Lesson 1

Question 1

T or F
The purpose of this scope of work statement is to ensure there is no misunderstanding between the appraiser and their client regarding the work to be done

Answer 1

True

Question 2

Scope of practice is what you _____ do, based on your qualifications (education and experience).

Answer 2

CAN

Question 3

Scope of work is what you ____ do, in your professional work.

Answer 3

WILL

Question 4

CRA Members must use that designation in connection with the real property appraisal, review or consulting on an individual, undeveloped site for not more than ___ self-contained family housing units or a dwelling or property containing not more than four (4) self-contained family housing units.

Answer 4

four

Question 5

Examples of situations requiring an ELC (Extraordinary Limiting Condition) are appraising a single family dwelling and not _______

Answer 5

not applying the cost approach, or income approach to an income-producing property.

Question 6

For every hypothetical condition, an _______ _______ must be invoked and defined.

Answer 6

extraordinary assumption

Question 7

hypothetical conditions must always be accompanied by an _______ ________.

Answer 7

extraordinary assumption.

Question 8

Extraordinary assumptions and extraordinary limiting conditions are ______ ______ assumptions and conditions within a report.

Answer 8

stand-alone

Question 9

The appraiser is responsible for:

1. ______________
2. understanding the permitted (and limited) uses; and
3. clearly understanding the market dynamics of the property under review.

Answer 9

1. obtaining the zoning information;

Question 10

Scope of Practice outlines the Professional Services that a CRA is permitted to do under ______.

Answer 10

CUSPAP

Question 11

Reviewer’s scope of work is the _______ _______ process that comes with reviewing another appraiser/practitioner’s report.

Answer 11

problem-solving

Question 12

Single family sold for $300,000 in January last year
Same property resold for $350,000 in July this year (18 months later)

The MARKET MOVEMENT price over the 18 month period is _______ .

How do you calculate the Market movement % adjustment?

Answer 12

$50,000

$350,000 - $300,000
____________________ X 100 = 16.67%
($300,000)

Question 13

What is the monthly market movement for the previous question?

Hint: 18 month period

Answer 13

16.67% / 18 = .93% per month

Question 14

T or F
The cost of constructing a building is greater than what it will be in completion.
Will new development cease until building value rises?

Answer 14

True

Question 15

The increase in new development will cause construction costs to ______ or competition to expand until a point is reached where the cost of constructing a building is equal to its value on completion.

Answer 15

Rise

Question 16

T of F

single family conversions to 4plexes.

Answer 16

True

Question 17

The appraiser needs to do following 3 things to Complete an Appraisal Assignment:

1) State the PURPOSE
2) Establish SCOPE OF _____
3) Define OPINION of VALUE

Answer 17

Work

Question 18

An appraiser must clearly state all ASSUMPTIONS, _________ CONDITIONS, and HYPOTHETICAL CONDITIONS.

Answer 18

LIMITING

Question 19

A final market value estimate must stipulate the effective date. Is the effective date on the day of the property inspection or the date of the report

Answer 19

The date of the property inspection.

Question 20

In the INCOME APPROACH the expenses for a real property is the ________

Answer 20

costs necessary to maintain the property.

Question 21

Real estate appraisal value estimates are typically before interest, _______, and capital amortization.

Answer 21

Income tax

Question 22

When using the Income Approach there are 3 things that are not included in the INCOME ESTIMATE. They are capitalized and deducted separately.

Answer 22

1) Debt Service
2) Large Capital Expenditure
3) Unusual one time expenses

Question 23

Investors use capitalization rates or _______ as these

results have the same rate of return and ______ period.

Answer 23

GIM

Payback

Question 24

T or F

Cap rates account for Operating Expenses, Multipliers do not.

Answer 24

True

Question 25

COST BASED ANALYSIS is important to test for ________ of proposed construction.

Answer 25

feasibility

Question 26

T or F
Gross Income Multiplier (GIM) methods may be appropriate for small properties such as single family conversions up tp 4plexes.

Answer 26

True

Question 27

You are appraising the market value of a rural residential Lakefront acreage. 20 acre site which
10 acres leased to local farmer (AGRICULTURAL INCOME PRODUCING)
5 acres rented out (RECREATION INCOME PRODUCING)
Is this assignment within the scope of a CRA’s SCOPE OF PRACTICE?

Answer 27

This answer all depends on the PRIMARY HBU. It’s the HBU that determines a CRA’s limitations.

If the lender is willing to have just the residential portion of the lot appraised as security for a loan then a CRA appraiser may be able to use HYPOTHETICAL CONDITION and EXTRAORDINARY ASSUMPTION to appraise just this portion.

Question 28

What are the 3 options that a CRA has when accepting assignments?

Answer 28

1) Accept it because it is WITHIN SCOPE.
2) Have the report co-signed by an AACI
3) Decline it

Question 29

What happens if an assignment is out of SCOPE for a CRA Appraiser?

Answer 29

A CRA cannot appraise it unless an AACI co-signs it and an AACI should also be consulted to determining Highest and Best Use.

Question 30

Is the Majority of the 20 acre property an income producing property?

