Questions - Chapter 13 Flashcards by Dan Fuhrman

The basis of market value is most typically which of the following?

A. value in use
B. book value
C. subjective value
D. value in exchange

13-1 D

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All of the following characteristics must be present for a property to have value EXCEPT:

A. utility.
B. obsolescence.
C. transferability.
D. effective demand.

13-2 B

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Value is most closely related to which of the following?

A. price
B. competition
C. cost
D. supply

13-3 A

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Adherence to the principle of conformity causes which of the following?

A. depreciation
B. minimizing value
C. maximizing value
D. competition

13-4 C

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The first step in the appraisal process is to:

A. define the appraisal problem.
B. obtain a complete and accurate description of subject property.
C. determine data required for estimate of value.
D. prepare the appraisal report.

13-5 A

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Physical deterioration is caused by:

A. poor floorplan.
B. outdated heating system.
C. unrepaired damage.
D. no central heating and cooling.

13-6 C

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Functional obsolescence results from:

A. faulty design and inefficient use of space.
B. changes in the surrounding land use patterns.
C. house on a busy street.
D. a broken furnace.

13-7 A

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Which cause of depreciation is not curable by a property owner?

A. economic obsolescence
B. functional obsolescence
C. competitive obsolescence
D. physical deterioration

13-8 A

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Which economic principle is used in making adjustments to comparables in an appraisal by the direct sales comparison approach?

A. competition
B. change
C. contribution
D. conformity

13-9 C

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An appraisal is which of the following?

A. estimate of value
B. appropriation of value
C. correlation of value
D. determination of value

13-10 A

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All of the following are approaches to value EXCEPT:

A. cost approach.
B. contribution approach.
C. income approach.
D. direct sales comparison approach.

13-11 B

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Which of the following is the primary appraisal method for estimating the value of vacant land?

A. cost approach
B. direct sales comparison approach
C. income approach
D. appraisal by capitalization

13-12 B

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All of the following are important data in the selection of comparables for an owner occupied single-family house EXCEPT:

A. size.
B. income.
C. location.
D. condition.

13-13 B

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Which of the following is the income used as a basis for estimating value by the capitalization formula?

A. monthly net operating income
B. annual gross effective income
C. monthly gross effective income
D. annual net operating income

13-14 D

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If the potential gross income is $580,000, the net operating income is $480,000, and the capitalization rate is 11%, which of the following will be the estimate of property value?

A. $2,290,000
B. $2,990,000
C. $4,363,636
D. $5,280,000

13-15 C

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All the following are deductible from gross effective income to arrive at net operating income for appraisal purposes EXCEPT:

A. maintenance.
B. legal fees.
C. replacement reserve.
D. debt service.

13-16 D

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In the income approach, which of the following is deducted from gross potential income to calculate gross effective income?

A. fixed expenses
B. vacancy rate
C. other income
D. replacement reserve

13-17 B

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The cost approach is the primary method for appraisal of a:

A. shopping mall.
B. courthouse.
C. parking lot.
D. condominium.

13-18 B

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All the following are methods used for estimating replacement cost EXCEPT:

A. quantity survey.
B. square-foot.
C. unit-in-place.
D. quality survey.

13-19 D

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Which of the following is described as the cost of constructing a building of comparable utility using modern techniques and materials?

A. reproduction cost
B. operating cost
C. unit cost
D. replacement cost

13-20 D

A CMA may be legally prepared for compensation by:

A. a provisional broker who is preparing the report for a lender who is using it to make a final determination of whether to approve a short sale request for another broker.
B. a broker who is undertaking a project that will require the use of the cost approach.
C. a provisional broker who is preparing it for a prospective listing brokerage client.
D. a broker who is preparing the report for a lender who is utilizing it for the purpose of a home equity line of credit.

13-21 C

An appraisal is considered accurate for:

A. 1 day.
B. 30 days.
C. 90 days.
D. 180 days.

13-22 A

The foundation of the direct sales comparison approach is:

A. conformity.
B. anticipation.
C. contribution.
D. substitution.

13-23 D

The economic principle of supply and demand states that:

A. high supply and low demand = higher value
B. low supply and high demand = lower value
C. high supply and low demand = lower value
D. none of the above

13-24 C

All of the following are true about the principle of highest and best use EXCEPT: A. it must be possible. B. it must be legal C. there is only one highest and best use of a given property at a given time. D. it is highly speculative.

