Income Approach Definitions Flashcards

1
Q

A projected income and expense statement for proposed development. See also reconstructed operating statement.

A

Pro Forma

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

An element of comparison in the sales comparison approach; comparable properties can be adjusted for the effects of differences in the real property rights (fee simple, leased fee, leasehold, easements, or other encumbrances, involved in the transactions being compared.

A

Real property rights Conveyed

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

An architectural style typified by a single-story, low roof construction.

A

Ranch

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

The interests, benefits, and rights inherent in the ownership of real estate. Also called realty.

A

Real Property (the rights)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Buyers and sellers of particular real estate and the transactions that occur among them.

A

Real Estate Market

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

An identified parcel or tract of land, including improvements, if any.

A

Real Estate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

A remainder that has negligible economic utility or value due to its size, shape, or other detrimental characteristics; also called on economic remainder or uneconomic remnant. See also remainder.

A

Remnant. A small piece of land left over from assemblage or division that is not worth anything.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Briefly details the unit information, such as lease terms, contact rent, as well as the effective date of the leases that are in place for the property.

A

Rent Roll

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Prepared by the appraiser, a reconstructed operating income statement reflects anticipated net operating income.

A

Reconstructed Operating Statement

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

The official responsible for maintaining records or deeds, mortgages and other recorded documents.

A

Recorder

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

In an urban area, the development or improvement of land that is undeveloped or has been cleared; technically includes the erection of buildings and other development and improvement of the land by private or public redevelopers to whom the land has been made available.

A

redevelopment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

A lump sum benefit that an investor receives or expects to receive upon the termination of an investment; also called reversionary benefit.

A

Reversion

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Money paid to an owner of real estate or the owner of mineral rights if different than the owner of the real estate, for the right to deplete natural resource (oil, gas, minerals, ect)

A

Royalty

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

A dwelling that is designed for human habitation.

A

Residence

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

An appropriation from surplus funds trhat is allocated to deferred or anticipated contingencies. In business, a credit account created to accumulated funds to retire debt or cover losses that are payable or expected to accrue in the future.

A

Reserve

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

An overall capitalization rate used to estimate the resale price of the property; usually applied to the anticipated stabilized income for the year beyond the holding period; also called terminal capitalization rate.

A

Residual Capitalization rate
think of the residual capitalization rate as a tool that investors use to predict the property’s value after they’ve owned it for some time and it’s fully stabilized, meaning it’s generating a consistent and predictable income.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

The annual rate of return on capital that is commensurate with the risk assumed by the investor; the rate of interest or yield necessary to attract capital.

A

Risk Rate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

The price expected for a whole property or a part of a property that is removed from the premises usually for use elsewhere.

A

Salvage Value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

According to the Uniform Relocation Assistance and Real Property Acquisition Policy Act, a rule used in the establishment of just compensation. Any decrease or increase in the fair market value of real property, prior to the date of valuation, caused by the public improvement for which the property is to be acquired, or by the likelihood that the property would be acquired for improvement, other than that due to physical deterioration within the reasonable control of the owner, will be disregarded in determining the compensation for the property. (Uniform Relocation Assistance and Real Property Acquisition Policy Act of 1970 (P.L. 91-646) 42 USC. §4651 (3))

A

Scope of the Project Rule
In simple terms, the “scope of the project rule” is a guideline used when determining the fair compensation for real property that is being acquired by the government for public improvements like building roads, schools, or other infrastructure projects.

According to this rule, any changes in the property’s value that happened before the official valuation date, and are directly related to the government’s public improvement project or the likelihood of the property being acquired for that project, should not be considered when calculating the compensation for the property owner.

In other words, if the property’s value increased or decreased because of the upcoming public improvement project, that change in value should not be taken into account when determining how much the property owner should be compensated. This rule ensures that property owners are fairly compensated based on the property’s value as of the valuation date, regardless of any changes caused by the government’s project before that date. It helps to prevent property owners from being unfairly disadvantaged or overcompensated due to the public improvement plans.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

A transaction in which real estate is sold by its owner-user, who simultaneously leases the property from the buyer for continued use. Under this arrangement, the seller receives cash from the transaction and the buyer is assured a tenant.

A

Sale-Leaseback

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

The minimum required rate of return on invested capital. Theoretically, the difference between the total rate of return and the safe rate is considered a premium to compensate the investor for risk, the burden of management, and the illiquidity of the capital invested; also called riskless rate or relatively riskless rate.

A

Safe Rate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

A physical characteristic of real property that says there is a limited supply of real estate; the perceived supply of a good or service relative to the demand for the item.

A

Scarcity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

The measure of the efficiency of insulation in a structure. R-values measure thermal resistance, which indicates whether or not the inside temperature is flowing to the outside. The higher the R value, the better the insulating properties.

A

R-value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Data that is compiled by other parties and used by the appraiser.

A

Secondary Data

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

A tax levied only against properties that benefit from a public improvement (e.g., a sewer or streetlight), to cover the cost of the improvement; this creates a special assessment lien, an involuntary lien.

A

Special Assessment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Permission granted by a local zoning agency that authorizes a use as a special exception to the applicable zoning. A special use permit in a residentially zoned area might allow for construction of a church or hospital. Such uses are considered conditional uses, only permitted upon the approval of the zoning authority. Sometimes referred to as a conditional use permit.

A

Special Use Permit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

A financial institution which collects mortgage payments from borrowers and applies the appropriate portions to principal, interest and any escrow accounts.

A

Servicer

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Similar to rezoning but typically has small or individual land parcels as its subject rather than an entire zone or area. In some jurisdictions spot zoning is not permitted.

A

Spot Zoning

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Personalized evidence indicating authentication of the work performed by the appraiser and the acceptance of the responsibility for contents, analyses, and the conclusions in the report. USPAP

A

Signature

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q
  1. The act of removing anything attached or affixed to land, or a part of the land itself, that causes a change of its character from real estate to personal property. 2. The separation of mineral ownership from land ownership; a conveyance of land in which mineral rights are excepted or reserved. 3. The termination of a joint tenancy or a tenancy in common. 4. Sometimes used as a synonym for severance damages.
A

Severance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

In condemnation, the benefits that arise from the peculiar relation of the land in question to the public improvement, usually resulting from a change in its highest and best use. Special benefits may accrue to multiple parcels (such as all four quadrants of a newly constructed freeway interchange) because the parcels are directly benefitted in a similar manner, if not to the same degree

A

Special Benefits
In simple terms, “special benefits” refer to the advantages or positive changes in value that certain properties may experience due to a public improvement project, such as the construction of a new road or highway.

Here’s a straightforward explanation using an example:

Imagine that the government is building a new freeway, and one of the exits of this freeway will be a large interchange connecting four different roads. Each road represents a separate parcel of land owned by different people or entities. When the interchange is completed, these four parcels will experience specific benefits that arise because of their close proximity and easy access to the new interchange.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

A method for determining the cost of a building that estimates the cost of reproducing it, by determining the unit cost of each of the component parts of the structure and adding them together based on actual need and usage.

A

Unit-In-Place Method

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

The interval when space (office, retail, etc.) is unoccupied after one tenant has left and before another has moved in; used in consideration of the gross income estimate in discounted cash floe (DCF) analysis.

A

Vacancy Window

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

The total amount of money that can be made from an investment.

A

Yield

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

The monetary relationship between properties and those who buy, sell, or use those properties, expressed as an opinion of the worth of a property at a given time. USPAP

A

Value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

A unit or area of a building that is not rented

A

Vacancy

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

Data, information, and documentation necessary to support the appraiser’s opinions and conclusions and show compliances with USPAP. (USPAP)

A

Workfile

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

In condemnation, the process of determining just compensation by estimating the value of the portion to be acquired as part of the whole property plus the net damages; maybe referred to as a taking plus damages rule. See also before and after rule.

A

State Rule
“the before and after rule” or “the taking plus damages rule.”

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

The act of process of developing an opinion of value; an opinion of value. Of or pertaining to appraising and related functions such as appraisal practice or appraisal services.

A

Appraisal

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
40
Q

A nonprofit private organization which is recognized by Congress as the authority for professional appraisal standards and appraiser qualifications.

A

Appraisal Foundation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
41
Q

An income approach to appraisal, with the overall rate of return, including discounted cash flow, considered.

A

Yield Capitalization

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
42
Q

An independent board of the APPRAISAL FOUNDATION, which writes, amends, and interprets USPAP. The ASB is composed of up to seven appraisers appointed by the Foundation’s Board of Trustees. The ASB holds public meetings throughout the year to interpret and amend USPAP.

A

Appraisal Standards Board (ASB)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
43
Q

A building separate from the main structure on a property. Often used for a specific purpose, such as a workshop, storage shed or garage.

A

Accessory Building

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
44
Q

A government’s valuation of property for tax purposes. 2. A special tax, usually used to pay for community improvements.

A

Assessment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
45
Q

An income capitalization technique that proportionally weights the interest charges and yields with respect to each segment of the financing.

A

Band of Investment Technique
In simple terms, the “band of investment” technique is an income capitalization method used in real estate to determine the overall rate of return on an investment property. This technique takes into account both the equity invested by the owner and the debt borrowed to finance the property.

Proportional Weights: The technique proportionally weights the interest charges (the cost of borrowing money) and the yields (the expected returns on the investment) based on the amounts of equity and debt used to finance the property.