Answer 30

Yes (Agricultural and Recreational)

Question 31

Would only 5 acres be appraised for the residential dwelling part?

Answer 31

Yes. The remaining 15 acres would not be considered in the valuation.

Question 32

What kind of ASSIGNMENT would the CRA Appraiser call the 5 acre residential appraisal? And why?

Answer 32

HYPOTHETICAL ASSIGNMENT
The property being appraised simply does not exist and the assumed highest and best use is therefore the 5 acre hypothetical property required for refinancing and not the entire 20 acres with income potential.

Question 33

Should the appraiser still reference the whole property within the report as not to mislead the reader?

Answer 33

Yes. Acceptance of the assignment is permissible by a CRA given the assumed use meets the HIGHEST AND BEST use tests, assuming adequate comparable market data exists.

Question 34

What is a HYPOTHETICAL ASSIGNMENT?

Answer 34

A hypothetical condition that is a non-existing condition that is presumed for the purpose of the analysis.

Question 35

The appraiser is responsible for:

1. obtaining the ZONING information;
3. clearly understanding the MARKET DYNAMICS of the property under review.

Answer 35

2. understanding the PERMITTED and LIMITED uses;

Question 36

The appraiser is responsible for:

1. obtaining the ZONING information;
2. understanding the PERMITTED and LIMITED USES;
3. ______________________________________

Answer 36

3. clearly understanding the MARKET DYNAMICS of the property under review.

Question 37

Scope of _____ outlines the Professional Services that a CRA is permitted to do under CUSPAP.

Answer 37

Practice

Question 38

What does ARM’s LENGTH mean?

Answer 38

It means that a TRANSACTION conducted between 2 parties are INDEPENDENT from one another and NOT ASSOCIATED within one another outside the transaction.

Question 39

What are the 4 criteria’s to be considered to determine the HBU of a property?

Answer 39

Financially Feasible
Physically Possible
Legally Permissible
Maximally Productive

Question 40

Should principle of HBU be considered in all Appraisal Assignments?

Answer 40

Yes!

It is CRUCIAL ELEMENT in the DECISION MAKING PROCESS.

Question 41

Legal Conforming Use:

Uses and Buildings that conform to _______ bylaws.

Answer 41

existing

Question 42

Legal NON-Conforming Use:

Answer 42

Structure that do NOT conform to the current by-law. Example: Grocery store in a Residential area.

Question 43

What would kind of use would you call this?
Where you see a Grocery store among newer Residential homes. The Grocery store was in a Commercial zoning and recently it get changed to a Residential zoning. What kind of use is the Grocery store in?

Answer 43

Legal Non-conforming use

Question 44

What happens if a legal non-conforming use property is torn down, abandoned, or destroyed?

Answer 44

Then any new building needs to conform to the current by-law.

Question 45

Economic Factors (on the GEES that AFFECT Land Values. What does this mean?

Answer 45

It could be the local, provincial, national, etc. economies. Supply and Demand may vary from one area to another.

Question 46

Social Factors (on the GEES that AFFECT Land Values. Give an example

Answer 46

Some Demographic factors such as age, education, and marital status can attract YOUNG ADULTS to urban areas where there is theatres, restaurants, and retail areas.
Whereas YOUNG FAMILIES are influenced by their proximity to schools, parks, and recreational facilities.

Question 47

Governmental Factor (on of the GEES) that AFFECT Land Values. Give an example?

Answer 47

Provincial Governments may offer tax incentives to entice more development and new business to the area.
At the NATIONAL Level economic, fiscal, and monetary policies can either spur or retard economic growth and the demand for land. ex: Low interest rates and government bond yield.

Question 48

Environmental Factors (on of the GEES) that AFFECT Land Values. Give an example?

Answer 48

Large level Sites with Good freeway access on the outskirts of the city will be more desirable to INDUSTRIAL USERS.
Wereas…..
Sites on hillsides or near the ocean that provide views or more privacy will be more desirable for residential subdivisions.

Question 49

Should the ALLOCATION METHOD be used to be establish land values directly?

Answer 49

No

Question 50

What is the underlying principle of expropriation?

Answer 50

The dispossessed owner is to be made economically whole. In other words, the owner is to be compensated for the loss of land, but should not be enriched by the process.

Question 51

List five valuation concepts found only under expropriation.

Answer 51

Students should list five of the following six concepts:

(i) Effects of the scheme are to be disregarded.
(ii) The larger parcel must be considered.
(iii) The before and after method is sometimes employed in partial takings.
(iv) Special value, if applicable, must be measured by the appraiser.
(v) Benefits, general and special require different treatment in offsetting compensation.
(vi) Injurious affection is the measure of consequential damage.

Question 52

4. Steve is lecturing his colleague on the economic factors that contribute additional market value in a land subdivision project. Which of his points is FALSE?
   (1) Quality of construction is the fundamental consideration in a subdivision project, as it determines capital needs and the level of entrepreneurial incentives required.
   (2) Entrepreneurial incentive is the reward expected by the creator of the project for successful completion and sale of the subdivided lots.
   (3) Labour is reflected in the site improvements, development plans, marketing efforts, legal fees, and project overhead.
   (4) Capital serves as a bridge between expenditures for land and labour and the subsequent receipt of income once the subdivided lots are sold.

