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Property valuations and financial analysis > PV & FA > Flashcards

PV & FA Flashcards

1
Q

Which of the following statement regarding capitalization rates is least correct?
a. Lowering the cap rate increases the value of the property.
b. Increasing the cap rate lowers the value of the property.
c. Increasing the risk of loss increases the cap rate.
d. Decreasing the risk of loss increases the cap rate.

A

D

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2
Q

Loss of value of an expensive home due to the close proximity of lower-priced homes in a neighborhood is known as:
a. regression. c. functional obsolescence.
b. progression. d. physical depreciation.

A

A

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3
Q

An apartment building produces a monthly rent of $16,000. A similar property with monthly rents of $21,000 recently sold for $2,940,000. Using this as the only data, the appraiser would say that the first apartment building is worth:
a. $2,940,000. c. $2,936,000.
b. $2,240,000. d. $2,475,000.

A

B

When an appraiser is appraising income-producing property, they use the income
approach to determine its value. This is accomplished by dividing the value by the rent, yielding the gross rent multiplier (GRM). Then, using the rent of the subject property, the
appraiser can determine the value of the subject property.
$2,940,000 ÷ $21,000 = 140
140 x $16,000 = $2,240,000

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4
Q

Demand has no effect on value unless there is also:
a. a need for the thing in demand.
b. an adequate supply of the thing in demand.
c. a scarcity of the thing in demand.
d. purchasing power which enables the ability to buy the thing in demand.

A

D

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5
Q

The vacancy rate of an apartment building under normal competitive conditions is primarily the result of:
a. employment fluctuations.
b. housing supply and demand in the area.
c. the cost of construction and the cost of money.
d. taxes and insurance.

A

B

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6
Q

The period for which a property can show a return attributable to the improvements is known
as the property’s:
a. economic life. c. effective age.
b. chronological life. d. depreciation life.

A

A

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7
Q

A property is valued at $300,000 with a 5% capitalization rate (cap rate). If the prospective buyer
wants an 8% return on their money, the property’s valued would be:
a. $187,500. c. $480,000.
b. $270,000. d. $420,000

A

A

The value will move in the opposite direction as the capitalization rate (cap rate).
$300,000 x .05 = $15,000 (net income)
$15,000 ÷ .08 = $187,500

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8
Q

All of the following are elements of value, except:
a. cost and age. c. scarcity and transferability. b. utility and demand. d. demand and scarcity

A

A

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9
Q

Each unit in a duplex rents for $1,000 per month. With a price of $240,000, the monthly gross
multiplier is:
a. 10. c. 240.
b. 120. d. 20

A

B

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10
Q

In using the market comparison approach in appraising a single family residence (SFR), comparisons should be made based on….

A

the entire property

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11
Q

The relationship between the thing desired and the potential purchaser could be described as:
a. value. c. depreciation.
b. the present worth amortized. d. cost.

A

A

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12
Q

. All of the following statements define value, except:
a. A relationship between demand for something and the supply of that same product.
b. The ability of one commodity to command other commodities in exchange.
c. The price an unreasonable, pressured buyer would offer for a property.
d. The present worth of future benefits

A

C

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13
Q

All of the following are good reasons for making a separate site valuation, except:
a. to apply a residual technique.
b. to determine building obsolescence.
c. for taxation purposes.
d. to apply the gross rent multiplier (GRM) technique

A

D

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14
Q

The most common approach used by an appraiser in the appraisal of a single family residence
(SFR) is:
a. replacement cost. c. market comparison.
b. reproduction cost. d capitalization.

A

C

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15
Q

All of the following are included in the narrative form of an appraiser’s report, except:
a. a description of the property.
b. the neighborhood amenities.
c. the appraiser’s qualifications.
d. the financial terms of the sale

A

D

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16
Q

An appraiser describes “replacement cost” as:
a. the original cost to build the structure.
b. the current cost to build a replica of the original structure.
c. the current cost to build a structure of similar utility using modern methods and
materials.
d. the current cost to build a structure representing the highest and best use of the site

A

C

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17
Q

Restoring a property to a satisfactory condition without changing the floor plan, form, or style
of the building is known as:
a. reproduction. c. remodeling.
b. replacement. d. rehabilitation

A

D

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18
Q

To arrive at a final estimate of value secured under each of the three appraisal approaches, an appraiser:

a. averages the estimates.
b. uses the lowest value.
c. uses the highest value.
d. explains why or why not the other approaches were not used, then chooses the approach the appraiser believes to be the most appropriate.