13-25 D

Which is a curable form of obsolescence? A. changes in zoning B. unrepaired roof damage C. population shifts D. All of the above are curable by the property owner.

13-26 B

Which economic principle results in maximizing property value? A. supply and demand B. substitution C. conformity D. competition

13-27 C

The principle of highest and best use for a property: A. remains the same for the entire life of the property. B. may change with time. C. requires that present use is the same as future use. D. is used to calculate depreciation.

13-28 B

The value of a half bath is $1,500. The comparable has a half bath, but the subject property does not. Which is correct? A. Subtract $1,500 from the subject. B. Subtract $1,500 from the comparable. C. Add $1,500 to the subject. D. Add $1,500 to the comparable.

13-29 B

An appraisal prepared by an appraiser is completed on which form? A. competitive market analysis B. Uniform Residential Appraisal Report C. comparative market analysis D. any of the above

13-30 B

An appraiser is valuing a subject property with 1,650 square feet, 2 baths, a fireplace, and a one-car garage. He has located 3 comps with the following facts: Comparable #1 sold for $159,000 and contains 1,550 square feet, 1'l1baths, no fireplace, and a one-car garage. Comparable #2 sold for $160,000 and contains 1,600 square feet, 2 baths, a fireplace, but no garage. Comparable #3 sold for $175,000 and contains 1,725 square feet, 2'l1 baths, a fireplace, and a one-car garage. Assume that construction costs are $50 per square foot, the value of a full bath is $2,500 and a half bath is $1,500, a fireplace is $3,000, and a single-car garage is $7,000. The appraiser notes that properties in the area have appreciated 2% since the time of the sale. What is the indicated value range of the subject property? A. $167,700-$173,250 B. $171,180-$173,250 C. $171,680-$173,250 D. $167,900-$173,250

13-31 B

An appraiser has been asked to appraise a house containing 1,750 square feet, 2 1/2 baths, and a two-car garage. A comparable property sold four months ago for $180,000. It contained 1,675 square feet, 3 baths, and a one-car garage. Assume construction costs to be $70 per square foot, a full bath to be $2,500 and a half bath to be $1,400, a one-car garage to be $8,000, and a two-car garage to be $14,000, and appreciation to be 2% since the time of the sale of the comparable. What would be the value of the subject property? A. $193,450 B. $193,750 C. $183,250 D. $182,950

13-32 B

The result of a CMA performed by a broker on a property being listed is called the: A. probable sales price. B. appraisal. C. estimated value. D. projected value.

13-33 A

The combining of two or more adjoining lots into one larger tract to increase their value is: A. annexation B. accretion C. assemblage D. avulsion

T13-1 C Combining lots to gain an increase in value is called assemblage. It usually occurs with commercial properties and larger tracts. In residential properties, value is usually maximized by breaking up a larger tract into smaller lots or parcels, this is called plottage.

A building has depreciated for the past 7 years at a rate of 3% per year. It is valued today at $74,000. Find the original value of the building. A. $93,670.89 B. $15,540 C. $58,460 D. $103,220.55

T13-2 A The depreciation was 3% per year x 7 years = 21% depreciation. The current value of $74,000 represents 79% of the original value (100%-21% = 79%). $74,000 divided by .79 = $93,670.89.

Which of the following is generally considered to be an incurable form of depreciation? A. physical deterioration B. functional obsolescence C. economic obsolescence D. interior obsolescence

T13-3 C Economic obsolescence is always outside the property and is caused by surrounding neighborhood conditions. Because it is outside the property it is considered incurable (incapable of being remedied).

When appraising real estate, the appraiser would consider all of the following in making a determination of value, EXCEPT: A. contractual agreement between the seller and the buyer B. highest and best use of the property C. seller's original purchase price of the property D. selling prices of similar properties

T13-4 C The seller's original acquisition price or purchase price is not a factor utilized by appraisers.