By considering both the cost of borrowing and the expected returns, the band of investment technique helps determine the appropriate rate of return required by investors to justify investing in the property. This rate of return is also known as the “capitalization rate” or “cap rate,” and it’s a crucial factor in evaluating the profitability and attractiveness of the investment opportunity.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
46
Q

Housing where each unit shares a common wall, ceiling or floor with at least one other unit.

A

Attached Housing

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
47
Q

The ratio of a property’s tax assessed value to market value.

A

Assessment Ratio

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
48
Q

An appraiser’s opinions or conclusions, not limited to value, that were developed while performing an appraisal assignment, an appraisal review assignment, or a valuation service other than an appraisal or appraisal review.

A

Assignment Results

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
49
Q

A means of setting construction standards, requiring builders to use particular methods and materials; regulations establishing minimum standards for construction and materials. (There are different building codes for different systems: Electric, plumbing, etc.)

A

Building Code

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
50
Q

Two story houses with windows divided into small panes, usually with shutters. The main façade is detailed and symmetrical, generally with a center entrance. Architecture following the style of New England colonial houses.

What type of architectural style is noted by a house in which the second floor living area is 100% of the first floor living area and is very symmetrical with a centered door with windows equally spaced on both sides? (this means the second floor living room is just as big as the first floor.)

A

Colonial Architecture

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
51
Q

A method used to convert an estimate of a single year’s income expectancy into an indication of value in one direct step, either by dividing the net income estimate by an appropriate capitalization rate or by multiplying the income estimate by an appropriate factor. Direct capitalization employs capitalization rates and multipliers extracted or developed from market data. Only in year’s income is used. Yield and value changes are implied, but not explicitly identified.

A

Direct capitalization

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
52
Q

A one-story, home-style dating from the early twentieth century. Often characterized by a low-pitched roof.

A

Bungalow

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
53
Q

Specific items of personal property which are installed in a real estate improvement such that they become part of the building. Built-in microwave ovens and dishwashers are common examples.

A

Built-Ins

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
54
Q

An opinion, based on supporting market data, of the length of time that the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal.

A

Exposure Time

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
55
Q

The overall capitalization rate obtained by dividing a property’s net operating income for the first year after purchase by the present value of the property.

A

Going-In Capitalization Rate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
56
Q

The use(s) of an appraiser’s reported appraisal or appraisal review assignment results, as identified by the appraiser based on communication with the client at the time of the assignment. (USPAP)

A

Intended Use

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
57
Q

The annualized yield or rate of return on capital that is generated within an investment or portfolio over a period of ownership. Alternatively, the indicated return on capital associated with a projected or pro forma income stream.

A

Internal Rate of Return
In easy-to-understand terms, the “internal rate of return” (IRR) is a measure used to calculate the overall rate of return on an investment over a period of time. It tells you how much your investment has grown or earned annually, on average, during the time you held it.

Here’s a simple explanation of how IRR works:

Imagine you invested some money in a project or property, and over several years, you received various cash flows from that investment, such as rental income or profits. The IRR is the rate at which the total value of all those cash flows grows each year.

For example, let’s say you invested $10,000 in a real estate project, and over five years, you received annual cash flows as follows:

Year 1: $1,000
Year 2: $1,200
Year 3: $1,500
Year 4: $1,800
Year 5: $2,200

To calculate the IRR, you find the interest rate that, when applied to these cash flows, makes the initial $10,000 investment grow into the sum of all the cash flows received over those five years. The IRR is expressed as a percentage.

The IRR represents the average annual return on your investment. A higher IRR indicates a better-performing investment because it means your money is growing at a faster rate. Investors use the IRR to compare different investment opportunities and assess their potential profitability.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
58
Q

Harriet is trying to establish an economic life for her subject property. She has found a comparable sale that is quite similar to her subject, and is located in the same market. It sold for $500,000 one month ago, and the sale price is reflective of market value. The building is 20 years old, and Harriet assumes the actual age is reflective of the effective age. The cost new of the building is $569,500. Harriet contacted the listing agent of the comparable and discovered that, prior to the sale, the comparable’s site had a ground lease with an NOI of $10,000 and a land cap rate of 10%. Given these data, what is the estimated economic life of the improvements of the comparable sale property?

A

The comparable site has an NOI of $10,000 and land cap rate of 10%. Therefore, $10,000/.10 = $100,000 land value. The sales price was $500,000 and is reflective of market value (i.e. it is a market price). The market price - $100,000 (site value) = $400,000 (value of the building). The RCN is $569,500; subtract the value of the building $400,000 to arrive at the accrued depreciation of $169,500. The total depreciation divided by the total RCN = $169,500/$569,500 = 30%. The percent depreciation divided by the effective age = the annual depreciation rate: 30%/20 = 1.5%. The age-life method states that the effective age divided by depreciation rate is equal to the economic life. By the same token, looking at the formula one-year-at-a-time gives us the total economic life of the comparable: 1/1.5% = 67 years (rounded). This problem illustrates how principles from all three approaches can be used synergistically to solve an appraisal problem.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
59
Q

If the market rent exceeds contract rent the difference is called

A

Deficit Rent

If the market rent (what the property should rent for) exceeds contract rent (what the property is rented for), from the owner’s perspective, the property is operating at a deficit.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
60
Q

If the contract rent exceeds market rent the difference is called

A

Excess Rent
If the contract rent (what the property is rented for) exceeds market rent (what the property should rent for), from the owner’s perspective, the property is operating at a surplus, or excess.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
61
Q

Property owner Bob is concerned about his roof cover. He wants to start saving to replace the roof cover, which has a useful life of 20 years. The estimated cost of the roof cover will be $40,000. Using a straight-line method, what is the estimated replacement reserve for the roof?

A

The replacement reserve is the non-cash set-aside to save for items that will have to be replaced. Examples include roof covers, water heaters, ect.The straight-line method ignores the fact that these reserves could be in interest-bearing accounts with principal and interest accruing over the term. According to the straight-line method the replacement reserve is: $40,000 replacement in 20 years = $40,000/20 years = $2,000/year.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
62
Q

Operating expenses include

A

Operating expenses are deducted from effective gross income to derive net operating income and include

fixed expenses,
variable expenses, and
reserves for replacement.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
63
Q

Janet is appraising a 3-unit building. Her discussions reveal the following data: Unit 1 has experienced 3 months’ vacancy over the last year. Unit 2 has had 1 month. And Unit 3 has had 2 months. Assuming the vacancy rate remains stable for the upcoming year, what is the forecasted vacancy rate?

A

Unit 1 has been vacant 3 months out of 12. Unit 2 has been vacant 1 month out of 12. Unit 3 has been vacant 2 months out of 12. That is 6 vacant months out of a total of 3 x 12 = 36 months. 6/36 = 16.7%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
64
Q

Pre-tax cash flow (PTCF) is

A

NOI minus accumulated tax reserves

The pre-tax cash flow (PTCFAA) is the MOI minus annual debt service. It is also known as the equity dividend.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
65
Q

The operating expense ratio (OER) can be expressed as

A

1 - NIR (where NIR is the net income ration)

The OER is operating expenses (OE) divided by the effective gross income (EGI), or OE/EGI.
OER and NIR are complementary; that is, they add up to 100%.
Therefore, 1.00 - OER = NIR and 1.00 - NIR = OER.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
66
Q

The debt coverage ratio (DCR) is

A

NOI/Debt service

The DCR is NOI/debt service. The DCR measures the adequacy of NOI to cover the debt service. Lenders often look to this performance measure to see if the investment is efficacious.

Now, to remember the order of division, think about the “top” and “bottom” parts of the fraction:

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
67
Q

The capitalization rate (Ro) is the

A

Rate of return of and on investment

The capitalization rate reflects the rate of return of investment (getting your original investment back) and the rate of return on investment (receiving interest on your investment).

In simpler terms, the cap rate helps you understand both how soon you might get your initial investment back and how much extra money you could make from the property every year. It’s a way to compare different investment opportunities and decide which one might be a better choice based on how quickly you can recover your money and how much “interest” you’ll earn.

Remember, a higher cap rate doesn’t always mean a better investment because it might come with higher risks or other factors to consider. And a lower cap rate doesn’t necessarily mean a bad investment if there are other advantages, like lower risks or potential for property value appreciation. It’s just one tool to help you make informed decisions about your investments.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
68
Q

The Net Income Ratio is the ________________ of the Operating Expense Ratio.

A

Complement

The net income ratio (NIR) is NOI/EGI. The operating expense ratio (OER) is operating expenses/EGI. If the NIR is .30, then the OER must be .70; in other words they add up to 100%, which means they are complementary.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
69
Q

The break-even ratio measures

A

The occupancy level at which the property can cover operating expense and debt service.

The break-even ratio is (operating expenses plus debt service)/PGI.

Say the expenses are $40,000 and debt service is $50,000. If PGI = $100,000 then: ($40,000 + $50,000)/$100,000 = .90.