A

D

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19
Q

When an appraiser relies on the principle of substitution, they assume that one property may
be substituted for another in terms of all of the below, except:
a. income.
b. nostalgic significance.
c. structural design.
d. use.

A

B

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20
Q

The premise that no prudent person would pay more for a parcel of real property than the price of a reasonably close alternative which is available without undue delay refers to the principle of:

A

Substitution

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21
Q

All of the following are examples of functional obsolescence, except:
a. a swimming pool in cold climate. c. an old kitchen.
b. proximity of obnoxious nuisances. d. a one car garage

A

B

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22
Q

Which of these most nearly refers to a loss in value due to economic obsolescence:
a. an architectural design which is out of style.
b. a zoning change.
c. improper maintenance of the property.
d. an increased demand for more luxurious units

A

B

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23
Q

All of the following factors contribute to obsolescence, except:
a. Misplaced improvements. c. Changes in traffic patterns.
b. Out-of-date equipment. d. Worn out carpeting

A

D

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24
Q

Which of the following appraisal reports is the most detailed?
a. Summary report. c. Narrative report.
b. Restricted use report. d. Oral report

A

C

25
Q

The ultimate test to determine the functional utility of a property is the:
a. property’s maintenance costs.
b. property’s marketability.
c. building codes controlling the property’s use.
d. zoning laws where the property is located.

A

B

26
Q

All of the following a property owner shows as an expense, except:
a. management fees. c. utilities.
b. depreciation. d. property taxes

A

B

27
Q

. In using the capitalization process, all of the following can be deducted to determine the net
income, except:
a. Electricity. c. Management.
b. Maintenance expense. d. Debt service.

A

D

28
Q

The gross rent multiplier (GRM) is calculated by dividing:
a. gross monthly rents by market value.
c. net monthly rents by market value
b. gross monthly rents by selling price.
d. sales price by gross monthly rents

A

D

29
Q

To calculate a capitalization rate (cap rate), the appraiser uses which of the following methods:
a. market comparison. c. summation.
b. band of investment. d. Any of the above.

A

D

30
Q

An analysis of rental income does not determine the income’s:
a. durability. c. quality.
b. quantity. d. suitability for reinvestment

A

D

31
Q

John is considering an extensive modernization program for an older apartment building he
owns. His decision should give most emphasis to:
a. actual cost. c. potential increase in rents.
b. history of vacancy. d. effect on the net income

A

D

32
Q

The term “highest and best use” can best be defined as:
a. the use that produces the biggest building.
b. the use that produces the highest building.
c. the use that produces the greatest gross income.
d. the use that creates the greatest net return.

A

D

33
Q

An appraiser uses a site analysis to determine the:
a. highest and best use of a property.
b. appropriate zoning designation for a property.
c. type of soil under an improved property.
d. comparable values of similar properties

A

A

34
Q

All of the following are forces that influence value, except:
a. Economic. c. Demand.
b. Social. d. Physical

A

C

35
Q

Which of the following is ethical for an appraiser to do?
a. Establish a minimum value prior to accepting the assignment.
b. Use other than accepted methodology in an appraisal assignment.
c. Base the appraisal fee as a percentage of property value.
d. Appraise a property in which the appraiser has an interest, provided they first disclose
their interest in the property.

A

D

36
Q

All of the following are essential elements of value, except:
a. anticipation. c. scarcity.
b. demand. d. utility.

A

A

37
Q

When comparing the economic life and the physical life of an improvement:
a. economic life is shorter.
b. economic life is the same as the physical life.
c. economic life is longer.
d. physical life is shorter.

A

A

38
Q

An appraiser defines depreciation as:
a. economic obsolescence.
b. loss in value from any cause.
c. wear and tear of the improvements
d. recapture that has been realized.