It is necessary to calculate a dollar value for depreciation when using which of the following approaches to value? A. the sales comparison approach B. the cost approach C. the income approach to value D. gross rent multipliers

T13-5 B Only the cost approach uses a depreciation calculation. In the sales approach the depreciation is built into the selection of the comps and depreciation is not used in the income approach.

In the cost approach to value, the appraiser makes use of the: A. owner's original cost of the building B. estimated replacement cost of the building C. sales prices of similar buildings in the area D. assessed value of the building

T13-6 B The "cost" in the cost approach means that the appraiser must determine the value of building a reasonably similar substitute.

When using the sales comparison approach to value, an appraiser might consider all of the following highly similar properties to be legitimate comparables, EXCEPT: A. a home that was sold between one and three months ago B. a home that was sold recently but is located in a similar nearby neighborhood C. a home that was sold by the owners who were undergoing a foreclosure D. a home that was sold recently but is located on a much larger lot

T13-7 C Appraisers in selecting comps are looking for arms-length transactions. An arms-length transaction is a transaction which does not involve undue duress or influence. A foreclosure sale would likely be disregarded by the appraiser as not being an arms-length transaction.

Using which of the following approaches would require the value of the land to be calculated separately from the value of the improvements? A. the income approach B. the cost approach C. the sales comparison approach D. the gross rent multiplier method

T13-8 B The cost approach requires the appraiser to determine the cost of improvements (the building or structures) and then separately calculate the value of the land.

A building is valued at $215,000 and contains four apartments that rent for $470 each per month. The owner estimates that the net operating income is 65% of the gross rental receipts. What is the capitalization rate? A. 3.7% B. 6.8% C. 10.5% D. 14.2%

T13-9 B

To find the value of a property using the income approach to value, if the net operating income and the capitalization rate are known, the appraiser would: A. multiply the net operating income by the capitalization rate B. multiply the effective gross income by the capitalization rate C. divide the net operating income by the capitalization rate D. divide the capitalization rate by the net operating income

T13-10 C

In the sales comparison approach, what is the indication of value for the subject property with the information given? The subject property is a 2,000 square foot home with 3 bedrooms, 2.5 baths and a 1- car garage. The comparable property is a 2,150 square foot home in the same neighborhood with 3 bedrooms, 2 full baths and a 2 car garage. The comparable property sold for $215,000 last week. The market values additional square footage at $80 per square foot; full baths are valued at $4,000 and half baths at $2,500; 2-car garages are worth an additional $10,000 over a 1-car garage. A. $195,500 B. $200,500 C. $203,000 D. $229,500

T13-11 A The following adjustments are made to the comparable property. The square footage is-$12,000 (150 x $80 per square foot). No adjustments to the bedrooms. The bathroom adjustment is + $2,500 (1 half bathroom). The garage adjustment is-$10,000. The comparable sold for $215,000-$12,000 + $2,500-$10,000 = $195,500.

All of the following are elements of value utilized by appraisers, EXCEPT: A. demand B. transferability C. utility D. original cost

T13-12 D Appraisers use the elements of DUST (demand, utility, scarcity and transferability) to determine value. Original cost is not part of their analysis.

The economic principle that states the value of items of similar quality is determined by the lowest price is: A. competitiveness B. substitution C. anticipation D. regression

T13-13 B The principal of substitution is the only appraisal principal used in all three approaches to value. It states that when items of similar quality exist the value will be determined by the lower cost item.

The fact that lesser valued properties will be given greater value by the presence of higher priced ones and that higher priced properties will have values decreased by the presence of lesser valued ones is an application of the principles of: A. progression and regression B. substitution and anticipation C. competition and contribution D. supply and demand

T13-14 A Progression and regression account for the impact on properties created by surrounding properties and areas.

The amount that component parts add or detract from the value of a property is the principle of: A. substitution B. competition C. contribution D. anticipation

T13-15 C Each component part of a home either adds or subtracts from it's value. This principle is the cornerstone of the comparable sales approach and adjustments.