Module 3

Question 1

The estimated cost to construct, at current prices as of the effective date of the appraisal, an exact duplicate or replica of the building being appraised, using the same materials, construction standards, design, layout, and quality of workmanship and embodying all the deficiencies, super adequacies, and obsolescence of the subject building is called ______________.

Answer 1

Reproduction Cost

Question 2

The estimated cost to construct, at current prices as of a specific date, a substitute for a building or other improvement, using modern materials and current standards, design, and layout is called ________________.

Answer 2

Replacement cost

Question 3

This cost estimating method is designed to be fairly rapid and uses square foot costs for typical buildings. The costs are averages of detailed estimates, actual breakdowns, and total end costs of many actual construction projects. The costs are classified by class and quality of construction with buildings typical of a certain quality have many characteristics in common.

Answer 3

The Calculator Method

Question 4

This cost method divides or segregates the building improvements into sections and the manual gives cost per unit of the major building components (foundation, frame, floor, walls, etc.). The cost of each component item is built-up or totaled along with the component costs for miscellaneous items.

Answer 4

The Segregated Cost Method

Question 5

Found in Appendix B of the Assessor’s Manual, these tables give indexes and multipliers by which known historical costs may be converted directly to present-day costs.

Answer 5

Comparative Cost Indexes and Multipliers

Question 6

Land that is not needed to serve or support the existing use. The highest and best use of ________ land may or may not be the same as the highest and best use of the improved parcel. This type of land has the potential to be sold separately and is valued separately.

Answer 6

Excess land

Question 7

Land that is not currently needed to support the existing use but cannot be separated from the property and sold off for another use. This type of land does not have an independent highest and best use and may or may not contribute value to the improved parcel.

Answer 7

Surplus land

Question 8

______________ is information gathered in its original form by the analyst. Sources include public records such as deeds and recorded transfer documents, commercially available data from multiple listing and subscription services, published articles, credible online sources and interviews with market participants (e.g., the parties to transactions, attorneys, appraisers, counselors, brokers, property managers, lenders).

Answer 8

Primary data

Question 9

Information that is not gathered in its original form by the analyst is known as ____________. This type of data only confirms its existence and does not verify the transaction. These sources do not typically provide enough information about transaction related items such as any usual conditions of sale, sales concessions, if the sale included multiple properties, if other non-realty items were included or other items.

Answer 9

Secondary data

Question 10

The components into which a property may be divided for purposes of comparison, e.g., price per square foot, front foot, cubic foot, room, bed, seat, apartment unit.

Answer 10

Units of comparison

Question 11

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.

Answer 11

Elements of comparison

Question 12

_______________ with a party to the transaction is an important step in the sales comparison approach. Regardless of the number of sales analyzed, appraisers must understand each sale used for comparison to draw credible conclusions.

Answer 12

Personal verification

Question 13

Assume Sale A is superior to the subject property. The price of Sale #A woud need to be adjusted _________ to liken it to the subject.

Answer 13

Downward

Question 14

The total adjustment to each comparable sale price calculated by adding the absolute values of all positive and negative adjustments is known as:

Answer 14

Gross adjustment

Question 15

The sum of the positive and negative adjustments made to a comparable sale price is known as:

Answer 15

Net adjustment

Question 16

Which appraisal principle states that the perception that value is created by the expectation of benefits to be derived in the future.

Answer 16

Anticipation

Question 17

The income approach can be broken down into three components; income, rate and value. In direct capitalization, the basic formula for calculating property value is sometimes called the____________ because it uses I = Income, R = Rate, and V = Value. The Income is the income that is generated by the property. The Rate is the capitalization rate. The Value represents the property value.

Answer 17

IRV formula

Question 18

Potential gross income (PGI) estimates the amount of rent a property could command if rented at market rent at ______________ occupancy. PGI equals the total rental income generated from all units at a property

Answer 18

100%

Question 19

The most probable rent that a property should bring in a competitive and open market is known as:

Answer 19

Market rent

Question 20

The actual rental income specified in a lease is called __________.

Answer 20

Contract rent.

Question 21

Potential gross income is estimated using _________. To estimate __________ for a property, you analyze the income of comparable properties and the past, present, and future projected income for the subject property.

Answer 21

Market rent

Question 22

True or False Market rent is used rather than contract or actual rent because the subject property may be rented for more or less than the rent that could be commanded on the open market. The use of contract or actual rent in that case would distort the income and in turn the market value of the subject property.

Answer 22

True

Question 23

_______________________________is income generated by a property that is not directly attributed to the rental of the real property. This income may be obtained from the use of personal property or the profit from services supplied to the tenant.

Answer 23

Miscellaneous income also known as Other Income

Question 24

____________________________is defined as the potential gross income less the vacancy and collection loss plus other income also called miscellaneous income.

Answer 24

Effective gross income

Question 25

The income that remains after allowable expenses are deducted from effective gross income is called.

Answer 25

Net Operating Income (NOI or I in the IRV formula)

Question 26

The preferred method of determining an overall rate is ______________. This is the IRV formula.

Answer 26

Market extraction

Question 27

The _____________________is the rate of return ON the investment.

Answer 27

Discount rate

Question 28

The summation method for determining a discount rate includes four components. These components are ___________________, _________________________, _________________, ______________.

Answer 28

Safe Rate, Non-Liquidity, Risk, Management

Question 29

The ______________________ is the return OF the investment and can be developed by applying the remaining economic life method. The ____________ is applied only to the building improvements.

Answer 29

Recapture Rate

Question 30

If improvements at a property have a remaining economic life of 40 years, what is the corresponding recapture rate?

Answer 30

100% / 40 years = 0.0250 – 2.50%

Question 31

The ___________________ is the ratio of property taxes to the market value of the property. The ____________ can be developed by multiplying the tax rate (millage rate converted to decimal equivalent) by the assessment ratio.

Answer 31

Effective Tax Rate

Question 32

If a Michigan property is in a jurisdiction with a total annual millage rate of 70.00 mills, what is the effective tax rate?

Answer 32

70 mills is first converted to decimal of 0.0700 and then multiplied by 50% Michigan assessment ratio results in effective tax rate of 0.0350 = 3.50%

Question 33

If a Michigan property has a market value of $900,000 and the annual tax bill is $22,500 what is the effective tax rate?

Answer 33

Annual Tax Bill / Market Value or $22,500 / $900,000 = 0.0250 or 2.5%

Question 34

The final step in the valuation process is to examine the differences in the conclusions derived from the various approaches and apply tests of reasonableness to these primary conclusions and resolves inconsistencies, if any. This step is known as the _____________________.

Answer 34

Reconciliation of the Approaches

Question 35

A property that just sold for $300,000 showed an NOI of $22,000. The potential gross income is $42,000. What is the overall capitalization rate?

Answer 35

IRV Formula NOI $22,000 /$300,000 Price = Overall Rate 7.33%