A

B

39
Q

To depreciate real estate, it needs to be:
a. free of debt. c. improved.
b. encumbered. d. 1,000 square feet or larger

A

C

40
Q

All of the following are costs NOT associated with homeownership, except:
a. amenity value.
b. loss in value as a result of adverse zoning.
c. loss of interest on owner’s equity.
d. improvement appreciation.

A

C

41
Q

Which of the following approaches to valuation yields the highest estimate of value?
a. market comparison.
b. reproduction.
c. substitution.
d. comparable sales

A

B

42
Q

When appraising a special purpose property, an appraiser uses the:
a. cost approach. c. market data approach.
b. capitalization method. d. land residual approach.

A

A

43
Q

To calculate replacement cost, compute the cost to replace:
a. an equally desirable property with the same utility value.
b. the identical structure using the original materials.
c. the identical structure using modern materials.
d. the most economical structure having the same utility value.

A

A

44
Q

All of the following are part of the cost approach appraisal method, except:
a. Unit-in-place.
b. Capitalization.
c. Quantity survey.
d. Index method.

A

B

45
Q

Appraisers attempt to estimate the value of real estate. The value is:
a. derived from an income analysis.
b. based solely on the reproduction cost.
c. projected from the original cost.
d. based on an analysis of facts as of a specified date

A

D

46
Q

When conducting an appraisal, all of the following are considered by an appraiser, except:
a. the definition of value.
b. the highest and best use of a property.
c. the assessed value of a property.
d. the legal description of a property.

A

C

47
Q

The first step in the appraisal process is to:
a. set the appraisal fee.
b. gather data.
c. define the problem.
d. analyze data.

A

C

48
Q

An appraisal is made as of a given date to indicate:
a. when the appraiser inspected the property.
b. the loan balance at the time of the appraisal.
c. the market condition at the time the appraisal was completed.
d. the true age of the property.

A

C

49
Q

Based on recent comparable sales, an agent’s opinion of a property’s fair market value (FMV) is
referred to as a(n):
a. broker price opinion (BPO). c. appraisal.
b. comp. d. home inspection report.

A

A

50
Q

The statement “more buildings are torn down than wear out” is an illustration of:
a. physical deterioration
b. functional obsolescence.
c. economic obsolescence.
d. accelerated depreciation

A

C

51
Q

The capitalization method of the income approach determines….

A

the value of a property based on its net operating income (NOI).

52
Q

When comparable sales are unavailable or inadequate and a property generates no income, an appraiser would likely use the….

A

cost approach.

53
Q

When a residence has a physical age of 20 years, but the appraiser notes the building has the appearance of being only 10 years old, the appraiser is referring to….

A

effective age

54
Q

All of the following are included in the laws governing the government power of eminent domain, except:
a. the right of the government to take property from the owner for a legitimate public use.
b. a condemnation action in court.
c. compensation at fair market value (FMV).
d. the exercise of zoning authority

A

D

55
Q

The loan-to-value ratio (LTV) is best described as….

A

the ratio of the loan to the appraised value of the assessed value of the property

56
Q

Compared to a property’s physical life, economic life is generally…..

A

Shorter

57
Q

Return on investment (ROI) comes in the form of profit, while return of investment comes in the form of….

A

depreciation

58
Q

When an appraiser values a property under the cost approach, they add the value of the site to the depreciated cost new of improvements. If the value of a site is $150,000, the cost to build a new house is $300,000, the cost to build a new garage is$75,000, and the value of site improvements such as landscaping and the driveway are $75,000, what is the final value of the property under the cost approach when a 20% physical depreciation factor is applied?

A

$525,000

The cost approach requires the appraiser to adjust the house and garage costs, known as
the “cost new” of constructed improvements, by a depreciation factor. Thus: $300,000 (house) +
$75,000 (garage) = $375,000 x 0.2 (20% depreciation) = $75,000. Then subtract the depreciation
amount from the cost new. $375,000 (cost new) - $75,000 (accrued depreciation) = $300,000
(depreciated cost new). Finally, add the various amounts: $150,000 (site) + $300,000 (depreciated
construction costs) + $75,000 (site improvements) = $525,000.

Property valuations and financial analysis (2 decks)

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