The subject breaks even at 90% occupancy.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
70
Q

The loss of income due to non-payment of scheduled rent is called

A

Collection Loss

The loss of income due to non-payment of scheduled rent is called collection loss. This is usually a more insidious problem than mere vacancies, because a collection loss infers the presence of tenants who are not paying rent and who are, therefore, undergoing eviction proceedings.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
71
Q

The relationship between the capitalization rate and the value is

A

Inverse

If the NOI is constant and the rate increases, the indicated value drops. Conversely, if the rate declines, the indicated value rises. Capitalization rates and values therefore have an inverse relationship.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
72
Q

Pre-tax cash flow is also known as the

A

Equity dividend

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
73
Q

The relationship between the net income multiplier (NIM) and the capitalization rate (Ro) is

A

Reciprocal

If the net income multiplier (NIM) is value / net income (NOI), and
the capitalization rate (Ro) is NOI/Value, then
Ro = 1/NIM (and the opposite is also true: NIM = 1/Ro). Therefore NIM and Ro are reciprocal.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
74
Q

The loan constant is:

A

the capitalization rate of the loan

Debt service/(loan amount). value of the loan

The loan constant is higher than the interest rate because the loan constant represents the return on (interest) and the return of (principal) investment to the lender.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
75
Q

What is the relationship between the level of risk and the capitalization rate?

A

A high level of risk equals a high capitalization rate. A high level of risk implies a high possibility of loss on the investment, a high-risk property will have a lower selling price or value.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
76
Q

Ad valorem taxs, hazard insurance premiums, and utilities are all

A

operating expenses.

Deb service is the principal and interest payment made to the lender, and is not an operating expense.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
77
Q

An investment property has an NOI of $24,000 per annum and an OER of 40%. The EGIM is 15. What is the indicated value of the property?

A

The OER is 40%, therefore the NIR is 60% $24,000/.60 = $40,000 EGI x 15 = $600,000.

Absolutely, in really easy terms:

When you take $24,000 and divide it by 0.60 (which is the same as 60%), you’re figuring out how much the original income (before expenses) would be if only 40% is spent on expenses. This gives you an effective gross income.

So, $24,000 divided by 0.60 equals $40,000. This $40,000 is the effective gross income, which means it’s the income after subtracting only the expenses (in this case, 40% of the original income).

This helps us understand how much money the property is making after accounting for its expenses.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
78
Q

What is the process to determine land residual?

A

Determining land residual value involves estimating the value of a piece of land based on the potential income it can generate when a development is built on it. This method is often used in real estate to evaluate the value of land for development purposes. Here’s a step-by-step process to determine land residual value:

Understand the Basics:
The land residual method takes into account the potential income from a future development on the land and subtracts the costs associated with that development. The result is an estimated value of the land itself.

Estimate Future Income:
Determine the potential income that the development (like an office building, apartments, etc.) on the land could generate. This includes factors like rent, lease payments, or any other revenue sources.

Calculate Future Expenses:
Estimate all the costs associated with operating the development. This includes operating expenses, maintenance costs, property management fees, and any other relevant expenses.

Determine Net Operating Income (NOI):
Subtract the estimated expenses from the potential income to get the net operating income (NOI). This is the income generated by the development after expenses.

Research Capitalization Rates:
Look for market data on capitalization rates for similar developments in your area. The capitalization rate (cap rate) is the rate of return an investor expects to receive based on the income from the property. It’s used to convert the income into an estimated property value.

Calculate Property Value:
Divide the NOI by the chosen cap rate to estimate the value of the developed property. This gives you the total property value if the development were already in place.

Subtract Development Costs:
Deduct the estimated costs of constructing the development from the calculated property value. This includes construction costs, permits, design fees, and any other expenses related to building the development.

Land Residual Value:
The remaining value after subtracting the development costs is the land residual value. This represents an estimate of the value of the land itself, considering its potential to generate income through the development.

Compare to Market Data:
It’s essential to compare your land residual value with recent sales of similar vacant lands in the area. This helps ensure that your estimation is in line with the market trends.

Consider Risk and Market Trends:
Take into account any risks associated with the development, as well as the current market conditions. If the market is volatile or demand for the specific type of development is uncertain, adjust your calculations accordingly.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
79
Q

The cost to construct the subject residence is $150.25/SF. The effective date is March 10. The effective age is 10 years; the actual age is 25 years. The subject residence has experienced recent remodeling. The gross living area of the house is 2,125 SF. The remaining economic life is 65 years. The land to building value ratio in the subject neighborhood is 25%. Given the above data, which of the following ranges best represents the subject’s land value?

A

90,000 - $95,000
( The land to value is figured on the value of the building new)??

The cost approach formula is: C - D + V(L) = V(O). Therefore: the cost is 2,125 SF @ $150.25/SF or $319,281.25. The age-life method of calculating depreciation uses effective age rather than actual age: effective age/economic life = % depreciation. Therefore, depreciation is 10/75 = .133. $319,281.25 x .133 = $42,570.83 (total depreciation). The value of the building = $319,281.25 - $42,570.83 = $276, 710.42. The L:B Value Ratio is 25%. Therefore, land is 25% of the total value, and the building is 75% of the total value. The value of the building is $276,710.42, which is 75% of the overall value. 276,710.42/.75 = $368,947.22. Subtracting the building value yields $92,236.80, which falls into the range $90,000 - $95,000.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
80
Q

If a lot contains 1,500 square yards and has a width of 50 feet, the depth is:

A

270 feet

1,500 square yards is 13,500 square feet. (1,500 x 9). 13,500 divided by 50 (frontage) equals a depth of 270 feet.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
81
Q

All of the following methods are acceptable methods of valuing an individual single family lot which is not generating any rental income EXCEPT:

A

Capitalizing ground rent

The value of residential property may be estimated using the sales comparison method, the allocation method, or extraction method.

Capitalization of ground rent and land residual technique require the property to be income-producing. The subdivision development method is not used in valuing single lots like the subject.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
82
Q

Which technique for determining land value requires an appraiser to deduct the net income applicable to the building from the total net income, and then capitalize the remainder and attribute the result to the land?

A

Land Residual

When using the land residual technique, the appraiser first deducts the NOI that is earned by the building from the total NOI. The remainder NOI is attibutable to the land. This remainder NOI is capitalized at the land capitalization rate to produce an indication of land value.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
83
Q

Which method of site valuation would be used to appraise a surface parking lot in a downtown area leased to a parking lot operator?

A

Ground rent capitalization

QUESTION RATIONALE
This procedure is used when land rental and capitalization rates are readily available. The ground rent paid for the right to use and occupy the land is divided by a land capitalization rate.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
84
Q

Which method of valuing the land component of a property subtracts the depreciated cost of improvements from the total sale price of an improved property?

A

Extraction

The extraction method of valuing land is subtracting the depreciated cost of improvements from the total sale price.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
85
Q

The original cost of the improvements on a property was $350,000. The depreciated cost of the improvements is $250,000. The sale price of the property is $400,000. What is the value of the land by the extraction technique?

A

$150,000

Sales price $400,000 minus depreciated cost of improvements $250,000 equals $150,000.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
86
Q

The landlord’s ownership interest in leased property. Defined by the amount of contract rent over and above market rent. Also, called Leased Fee Estate.

A

Leased Fee Interest

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
87
Q

Statement by the appraiser explaining the framework used to reach the appraisal value and establishing the report’s limitations.

A

Limiting Conditions

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
88
Q

The price expected for a whole property (e.g., a house) or a part of a property (e.g., a plumbing fixture) that is removed from the premises usually for use elsewhere.

A

Salvage value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
89
Q

A use of land available to the owner under current laws and zoning regulations.

A

Legal Permissibility

In the context of “legal permissibility” related to the use of land, it refers to whether a particular use or activity on a piece of land is allowed and authorized by the applicable laws and regulations. It addresses whether the proposed use aligns with the zoning rules, land use regulations, and any other legal requirements in the specific jurisdiction.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
90
Q

Appropriate or fair value for private land taken by the government for public use. See: Eminent Domain.

A

Just Compensation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
91
Q

A tax term used in exchanges. Property may be exchanged for like in kind property and the tax postponed. The term does not refer to the physical similarity of the properties but the purpose and intent 9investment) of the tax payer.

A

Like In Kind Property

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
92
Q

A form of co-ownership in which the co-owners have equal undivided interests and the right of survivorship. Joint tenancy must have the four unities present.

A

Joint Tenancy

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
93
Q

A non-possessory interest in property, giving a lienholder the right to foreclose if the owner does not pay a debt owed to lienholder. 2. A financial encumbrance on the owner’s title.

A

Lien

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
94
Q

One who conveys the rights of occupancy and use to others under lease agreement.

A

Lessor

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
95
Q

One who has the right to occupancy and use of the property of another for a period of time according to a lease agreement.

A

Lessee

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
96
Q

Larger Parcel

A

In simple terms, a “larger parcel” is a bunch of neighboring pieces of land that are owned or controlled by one person or group. These pieces of land should be used together in a smart way to get the most value from them.

To think of it simply, imagine you have a few plots of land next to each other. If these plots are owned by one person or group and can be used in a similar way to make the most money or be the most useful, then you can call them a “larger parcel.”

When people want to take a part of this land for things like building roads or other projects, they look at how it affects the whole group of land. They make sure that the taken part still makes sense as part of the bigger group. This is important because it helps figure out how much money the owner should get for the part that was taken.

Sometimes, even if the pieces of land are not right next to each other, they can still be considered a larger parcel if they are used together in a special way that makes sense. This helps in cases where the parts of the land are not all connected, but they still have a common purpose or use that’s really important.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
97
Q

A description of land that identifies the real estate according to a system established or approved by law; an exact description that enables the real estate to be located and identified.

A

Legal Description

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
98
Q

Any type of written letter, memorandum, or statement that serves as a notice of delivery from the valuer to the client of a report containing an opinion or conclusion concerning real estate; often a brief document in the introduction to a report that formally presents the report to the person for whom the appraisal was prepared.

