $107,386
B. $117,857
C. $129,937
D. $241,875

A

C. $129,937

26
Q

Which of the following is NOT considered a plumbing fixture?

sink
dishwasher
water heater
toilet

A

dishwasher

Plumbing fixtures are added or subtracted as LUMP SUM adjustments
Each full bath has 3 fixtures and a half bath has 2. The kitchen sink, laundry tub, and water heater each count as one. The base cost includes 2 outdoor spigots.

27
Q

In this module, we derived the various component costs for estimating the current cost of our Oak Street case study. Which method of the cost approach were we using?

quantity survey method
unit-in-place method
comparative unit method
cost-index method

A

comparative unit method

The objective of this module is to show you how an appraiser uses a cost service provider to derive the various component costs for estimating the current cost of a residential improvement. When looking at component costs using a cost service provider, we used the comparative unit method.

28
Q

Which of the following describes the period of time over which the improvements will contribute to property value?

effective age
economic life
physical life
remaining economic life

A

economic life

29
Q

An apartment building has plumbing and electrical systems that are deteriorated to the point of requiring complete replacement. This depreciation can be identified as

A. external obsolescence.
B. functional curable obsolescence.
C. physical curable deterioration.
D. physical incurable deterioration

A

D. physical incurable deterioration

30
Q

When using the economic age-life method of depreciation, what type of depreciation is actually measured?

A. external obsolescence
B. functional obsolescence
C. physical deterioration
D. all types of depreciation

A

D. all types of depreciation

31
Q

Challenge: A buyer was interested in building on a lot next to a highway and wanted to know how much of a loss might be attributed to the traffic influence.
The buyer’s new house will cost $375,000 and the site was recently purchased for $150,000. What is the value of the property if the market indicates a 15%
loss due to the highway influence?

A. $431,250
B. $446,250
C. $468,750
D. $502,500

A

C. $468,750

Land sale already reflects the external obsolescence.

32
Q

Jacobs is trying to estimate the depreciation of a building’s roof by the breakdown method. He knows that the useful life of the roof is 25 years and the actual age is 10 years. Jacobs’ trainee, however, believes the effective age of the roof is 15 years due to some storm damage. What is the percent of depreciation for the roof?

A. 28.5%
B. 37.5%
C. 40%
D. 60%

A

C. 40%

(10 / 25 = 40% depreciation)

Breakdown method uses actual age rather than effective age.

33
Q

Which of the following could be a good example of inadequacy?

A. an elevator in a two-story office building
B. an HVAC system, too small to heat the entire building
C. a house that has four bedrooms and one bath where the market demands two bathrooms
D. a 10,000 square foot garage for a 1,200 square foot house

A
  • an HVAC system, too small to heat the entire building?

It’s NOT C (4 bed/1 bath)

34
Q

A ten-year-old property sold for $500,000 (sale price) and has a site value of $150,000. If the replacement cost of the improvements was estimated at $600,000, what is the indicated annual depreciation rate (straight-line,
annual percentage)?

  1. 6% per year
  2. 2% per year
  3. 8% per year
  4. 54% per year
A

4.2%

$500,000 (sale price) - $150,000 (site) = $350,000 (current improvement value)
$600,000 (cost new) - $350,000 (value) = $250,000 (depreciation) $250,000 / $600,000 = 0.4167
0.4167 /10 = 0.04167 or 4.2% per year

35
Q 
A developer purchased a property for $200,000. He spent $50,000 on the renovation. He sold the property for $370,000. What is the percentage of profit?
48%
35%
22%
40%
A

48%

$370,000 - ($200,000 + $50,000) = $120,000, $120,000 / $250,000
= 0.48 = 48%. See Module 14 page Calculating Percentage
Change with an HP 12c and practice problems in the Course Handbook for more information.

36
Q

Property taxes have increased by $1,120 for a home in Tree Grove Subdivision. If the taxes were $15,400, what is the percentage of the increase?

8%

  1. 78%
  2. 2%
  3. 75%
A

7.2%

$1120 / $15,400 = 0.072 = 7.2%. See Module 14 topic Refresher on Fractions, Decimals, and Percents and practice problems in the Course Handbook for more information.