Answer 52

1) Quality of construction

Question 53

The highest and best use analysis is a filtering process. The appraiser relies on the HBU criteria to _____ the range of possible uses, to reach a single highest and best use conclusion for the subject property.
The ultimate criteria for highest and best use is what is maximally productive

Answer 53

filter

Question 54

The subject site measures 65’ × 85’ and the zoning is residential. It is improved with a newer house and a separate fiveplex built in the 1940s. The fiveplex is legal non-conforming, but is now in a state of disrepair and cannot be occupied/rented. The appraisal is for estate purposes and the effective date is current.

What does the appraiser conclude about the home?

Do the improvements add value?

Answer 54

HBU is residential with a single-family dwelling and that there is no contributory value for the fiveplex.

These improvements are legally permissible, but they do NOT add value
DETRIMENT to the Residential HBU

Question 55

The First Principles of Value outline fundamental concepts that guide all valuation-related assignments. Which of the following statements best reflects the First Principles of Value?

(1) Without knowledge of a property’s physical possibilities, legal permissions and limitations, and its financial capabilities, the professional will be unable to provide a credible value conclusion.
(2) Valuation and consulting assignments are typically a mixture of fact and opinion. Opinions have no foundation unless they are supported by appropriate facts.
(3) In all circumstances, there is a minimum expectation for the reasonable amount of research necessary such that the valuation professional can rely reasonably on such data. This due diligence ultimately forms the basis for credible work as a valuation professional.
4) In performing a consulting assignment involving Real Estate a Real Property services, a member must identify and analyze alternative courses of action to achieve the client’s lawful objective and analyze their implications.

Answer 55

4) In performing a consulting assignment involving Real Estate a Real Property services, a member must identify and analyze alternative courses of action to achieve the client’s lawful objective and analyze their implications.

Question 56

You and an appraiser colleague are discussing the value of a duplex located in an area which is experiencing rising demand for condominiums. You argue that the property’s value should be based on the value of the condominiums, which could sell for well over $350,000 per unit, while your friend argues that since the duplex will sell for approximately $300,000, that should be the value of the property. What type of analysis would best support your argument?

(1) Feasibility
(2) Investment
(3) Highest and Best Use
(4) Marketability

Answer 56

3) Highest and Best Use

Question 57

T or F

Marketability studies rely on historic absorption rates to predict future absorption at a specific site.

Answer 57

True

Question 58

T or F
A market analysis involves comparing the “as is” condition with anticipated future stages of
supply and demand.

Answer 58

True

Question 59

T or F
In the appraisal process, the market analysis facilitates the calculation of adjustments and
income stream projections.

Answer 59

True

Question 60

Brett owns an older home with an attached garage that he uses as his work studio. Under current zoning bylaws, newer homes in the area that are being developed are only permitted detached garages. Brett’s attached garage represents a/an:

(1) contributory use.
(2) legal non-conforming use.
(3) interim use.
(4) illegal non-conforming use.

Answer 60

(2) legal non-conforming use.

Question 61

In order to determine whether a use is physically possible, an appraiser should look at the:

A. site topography and soil.
B. land use regulations.
C. surrounding uses that may present constraints.
D. zoning bylaws.
(1) B and D only
(2) A and C only
(3) A, B, and D only
(4) All of the above

Answer 61

A) Site topography and soil

B) Surrounding uses that may present constraints

Question 62

Which of the following statements regarding an inferred analysis is TRUE? An inferred analysis:

(1) forecasts subject-specific supply, demand, absorption period, and capture rates.
(2) studies a specific development to assess its competitive position.
(3) estimates future changes in value by investigating past market behaviour.
(4) evaluates whether a specific property meets investor specific criteria.

Answer 62

(3) estimates future changes in value by investigating past market behaviour.

Question 63

Which of the following is NOT a test of highest and best use analysis for IMPROVED properties?

(1) Test demolition of existing use and redevelopment
(2) Test physical possibility of current use
(3) Test modification of current use
(4) Test continuation of existing use

Answer 63

(2) Test physical possibility of current use

THERE IS ALREADY A PROPERTY ON THE PROPERTY.

Question 64

T OR F
market study is a “site in
search of a use”

Answer 64

TRUE

Question 65

This Scenario
Property: Residential dwelling (But has a section on the property that has been farmed for 20 yrs)
Current Use: No longer farming on land

1) What may be the HBU
of the property?

2) Is it technically possible for the CRA to use a HYPOTHETICAL CONDITION and EXTRAORDINARY ASSUMPTION to assume no agricultural use exists it just has agricultural potential?

Answer 65

1) It may be Residential acreage since the property fails the financial feasibility test for no longer being in operation.

BUT…the CRA must ask an AACI to double check.

2) It may be questionable given the purpose and intended use of the assignment.

Question 66

What it usual SCOPE OF PRACTICE term that a CRA puts in an appraisal report

Answer 66

A CRA designated appraisal may only work with residential properties that have the HBU either ACTUAL OR ASSUMED of 4 dwelling units or less.