A

Letter of Transmittal

Think of a “letter of transmittal” as a special note or message that an appraiser writes to someone who hired them to evaluate a property (like a house or land). This note is like a formal way of saying, “Hey, I’m giving you the report with my thoughts and conclusions about the property.”

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
99
Q

An estate that gives the holder (tenant) a temporary right to possession, without title. Also called Less-than-Freehold Estate.

A

Leasehold Estate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
100
Q

An income method of site valuation that attributes a certain part of the income produced by a property to the building or other improvement, then attributes the remaining income to the land.

A

Land Residual Method

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
101
Q

The amount of money a lender is willing to loan to someone to finance a property.

A

Loan Value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
102
Q

The characteristics or attributes of properties and transactions that cause the prices of real property to vary; include real property rights conveyed, financing terms, conditions of sale, expenditures made immediately after purchase, market conditions, location, physical characteristics, and other characteristics such as economic characteristics, use, and non-realty components of value.

A

Elements of Comparison

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
103
Q

An element of depreciation; curable defect caused by a flaw involving the structure, materials, or design, which can be practically and economically corrected.

A

Curable Functional Obsolescence

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
104
Q

A set of procedures through which the value indication is derived for the fee simple interest in a property by estimating the current cost to construct a reproduction of (or replacement for) the existing structure, including an entrepreneurial incentive, deducting depreciation from the total cost, and adding the estimated land value. Adjustments may then be made to the indicated fee simple value of the subject property to reflect the value of the property interest being appraised.

A

Cost Approach

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
105
Q

A cost approach appraisal method which has the appraiser count the number and type of each part and material that were used to construct the building, plus adding a cost for labor, profit, permits, etc.

A

Quantity Survey Method

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
106
Q

An qualitative technique for analyzing comparable sales; a variant of relative comparison analysis in which comparable sales are ranked in descending or ascending order of desirability and each is analyzed to determine its position relative to the subject.

A

Ranking Analysis

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
107
Q

A property title that title insurance company agrees to insure against defects and disputes.

A

Insurable Title

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
108
Q

An element of depreciation; a defect caused by a deficiency or superadequacy involving the structure, materials, or design that cannot be practically or economically corrected as of the effective date of the appraisal.

A

Incurable Functional Obsolescence

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
109
Q

A method that requires the recognition of the differences between the comparable data and the subject property and assigning either a market derived dollar or percentage amount as an adjustment.

A

Quantitative Adjustments

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
110
Q

A site valuation method takes an estimated value of improvements and subtracts that from the total sales price to derive a figure for the land value.

A

Extraction Method

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
111
Q

A site valuation method that separates the value of the land from the structures that sit on it by taking a ratio of the land or site value to the total property value, based on a typical property in the area.

A

Allocation Method

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
112
Q

A method used after any quantitative adjustments have been applied that employs the appraiser’s judgment in forming opinions relying on such methods as relative comparison analysis (bracketing), ranking analysis, and/or personal interviews. The method requires good judgment and reasoning skills of the appraiser.

A

Qualitative Analysis

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
113
Q

An element of comparison in the sales comparison approach; comparable properties can be adjusted for differences in the points in the real estate cycle at which the transactions occur. Sometimes called a “time adjustment” because the difference in dates of sale are often compared, although that usage can be misleading because property values di nit change merely as the result of the passage of time.

A

Market Conditions

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
114
Q

A quantitative technique used to identify and measure adjustments to the sale prices or rents of comparable properties. To apply this technique, sales or rental data on nearly identical properties, or adjusted data, is compared to isolate an estimate a single characteristic’s effect on value or rent. Often referred to as paired sales analysis.

A

Paired Data Analysis

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
115
Q

The cost (including entrepreneurial incentive) to restore an item to new or reasonably new condition.

A

Cost to Cure

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
116
Q

The value of a property if sold under duress or in a must-sell situation with less than typical market exposure.

A

Liquidation Value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
117
Q

Impairment of condition; a cause of depreciation that reflects the loss in value due to wear and tear, disintegration, use in service, abuse and the action of the elements. See also curable physical deterioration; depreciation; incurable physical deterioration.

A

Deterioration

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
118
Q

The value of property for accounting purposes, based on cost, less accrued depreciation.

A

Book Value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
119
Q

The value of property based on specific investment criteria.

A

Asset Value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
120
Q

Method for determining the cost of a building that uses the cost of recently built comparable buildings as a basis for estimating the cost of replacing the subject property.

A

Comparative Unit Method

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
121
Q

Statistical measure that attempts to ascertain the source of change in variables.

A

Regression Analysis

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
122
Q
  1. Characteristics that affect a property’s income. 2. An element of comparison in the sales comparison approach. Comparable sales can be adjusted for differences in the attributes that affect a property’s income, such as operating expenses, quality of management, tenant mix, rent concessions, lease terms, lease expiration dates, renewal, options, and lease options such as recovery clauses.
A

Economic Characteristics

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
123
Q

The decline in property value caused by external forces, such as neighborhood blight or adverse development. See external obsolescence.

A

Economic Depreciation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
124
Q

A sale of property when the seller is under extreme pressure to sell. Generally the property is sold for less than market value.

A

Distress Sale

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
125
Q

The subject site is 25’ x 125’, rectangular, flat topography, zoned residential. The site is currently unimproved. Similar lots in the neighborhood sell for $50,000. The site is adjacent to a landfill that is capped. The poor location reduces site value by 25%. What is the external obsolescence indicated for the subject site?

A

$ 0

(just remember land cannot depreciate)

The definition of depreciation is a “loss of value from any cause to the improvements.” The subject property is an unimproved site which, by definition, cannot depreciate.

Since external obsolescence is a form of depreciation, and the site cannot depreciate, the answer is zero dollars.

If the question was “How much did the subject site lose due to its poor location?” then the answer would be: $50,000 x 25% = $12,500

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
126
Q

An office building is valued at $100,000 and has a net income of $10,000. If the net income remains the same, but the capitalization rate increases by one full percentage point, what would the estimate of value be?

A

Net income/value = capitalization rate. $10,000/$100,000 = 0.10 or 10%. If the capitalization rate increases by 1%, then $10,000/0.11 = $90,909.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
127
Q

When developing an opinion of site value of an improved property, an appraiser must value the site as if it is:

A

Vacant and available for development to its highest and best use

The cost approach to value requires the appraiser to estimate the value of the site as if vacant and available for use under the land’s highest and best use. The use may or may not be the land’s current use.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
128
Q

When land value is estimated by deducting the depreciated cost of improvements on a property from the total sale price of the property, this is known as

A

When land value is estimated by deducting the depreciated cost of improvements from the sales price, it is called extraction.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
129
Q

In a site appraisal the conditions of subsoil, specifically its suitability for a foundation and its bearing quality, are usually defined by a(an) _______________study.

A

Engineering
An engineering study would reflect the conditions of the subsoil and determine its suitability for a construction site.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
130
Q

A fee simple defeasible form of ownership is

A

subject to conditions.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
131
Q

__________________ is the decorative manner or plan of placing doors or windows in aq structure.

A

Fenestration

132
Q

An appraiser asks a title company to confirm a sale. The title company confirms the sale as a full value transaction using documentary transfer stamps. The stamps were issued at a rate of $.55 per $500 in value, and they total $308.55. The loan-to-value ratio is 80%, and the buyer didn’t assume any pre-existing loans. What was the sales price?

A

280,500
(tax stamps were on the entire Value of the transaction not just loan amount)*

The stamps are calculated as $0.55 per $500 of new money. This means that the entire transaction amount would be included (not just the loan amount), but assumed loans would not be included. $308.55 divided by .55 = 561 stamps. 561 x $500 = $280,500. It represents the entire transaction amount-there were no loans assumed.

132
Q

An appraiser would not consider littoral rights when valuing a/an:

A

house whose lot borders a river.

Littoral rights apply to land that borders large bodies of water such as a lake or a sea, and allows the owners to use and enjoy the body of water. Riparian rights apply to property bordering flowing bodies of water such as rivers and streams, such as the house on the river.

133
Q

An owner’s right to recover the use of his property at the end of a lease is called:

A

Reversionary right.

An owner who leases real estate relinquishes their right to occupy the property. However, he retains the title, subject to the lease, and the right to recover use at the end of the lease. This is known as reversionary right.

134
Q

North 60 degrees East is an example of which legal description?

A

Metes and bounds

Metes and bounds land description uses compass readings to mark the boundaries of a property, starting at a point of beginning.

135
Q

In the rectangular survey method of legal land description, what is the name for an area of land measuring one mile by one mile?

A

Section

The rectangular survey system of legal land description divides land into townships, which contain 36 sections. Each section measures one square mile.

136
Q

Kim is appraising a house and needs to indicate the architectural term for the house’s roof. The house is rectangular and the rain runs off one side of sloping roof. What type of roof does the house most likely have?

A

Shed

137
Q

Government National Mortgage Association (GNMA) - A wholly owned corporation created in 1968 within the U.S. Department of Housing and Urban Development to serve low-to moderate-income homebuyers.

A

Ginnie Mae

138
Q

A transaction that occurred under typical conditions in the marketplace, with each of the parties acting in their own interests.