37
Q

Which of the following statements best define “units of comparison?”

  • They facilitate the analysis of comparability between sales and the subject property.
  • Some units of comparison can be adjusted, but those from the income approach should not be adjusted.
  • All of the listed choices are correct.
  • The units selected depend on the appraisal problem and the nature of the problem.
A

All of the listed choices are correct.

Note: Units of comparison can be “sales price per something” such as per square foot, per acre, per room, etc. An adjustment for market conditions is sometimes referred to as a time adjustment. In reality, it is not time that requires the adjustment, but the changes in the market during the passage of time.

38
Q

A buyer paid more for a property because he was uninformed about the cost to
petition for a zoning change. What element of comparison would this fall under?
A. expenditure made immediately after purchase
B. financing
C. market conditions
D. use

A

A. expenditure made immediately after purchase

39
Q

Roof, foundation, HVAC (heating, ventilation and air conditioning. and water and sewer are four of
the six major building components.

True
False

A

False

General Feedback: Water and sewer are not one of the six major building components. (Plumbing is though)

40
Q

In the breakdown method of estimating depreciation, short‐lived components are evaluated on the
basis of economic life rather than actual age.

True
False

A

False

General Feedback: Short‐live components are evaluated on the basis of useful life (and actual age is used in useful life), not economic life.

41
Q

The quantity survey method is the most commonly used method of estimating cost by appraisers.

True
False

A

False

General Feedback: The comparative unit method is the most commonly used method by appraisers.

42
Q

The part of the appraisal process that determines the amount of information and analysis that should be included is called intended use.

True
False

A

True

43
Q
  1. In the analysis of office buildings, the sales price per square foot of GLA is a common unit of
    comparison.

True
False

A

False

General Feedback: Sales price per square foot of net rentable area is a common unit of comparison for
office buildings.

44
Q

Vacancy and collection loss is usually calculated as a percentage of effective gross income.

True
False

A

False

General Feedback: It is usually calculated as a percentage of potential gross income.

45
Q

Assemblage is the process of combining (property) of lesser value into a property that has greater utility and hence greater value.

True
False

A

True

46
Q

Plottage is the increment in value that occurs when parcels of lesser value are assembled into a property of greater value.

True
False

A

True

47
Q

The period of time over which improvements to real estate contribute to property value is called economic life.

True
False

A

True

48
Q

The difference between the cost of development and the value of the property after completion is
called entrepreneurial profit.

True
False

A

True

General Feedback: Remember: Entrepreneurial profit is after completion; entrepreneurial incentive is
before construction.

49
Q

An overall rate converts the income from the land into a value estimate.

True
False

A

False

General Feedback: An overall rate converts the income from the overall property into overall property
value. Income from the land requires a land capitalization rate, not and overall capitalization rate.

50
Q

The effective date of the value opinion is described as the date that is assigned to the opinion of
value.

True
False

A

True

51
Q

A yield rate that is used to discount future payments into present value is called a discount rate.

True
False

A

True

52
Q

The land valuation procedure that subtracts the contributory value of the improvements from the
sales price of an improved property is called allocation.

True
False

A

False

General Feedback: It is called extraction. Allocation uses a ratio such as 15% land to property ratio.

53
Q

In the appraisal of a proposed building as of a current date, an extraordinary assumption is used.

True
False

A

False

General Feedback: If the effective date of value is current, and the improvements are proposed, a
hypothetical condition is required. If the effective date of value is prospective, then an extraordinary
assumption would be appropriate.

54
Q

The allocation method of site valuation utilizes a ratio of land to property value.

True
False

A

True

55
Q

The amount that a particular buyer agrees to pay a particular seller is called market value.

True
False

A

False

General Feedback: It is called investment value, because those particular parties may or may not
represent typical parties.

56
Q

What are the 8 steps of the valuation process?

A

1) Identification of the problem
2) Scope of work
3) Data collection and property description
4) Data Analysis
5) Land Value Opinion
6) Application of the Approaches to Value (Cost, Income, Sales Comparison)
7) Reconciliation of Value Indications and Final Opinion of Value
8) Report of Defined Value

Basic Appraisal Procedures (16 decks)

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