A

Arm’s Length Transaction

139
Q

An instrument held by a third party as security for the payment of a note. Like a mortgage, it creates a voluntary lien on real property to secure repayment of a debt. The parties to a deed of trust are the grantor or trustor (borrower), beneficiary (lender), and trustee (neutral third party). Unlike a mortgage, a deed of trust includes a power of sale, allowing the trustee to foreclose non-judicially. Used In some states.

A

Deed of Trust

140
Q

An instrument held by a third party as security for the payment of a note. Like a mortgage, it creates a voluntary lien on real property to secure repayment of a debt. The parties to a deed of trust are the grantor or trustor (borrower), beneficiary (lender), and trustee (neutral third party). Unlike a mortgage, a deed of trust includes a power of sale, allowing the trustee to foreclose non-judicially. Used In some states.

A

Deed of Trust

141
Q

The greatest estate (ownership) one can have in real property; it is freely transferable and inheritable, and of indefinite duration, with no conditions on the title. Also called Fee Simple Absolute or Fee Title.

A

Fee Simple

142
Q

Person receiving title to real property (buyer).

A

Grantee

143
Q

Any type of interior work to a house or building that is not part of the finish work.

A

Rough-Ins

144
Q

Specialized form of county road that is part of the state aid system. County State Aid routes are eligible for funding from the County State Aid Highway Fund.

A

County State Aid Highway (CSAH)

A County State Aid Highway (CSAH) is a type of road or highway in the United States that is typically maintained and funded by a county government but also receives financial assistance from the state government. These roads are an important part of the transportation infrastructure, as they connect rural and urban areas within a county and often serve as major routes for local traffic and commerce.

145
Q

A segment of land between two disparate municipal zones which acts as a shield to keep one zone from encroaching upon the other. Often used to separate residential districts from commercial areas.

A

Buffer Zone

146
Q

The theory that says a particular property achieves its maximum value when it is surrounded by properties that are similar in style, function, and utility. Also called Homogeneity.

A

Conformity

147
Q

A sub-agency of the U.S. Department of Housing and Urban Development created in the 1930’s to facilitate the purchase of homes by low-income, first-time home buyers. It currently provides federally subsidized mortgage insurance for private lenders.

A

Federal Housing Administration (FHA)

148
Q

Atypical motivations of the parties of a transaction (usually make the sale non-arm’s length).

A

Conditions of Sale

149
Q

One mill represents one-tenth of one percent (0.1%) of the assessed value of a property. For example, if the mill rate is 10, then the property owner would pay $10 in taxes for every $1,000 of assessed value.

A

To calculate the property tax owed, you would multiply the assessed value of the property by the mill rate and then divide by 1,000. This gives you the actual dollar amount of property tax owed.

Property Tax = (Assessed Value * Mill Rate) / 1,000

150
Q

The owners of a vacant lot owe property taxes of $2.10/$100 of assessed value. What is the tax rate in mills?

A

2.1 mils

One mil equals 1/10 of one cent. So $2.10/$100 = 0.021. To convert to mill rate simply move the decimal two places to the right. That results in 2.1 mils.

151
Q

Tim needs to indicate the architectural term for the house’s roof. The house is rectangular and the rain runs off the four sloping sides of the pitched roof. What type of roof does the house most likely have?

A

Hip

A hip roof is pitched with four sloping sides

152
Q

What contract termination method involves transferring contract rights to a third party?

A

Assignment

Assignment is a contract termination method used to transfer contract rights to a third party.

The contract termination method that involves transferring contract rights to a third party is known as “assignment.” Assignment refers to the legal process of transferring one party’s rights and obligations under a contract to another person or entity who is not originally a part of the contract.

When an assignment occurs, the original party (the assignor) gives up their rights and responsibilities to the third party (the assignee). This can be done for various reasons, such as when the original party no longer wants to fulfill the terms of the contract or when they want to delegate certain contractual duties to someone else.

153
Q

Acquiring an Interest by Prescription:
Imagine you’ve been using a part of someone else’s land for a really long time, like walking across it or using it as if it’s yours. Over time, the law might recognize your right to keep using that part of the land because you’ve been doing it for so long. This is called acquiring an interest by prescription. It’s like earning a right to use the land even though you don’t own it. You get a sort of “license” to continue using it.

Acquiring Title through Adverse Possession:
Now, let’s say you’ve been using someone else’s land for a really, really long time, and you’ve been using it openly and without permission. You might be able to claim ownership of that land through something called adverse possession. It’s like saying, “I’ve been using this land for so long, and the owner hasn’t stopped me, so maybe I should become the owner.” You have to meet certain conditions, like using the land openly and consistently, and the owner not doing anything to stop you.

A

The main difference between these two is how much control you’re trying to get. With acquiring an interest by prescription, you’re mainly getting a right to use the land. With adverse possession, you’re actually trying to become the owner of the land. The key requirement for adverse possession is that you use the land openly, continuously, and without permission for a long period of time, typically many years.

154
Q

Which is generally true regarding a trade fixture?

A

Trade fixtures are always personal property.

155
Q

What type of house would you be looking at if you were inspecting a house that had two levels of living area featuring a steep roof slope and dormers?

A

Cape cod

A Cape cod residence is usually one with two levels of living area (1.5 to 1.75 stories) featuring steep roof slope and dormers. The design is generally symmetrical and does not feature much overhang or other ornamentation.

156
Q

What type of architectural style would you be looking at if a house you were inspecting had a low-pitched, red tile roof, arched windows, and columns?

A

Mediterranean

Mediterranean style house plans are best known for their low-pitched, tile roof that is often red (the color of clay). Mediterranean style homes are often stucco and include arched windows and columns.

157
Q

What type of structure refers to a particular floor of the home with one side of the house is built into the grade?

A

Daylight basement

A walkout or daylight basement is a modern architectural form in which the house is situated on a slope and part of the basement is above ground.

158
Q

freehold ownership is also known as

A

fee simple

Leasehold involves owning the rights to a property for a specific period of time

159
Q

A life estate is considered what type of estate? Freehold or leasehold?

A

freehold estate also known as fee simple

160
Q

Which of the following roof types is double pitched on two sides?

A

Gambrel

A gambrel roof is double pitched on two sides and is most often seen on barns.

161
Q

Which of the following is not true regarding joint tenancy?

A

All owners must have equal rights

All owners must have possession

All owners must have equal interest

If there are only two owners, they must be married (Correct!)

162
Q

Which of the following components of value is not a contributing part of the going concern value?

A

Going concern value is generally the total value of an operating business enterprise including the value of tangible assets like real estate, fixtures, and equipment. Going concern value also includes intangible assets like customer good will. Assessed value concerns property taxation and is not part of the going concern value.

163
Q

Which of the following is not considered when determining whether an item is a fixture?

A

When determining whether an item is a fixture or not, an appraiser considers the method of attachment, relationship of the parties, the intent of the person who attached it, and the adaptability of the item for the land’s ordinary use.

164
Q

Which of the following is a unique feature of an easement in gross?

A

There is no dominant tenement
An easement in gross belongs to an individual person or business and does not run with any specific parcel of land. Therefore, there is no dominant tenant. Meaning there is not an estate or property that benefits from it rather its tied to a person or business. (There is a servient)

An easement in gross is a legal right that allows a person or entity (known as the “easement holder”) to use or access someone else’s property for a specific purpose, without requiring the easement holder to own any adjoining property. In other words, the easement holder’s right is not tied to their ownership of any specific land; it’s a personal right that can be assigned, sold, or otherwise transferred.

It’s important to note that easements in gross are often associated with utility companies, railroad operators, and other entities that require access to specific properties to perform their services. However, they can also apply to personal uses like the fishing club example mentioned above.

Easement Appurtenant: In this type of easement, there are two pieces of adjacent land: one that benefits from the easement (dominant estate) and another that is burdened by the easement (servient estate). The easement allows the owner of the dominant estate to use or access the servient estate for a specific purpose.

Easement in Gross: As we discussed earlier, this type of easement doesn’t involve a dominant estate. The easement holder, who may be an individual or an entity, has a personal right to use the servient estate for a specific purpose, but their right is not tied to ownership of any specific neighboring property.

165
Q

Which of the following is typically shown on a plat map?

A

A plat map is a map representing a parcel of land subdivided into lots, showing streets and other details or a single site.

166
Q

Which of the following roof types slopes on two sides?

A

A gable roof slopes evenly on two sides.

167
Q

Which room in the house requires the most heat and ventilation?

A

The Bathroom

Bathrooms need the most heat and ventilation.

168
Q

Who are the three parties involved in a deed of trust?

A

Trustee, trustor, and beneficiary

169
Q

Which of the following roof types slopes on four sides?

A

Hip

A hip roof slopes evenly on all four sides.

170
Q

Which of the following terms refers to the ‘mortgagor?

A

Borrower

Mortgagee “lender”

171
Q

Which of the following terms refers to the ‘mortgagee’?

A

Lender

172
Q

A land tract is designated as wetlands if:

A

Wetlands are generally protected from development, and land must be given the wetlands designation by the federal government. Land can be given that designation because of the hydraulic (water) influences, but both soil type and vegetation are important factors as well.

173
Q

What is the proper term for a structure that provides cover for a drive-through entrance allowing passengers to enter and exit in front of the main entry while the vehicle can be parked elsewhere?

A

Porte cochere

Porte cocheres are often seen attached to homes with turnaround or circular driveways and are integrated into the architectural design and roofline of the house. Some have decorative columns.

174
Q

Atypical motivations of the parties of a transaction (usually make the sale non-arm’s length).

A

Conditions of Sale

175
Q

A window style that projects in a curve out from a wall, giving a bay-like effect to the interior.

A

Bay Window

176
Q
  1. In general, losses that do not flow directly and immediately from an injurious act but that result indirectly from the act. 2. In condemnation, damages to a property resulting from governmental actions (such as taking) or the actions of property owners (such as construction) on other lands. Consequential damages may be considered noncompensable in certain jurisdictions.
A

Consequential Damages

177
Q

Taking private property for public use through the government’s power of eminent domain. Also called Appropriation. 2. A declaration that a structure is unfit for occupancy and must be closed or demolished.

A

Condemnation

178
Q

A process in which the total value of a property is broken down into its essential parts and the value of any single component may be determined by subtracting the remaining components from the total value.

A

Abstraction Method

179
Q

Commonly, the conversion of a rental property such as an apartment complex into a CONDOMINIUM-style complex where each unit is owned rather than leased.

A

Condominium Conversion

180
Q

A window which, being hinged at the top, forms an awning when open.

A

Awning Window

181
Q

The instrument used to reconvey title to a trustor under a deed of trust once the debt has been satisfied.

A

Deed of Reconveyance

182
Q

A mortgaged property which has been foreclosed on

A

Distressed Property

183
Q

Failure to make payments when they are due.

A

Delinquency

184
Q

An inducement to have the buyer’s offer accepted and a means of showing the seller the buyer is serious and able to follow through with the financing necessary to buy the property.

A

Earnest Money Deposit

185
Q

A window style where both sashes move.

A

Double Hung

186
Q

Connected to or touching along an unbroken boundary.

A

Contiguous

187
Q

A nontechnical term used to describe a review of an appraisal for which the scope of work includes inspection of the exterior and sometimes interior of the property appraised and possibly inspection of the comparable properties to confirm data provided by the appraisal report.

A

Field Review

188
Q

An insurance policy taken out by appraisers to cover their liability for any mistakes made during the appraisal process.

A

Errors and Omissions Insurance

189
Q

An individual or other legal person designated in a will to settle the estate of the deceased person.

A

Executor (Personal Representative)

190
Q

The government’s constitutional power to appropriate or condemn private property for public use, as long as the owner is paid just compensation. The government’s taking of private land is called Condemnation.

A

Eminent Domain

Condemnation is the action; eminent domain is the right.

191
Q

Any mortgage that is insured or guaranteed by a government agency, such as the FHA or VA.

A

Government Mortgage

192
Q

The entire taking of the full real property interest of a parcel for public use under the power of eminent domain; requires the payment of compensation. See also partial taking.

A

Full Taking

193
Q

The process by which all roads are grouped into classes or systems according to the character of service they are intended to provide. Functional class defines the part that any particular road or street should play in serving the flow of trips through a highway network.

A

Functional Classification

  1. Freeways/Expressways:
  2. Arterials: Major roads that serve as primary routes within urban or suburban areas
  3. Collectors: connect local streets to arterial roads
194
Q

A type of door constructed with stiles and rails that divide each side of the door into four, usually equal, parts.

A

Four Panel Door

195
Q

A system or process that electronically captures, stores, analyzes, manages, and presents data linked to location, primarily in map form. Layers of the illustrative information can be selected and displayed such as aerial photography, topographic maps, flood maps, streets and roads, earthquake information, zoning overlays, political boundaries, and other forms of geographically referenced data.

A

Geographic Information Systems (GIS)

196
Q

The market value in use of all property, including real property, trade fixtures, inventory (tangible assets), and the intangible assets of an established and operating business with an indefinite life.

A

Going-Concern Value

197
Q

The loss of property or money due to the failure to meet the obligations of a mortgage or loan secured by that property.

A

Forfeiture

198
Q

A type of door usually constructed from one piece of wood so it is smooth, without any divisions like a panel door.

A

Flush Door

199
Q

Combining two or more parcels into one, with an increase in value over the value of the two parcels individually.

A

Plottage

200
Q

Land that has limited usefulness because the costs of labor, coordination, and capital required to work or use it are approximately equal to the land’s gross income.

A

Marginal Land

In such cases, the expenses associated with preparing the land, planting crops, and maintaining them might outweigh the potential income generated from the harvested produce.

201
Q

640 acres

A

Number of Acres in a Section

202
Q

A type of framing with the floor for higher stories (and the roof) supported by beams that sit on top of posts and the outside wall perimeter.

A

Post and Beam (Framing)

203
Q

Part of a paneled door between the stiles and rails (the vertical and horizontal).

A

Panel

204
Q

Newly constructed housing units; includes both single-family and multifamily domiciles.

A

Housing Starts

205
Q

Sloped support beams that follow the pitch of the roof, and serve to hold the outer roof covering.

A

Rafters

206
Q

A type of framing used to build a house or building one story at a time, with each story serving as a platform for next story to be built.

A

Platform (Framing)

207
Q

Any constant, contiguous area that may be identified by similar characteristics of physical boundaries.

A

Neighborhood

208
Q

A window style that incorporates a half-circle.

A

Palladian Window

209
Q

An insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its contents.

A

Homeowner’s Insurance

210
Q

The right to use water in or from a river, stream, or lake.

A

Water Rights

211
Q

Also called Mock Tudor in the twentieth century, first appeared as an architectural style in England in the mid- to late-nineteenth century based on the characteristics of the earlier Tudor style.

A

Tudorbethan Style

212
Q

A right to pass over land in some particular path; a strip of land used for transportation such as streets and roads, railways, utility lines, and for other private or public transportation uses.

A

Right of Way

213
Q

A method of valuing land that could be developed, by taking the total projected market value of the finished project and subtracting all costs of development and entrepreneurial profit and incentive.

A

Subdivision Analysis Method

214
Q

An asphalt paper of fiber material. Which is used in rolls, being unrolled and fastened to the roof surface, under the shingles.

A

Roll Roofing

215
Q

Actual lawful ownership of real property. Title is not a document. Title is a concept.

A

Title

216
Q

Owner’s right to obtain return of the property rights granted to a tenant upon termination of a lease. The term can also apply to termination of a temporary easement, abandonment of a right of way, extinguishment of a life estate or estate for year, violation of a condition in a deed, or the end of life or, or abandonment of, improvements.

A

Reversionary Right

217
Q

When the improvements do not conform to the highest and best use of the site, thus the property does not achieve maximum value.

A

Underimprovement

218
Q

A piece of land divided into two or more parcels. 2. A residential development.

A

Subdivision

219
Q

The additional value a property enjoys based on subjective criteria such as look or appeal.

A

Aesthetic Value

220
Q

The basic building blocks of the property valuation process, including property inspection, market analysis and basic economics.

A

Appraisal Principles

221
Q

A gradual addition to dry land by the forces of nature, mostly used for property abutting a body of water where such addition is made by the deposits of waterborne sediment carried by rivers, winds, tides, etc. to the shoreline property.

A

Accretion

222
Q

An organization of appraisal professionals and others interested in the appraisal profession.

A

American Society of Appraisers

222
Q

One who represents or has the power to act for another person (called the principal). The authorization may be expressed, implied, or apparent. A fiduciary relationship is created under the law or agency when a property owner, as the principal, executes a listing agreement or management contract authorizing a licensed real estate broker to be his or her agent.

A

Agent

223
Q

A section of the U.S. Internal Revenue Service Code that allows investors to defer capital gains taxes on any exchange of like-kind properties for business or investment purposes. Taxes on capital gains are not charged on the sale of a property if the money is being used to purchase another property - the payment of tax is deferred until property is sold with no re-investment.

A

1031 Exchange

224
Q

The value of an asset (property or otherwise) that includes the original price plus the value of any improvement, and less any applicable depreciation.

A

Adjusted Basis

Adjusted Basis = Original Purchase Price + Cost of Improvements - Accumulated Depreciation

The adjusted basis is a critical factor in determining the gain or loss when the property is eventually sold. When you sell a property, the gain or loss is calculated by subtracting the adjusted basis from the sale price. If the sale price is higher than the adjusted basis, you have a capital gain. If the sale price is lower, you have a capital loss.

225
Q

The property’s classification determines the recovery period over which you can depreciate it. For a residential rental property, the recovery period is typically

A

27.5 years.

226
Q

When you sell a property, the IRS requires you to “recapture” the depreciation you claimed over the years. This recaptured depreciation is taxed

A

at a higher rate (25%) than the standard capital gains tax rate (which can be as low as 0% for certain taxpayers).

227
Q

The relationship between the cost of borrowing money and the total amount financed, represented as a percentage.

A

Annual Percentage Rate (APR)
the APR is a way to show you the total cost of a mortgage loan, including both the interest rate and certain fees associated with the loan.
The Annual Percentage Rate combines the interest rate and the fees. It gives you a more complete picture of what you’ll actually be paying each year for the loan. It’s like a total cost percentage.

228
Q

When ___________, then market value, price, and cost are more likely to be equal.

A

Supply and demand are in equilibrium. ((((This scenario is often used in theoretical or analytical discussions to simplify calculations and explanations))

229
Q

Which of the following is a likely result if construction costs fall faster than the values of existing properties?

A

New properties will be developed and the prices of existing properties will fall.
New properties will be developed because it is cheaper and more profitable to do so. Also the new development will offset supply and demand, causing values of existing properties to fall.

230
Q

In order for a use to be considered highest and best, it must:

A

Highest and best use is defined as the physically possible, legally permissible, economically feasible, and maximally productive use.

231
Q

Which of the following is general data that an appraiser should consider when performing an appraisal?

A

QUESTION RATIONALE
General data includes the social, economic, governmental, and environmental influences that affect property values in the region.

232
Q

The excess value created by assemblage is called

A

The excess value created by assemblage is called plottage value.

233
Q

A document, usually given to a home buyer with the deed, that states that the title to the property is believed to clear; usually prepared by an attorney or other qualified person who has examined the abstract of the title for the property.

A

Certificate of Title

234
Q

A method used by lenders and others to determine elements of value and marketability for a property.

A

Broker Price Opinion (BPO)

235
Q

Arms length

means keeping at least an arms length apart. Non arms length would be hugging

A

The term “arms-length” in the context of transactions comes from the idea of keeping a physical distance between parties involved in a deal. The phrase suggests that the parties are not so closely connected that they could exert undue influence or pressure on each other.

236
Q

“Bona fide” is a Latin term that translates to

A

in good faith” or “genuine” in English. When referring to a real estate transaction, a “bona fide sale” essentially means a transaction that is conducted in an honest, genuine, and sincere manner, without any intent to deceive or defraud.

237
Q

Any region of a city or town that has fallen into disrepair or otherwise has become undesirable.

A

Blighted Area

238
Q

A Latin phrase meaning “let the buyer beware.” The rule says a buyer is expected to examine property carefully, instead of relying on the seller to identify problems.

A

Caveat Emptor

239
Q

A written document that transfers title to personal property.

A

Bill of Sale

** Note ** Personal property

240
Q

All real property rights conferred with ownership including, but not limited to, right of use, right of enjoyment, and right of disposal.

A

Bundle of Rights

241
Q

The certificate of reasonable value (CRV) is a document issued by the ________ to endorse an appraised value of a property financed with a VA loan.

A

VA

Certificate of Reasonable Value

242
Q

A statistical model based on multiple regression analysis along with geographical information systems (GIS) data to calculate the estimated value of the subject for underwriting purposes.

A

Automated Valuation Model (AVM)

243
Q

In eminent domain valuation, a procedure in which just compensation is measured as the difference between the value of the entire property before the taking and the value of the remainder after the taking.

A

Before and After Rule

244
Q

In real estate appraisal, “disaggregation” refers to

A

the process of breaking down the overall value of a property into its individual components or factors that contribute to its value. This analysis helps appraisers better understand how different aspects of the property contribute to its overall worth.

245
Q

What might be the cause of the less-than-anticipated value appreciation potential of a new development recently built in an old neighborhood experiencing a decline stage?

A

According to the principle of regression, the worth of a greater-valued object is reduced by association with lesser-valued objects of the same type (superadequacy or overimprovement).

246
Q

The process of compounding interest is the opposite of the process of:

A

discounting interest

The process of compounding interest increases the amount of money. The process of discounting decreases the amount of money. Future value = principal + interest (compounding); present value = principal - discount (discounting).

247
Q

Personal preferences that reflect a shift away from or toward a certain locale can affect the demand for real estate. This type of buyer preference is known as

A

Personal preferences concerning location is known as area preference or situs.

248
Q

Which of the following terms means that the title reverts to the state when a person dies without a will and leaves no heirs?

A

Escheat is defined as the reversion of property to the state or county if the owner dies interstate (without a will) or without heirs.

249
Q

A buyer paid $4,500 in fees for a loan that is 80% loan-to-value and for which the lender charged 2 points. What is the original sales price?

A

QUESTION RATIONALE
Fees divided by points equals the loan amount. The loan amount divided by 0.8 equals the sales price. $4,500 divided by .02 = $225,000 divided by .8 = $281,250.

250
Q

A critical indicator of residential housing demand is

A

employment

251
Q

A property’s value to a specific user is called:

A

Value-in-use is the value of a good to a specific user, based on its productivity (in the form of income, utility or amenity).

252
Q

A new apartment building contains 260 vacant units, which are rented out at a rate of 10 per month. What is the annual absorption rate?

A

The annual absorption rate is the number of units absorbed divided by the total supply. 120 units per year (10 units x 12 months) divided by 260 units equals 46.15%.

253
Q

A public action in which the local government reduces the allowable density for subsequent development (e.g. few housing units, fewer stories, lower floor area ratios) or changes the allowable use from a high use to a low use (e.g. from multiunit residential to single-unit residential).

A

Downzoning

254
Q

Any personal property which is not attached to or an integral part of a property. Chattel is not commonly taken into consideration when appraising the value of real property.

A

Chattel

255
Q

The main business or industry in an area which a community uses to support and sustain itself.

A

Economic Base

256
Q

An easement that benefits a legal person or entity (individual, corporation, partnership, LLC, government entity etc.) and not a particular tract of land; an easement having a servient estate but no dominant estate.

A

Easement in Gross

257
Q

A roof with four sloping side which rise to a ridge. Usually found on garages or church steeples. Also called a pyramid roof.

A

Hip Roof

258
Q

A ridged roof, each side having two slopes, the lower of which is more inclined.

A

Gambrel Roof

259
Q

A defect that is not visible or apparent; a hidden defect that would not be discovered in a reasonably thorough inspection of property.

A

Latent Defect

260
Q

An architectural style dating from early American history typified by a two-story building with clapboard siding.

A

New England Colonial

261
Q

A study of supply and demand, as well as other economic conditions in an area. Also called Market Study.

A

Market Analysis

262
Q

Expressed as a percentage; net operating income divided by effective gross income.

A

Net Income Ratio (NIR)

263
Q

(OER) Expressed as a percentage, it is the operating expenses divided by effective gross income.

A

Operating Expense Ratio (OER)

264
Q

A house constructed of manufactured components, assembled partly at the site, rather than totally on site. Also called a modular house.

A

Prefabricated House

265
Q

The borrower in a loan who gives a mortgage to the lender as security.

A

Mortgagor

266
Q

In statistical analysis, the ________ measures the dispersion of numbers in a data set.

A

Standard deviation

266
Q

In the language of statistics, a ‘population’ is:

A

A complete data set

267
Q

Offerings and listings provide important market data for an inventory of

A

Competitive supply

268
Q

When should a highest and best use analysis include analyses of both the land as vacant and as currently improved?

A

When the land is valued separately from the improvements

269
Q

If the seller of a property receives a net payment of $300,000 (assuming no other costs of sale) and the real estate agent receives a 6% commission, what was the selling price of the property?

A

$300,000 / 0.94

$319,148.94

270
Q

Which of the following is a combined supply and demand factor used in market analysis?

A

Financing conditions

271
Q

Mortgagor is

Lessor is

A

Mortgagor The Borrower (the “R” stands for the borrower)

Lessor is the landlord

272
Q

A single -family dwelling built as a pair that share one common wall.

A

Semi-Detached Housing

273
Q

A brief, chronological summary of the recorded documents affecting the title to a particular parcel of property.

A

Abstract of Title

274
Q

A method for determining the cost of a building, relying on cost manuals. Sometimes called the Cost Manuals Method.

A

Square Foot Method

275
Q

The value of property to the owner, or other specified party, as it is presently being utilized, or for a specific use, without necessarily considering highest and best use or present market value.

A

Value-In-Use.

276
Q

The process of rapid revitalization of properties in a neighborhood, which causes current residents to be displaced.

A

Gentrification

277
Q

The ability of a good or service to satisfy human wants, needs or desires.

A

Utility

278
Q

The ability to freely buy, sell, encumber or dispose of property in any way that the owner sees fit.

A

Transferability

279
Q

Combining two or more parcels into one, with an increase in value over the value of the two parcels individually.

A

Plottage

280
Q

The ratio of net operating income to annual debt service, which measures the relative ability of a property to meet its debt service out of net operatizing income; also call debt service coverage ratio.

A

Debt Coverage Ratio (DCR)

281
Q

A property made undesirable to most people by a past event, often a crime or environmental hazard.

A

Stigmatized Property

282
Q

A physical attachment of personal property to land.

A

Actual Annexation

283
Q

An adaption of the New England cottage. May be one or two stories with sloping roof, usually with dormer windows, cornices, and a lot of frame painted white.

A

Cape Cod House

284
Q

The theory that says a particular property achieves its maximum value when it is surrounded by properties that are similar in style, function, and utility. Also called Homogeneity.

A

Conformity

285
Q

An appraiser trainee has received an assignment to perform an appraisal for market value of a single-unit dwelling in a residential neighborhood with plentiful sales. The subject improvements are 10 years old, with minimal depreciation. There are 7 rental homes in the subject neighborhood, but the subject property has always been owner-occupied. None of the comparable sales were rentals. Upon finishing the appraisal, the appraiser trainee’s supervisor critiques the trainee’s work. All three approaches were utilized: the sales comparison approach: $350,000; the cost approach: $340,000; and the income approach: $365,000. They agreed that the sales comparison approach should receive the most weight, with the cost approach receiving slightly less weight, and the income approach least weight: 5x, 3x, and 1x respectively. Given the weights above, what is the indicated market value of the subject property to the nearest thousand?

A

The three values to be reconciled are: $340,000; $350,000; and $365,000. A weighted average process produces: 340,000 x 3 = 1,020,000. 350,000 x 5 = 1,750,000. And 365,000 x 1 = 365,000. The sum is: $3,135,000. The weighted average (i.e. reconciliation) is: 3,135,000/(5 + 3 + 1) = $348,333, or rounded to $348,000.

286
Q

A person or company that makes mortgage loans with its own funds on its own behalf, usually in expectation of reselling the loans to lenders at a profit and then servicing the loans.

A

Mortgage Banker

287
Q

A condition that exists in the real estate market when there are slightly more homes available than buyers.

A

Balance

288
Q

Analysis of the likelihood that a particular product will sell.

A

Marketability Analysis

289
Q

A type of term life insurance often bought by mortgagors. The amount of coverage decreases as the principal balance declines. In the event that the borrower dies while the policy is in force, the debt is automatically satisfied by the insurance proceeds.

A

Mortgage Life Insurance

290
Q

When the value of inferior properties is affected positively by other properties around it.

A

Progression

291
Q
A
292
Q

Income capitalization techniques include

A

Direct capitalization and
Yield capitalization

293
Q

In direct capitalization

In yield capitalization

A

Direct cap is a more simple method. Changes in future property value are implied and exhibited by market transactions

Yield capitalization anticipates changes in income and future value and are reflected by specific inputs

294
Q

The principle inducing a plaintiff, after an injury or breach of contract, to make reasonable efforts to alleviate the effects of the injury or breach, If the defendant can show that the plaintiff failed to mitigate damages, the plaintiff’s recovery may be reduced. (Blacks Dictionary)

A

Mitigation of Damages Doctrine

295
Q

Intentionally or unintentionally misrepresenting, misstating, or concealing relevant facts or conclusions.

A

Misleading

296
Q

In a multi phase condominium or planned unit development project there may be a homeowner’s association that are concerned with specific areas of the project. The master association oversees these associations and handles matters affecting the entire project.

A

Master Association

297
Q

The prospective buyer having enough disposable income available to satisfy his or her needs, wants, and desires. Also called Effective Purchasing Power.

A

Effective Demand

298
Q

Depriving an abutting owner of the inherent rights of ingress and to egress from the highway or street.

A

Loss of Access

299
Q

An appraiser is trying to extract a GLA adjustment from market data. He has two sales: Monte Carlo Street has 2,146 square feet and sold for $330,000 while Porto Fino Lane sold for $365,000 and has 2,632 square feet. What is the market-extracted GLA adjustment per square foot?

A

The difference in square footage between the two properties is 483 square feet (2,632 - 2,146). The difference in price is $35,000 (365,000 - 330,000). The difference in price divided by the difference in square footage equals a $72.02 or $72 per square foot adjustment ($35,000/486).

300
Q

Appraiser Arnold is researching trends in his market. He notes that property values have been declining over the last 6 months because a major employer filed bankruptcy. The mean sales price 6 months ago was $150,000 for a 1,200-squaree-foot ranch. Currently the mean sales price is $140,000. What is the monthly percentage decline in value in Arnold’s market?

A

The impact of a declining market is measured by where you were, versus where you are now. The average dollar loss is $10,000. Therefore $10,000/$150,000 = 6.67%/6 months = 1.1% loss per month.

301
Q

A colonial style of architecture dating back to the eighteenth century. Characterized by first floor windows extending to the ground, its exterior placements (windows, doors, etc.) are simple and well balanced.

A

Georgian

302
Q

Total area of a building measured from the exterior walls that include common areas (e.g., hallways, entryways, common laundry rooms).

A

Gross Building Area (GBA)

303
Q

Assets of a property which contribute to its value but are not readily apparent. Examples might include upgraded or premium building materials.

A

Hidden Amenities

304
Q

The process of valuing a universe of properties as of a given date using standard methodology, employing common data, and allowing for statistical testing. (USPAP)

A

Mass Appraisal

305
Q

A municipal restriction on the maximum height of any building or other structure.

A

Height Zoning

306
Q

Appraiser trainee Emilie is performing market research for her supervisory appraiser. The subject property is a mixed use property located in an urban area. Her instructions are to find sales that are both comparable and competitive with the subject property. A competitive property

A

Competes head-to-head with the subject property

A competitive property competes head-to-head with the subject property. It probably has similar features, but need not be exactly the same as the subject property.

307
Q

USPAP specifically requires all of the following to be retained in an appraiser’s workfile, except:

A

An appraiser’s workfile must contain the name of the client and the identity of any intended users, true copies of written reports,

summaries of oral reports or testimony, and any other information that supports the appraiser’s opinions and compliance with USPAP.

However, the workfile does not need to contain a legal description of the subject property.

308
Q

When the reviewer’s scope of work includes developing his or her own opinion of value:

A

The reviewer is under no obligation to repeat the steps the original appraiser took. The reviewer can bring those pieces of the work that he or she judges to be accurate and credible into his or her own process through the use of an extraordinary assumption.

309
Q

A property owner asks an appraiser to represent the owner in appealing the ad valorem assessment of the property. The assignment would involve the appraiser developing a value for the property and advocating for a lower assessed value. May the appraiser perform this assignment under USPAP?

A

An appraiser is never permitted under USPAP to perform a service that involves advocacy.

310
Q

An appraiser prepares an appraisal report in December 2017 and provides and testimony concerning this report in May 2018. The court handed down a decision in September 2018, and the decision was appealed in October of 2018. In November 2019, the appellate court remanded the case to the lower court for reconsideration. Final disposition of the case occurred in May 2020. How long must the appraiser retain the workfile?

A

An appraiser must keep a workfile for at least 5 years after preparation, or at least 2 years after final disposition of any judicial proceeding in which testimony was given, whichever period expires last.

311
Q

An appraiser is engaged to appraise a residence that fronts a two-lane residential street. It is public knowledge that the City Council recently voted to widen the street to four lanes next year. However, the appraiser was not familiar with the City’s proposal and therefore did not consider the effects of the street widening in the appraisal. Has the appraiser violated the COMPETENCY RULE?

A

Yes, the appraiser did not consider the relevant characteristic. The market will react today to this change in the future and the appraiser should consider this reaction and note its effect on value.

Standards Rule 1-4(f) requires the appraiser to consider the affect of any potential private or public improvements may have on property value. This includes proposed improvements located on or off the subject property. Many relevant characteristics can affect property value. These include financing, legal, economic, on-site and off-site improvements, and physical characteristics. If an appraiser does not consider their affect on value, he or she is violating the COMPETENCY RULE. Failing to consider the future use of the property and the market’s reaction to the future use is such a violation.

312
Q

An appraiser must retain a workfile for:

A

Any assignment that is covered by Standards Rules

An appraiser must retain a workfile for each appraisal, appraisal review, or appraisal consulting assignment.

313
Q

An opinion of the highest and best use of a property is a/an:

A

Step that might be necessary in some appraisals, but not others.

When an appraiser is developing an opinion of market value, he or she must develop an opinion of the highest and best use of the subject property.

314
Q

Appraiser Frank paid a fee to procure an appraisal assignment. According to USPAP

A

Frank can pay a fee in the procurement of an appraisal assignment as long as the fee is disclosed in the certification and any letter of transmittal, per the Management section of the ETHICS RULE of USPAP.

315
Q

An appraiser’s peers are:

A

An appraiser’s peers are other appraisers who have expertise and competency in a similar type of appraisal assignment. See USPAP’s DEFINITIONS.

316
Q

How may an opinion of reasonable exposure time be derived?

A

From analysis of days on market statistics, information on sales and data obtained from market participants.

Exposure time can be based on one or more of the following data collection resources: statistical data relating to days-on-market, sales verification records, and interview records collected from market participants

317
Q

How is the credibility of an appraisal measured?

A

Credibility is measured in the context of intended use.

318
Q

An assignment condition is

A

Any assumption, law, rule, or other condition that affects the scope of work.

319
Q

The subject property is a five-year-old house that contains 5,200 sq. ft. of livable area, located on 1.8 acres, with a two-car garage with 650 sq. ft., and a granite swimming pool that measures 85 perimeter feet. The costs are estimated to be as follows: House, $85 per sq. ft.; garage, $25 per sq. ft.; indicated land value is $0.35 per sq. ft.; and the swimming pool is estimated to cost $275 per perimeter foot. The cost multiplier for the area is 0.9678. The chronological age is 5 years, and the effective age is 2 years. The remaining economic life is 63 years. If the total cost of improvements is $466,117, what is the indicated value via the cost approach?

A

The effective age is 2 years and the remaining economic life is 63 years for a total life of 65 years. The total cost new of the improvements equals $466,117. Depreciation is 3%, calculated as (2 / 65 = 3%). Multiplying cost new of $466,117 x 3% (0.03) = $13,984 which is total depreciation. $466,117 - $13,984 = $452,133 depreciated cost of improvements. $452,133 + $27,443 (land value) = $479,576.

320
Q

You are asked to appraise a single-family residence currently valued at $58,000. The majority of properties within close proximity to the subject are duplexes with typical values around $79,000. If the cost of converting the subject’s single-family residence into a duplex has been estimated at $20,000 and the interior demolition is estimated to be $1,000, what is the highest and best use?

A

The highest and best use of the property remains as a single-family residence, since there is no entrepreneurial reward for the owner upon completion of the renovation: $58,000 + $20,000 + $1,000 = $79,000.

321
Q

If a comparable condominium unit in the local market sold for $195,000 and an identical condominium unit sold for $182,000 in a market 40 miles away, what percent is the location adjustment for condominiums from the distant market?

A

The difference in sale price was $13,000: $13,000 / $182,000 = 7.14% location adjustment to the distant comparable data.

322
Q
A