Real Estate Markets

Question 1

An example of a governments force that affects real estate value would be:

• Market demand for mortgage loans
• Population changes in the market
• Changes in decorating styles
• Changes in local building codes

Answer 1

-Changes in local building codes

Market demand and population changes in the market are examples of economic forces, while a change in decorating styles is an example of a social force

Question 2

The four forces that influence real estate values are:

• Social, economic, governmental, and environmental
• Land , labor, capital and green space
• Eminent domain, police power, escheat and taxation
• Government, social, taxation, and economic condition

Answer 2

-Social, economic, governmental, and environmental

Question 3

Zoning and environmental protection regulations are examples of :

• Clouds on title
• Public Use
• Escheat
• Police Power

Answer 3

• Police Power

Question 4

An example of a governmental influence on real estate values would be:

• An IRS credit for first time homebuyers
• National trends in residential decorating
• Soil productivity levels
• Local brokers’ customs and procedures

Answer 4

• An IRS credit for first time homebuyers

Question 5

Fill in the blank:
The location of a parcel of real estate next to a busy highway is best described as a _____ influence.

• Governmental
• Social
• Generic
• Geographic

Answer 5

• Geographic

Question 6

Fill in the blank:
The subject real estate is a 0.23-acre site improved with a single-unit residence that is 22 years old. The house has not been updated since construction. The brokers are all reporting that first-time buyers want modern decorating rather than the styles in place in the subject property. This can be classified as a(n) ________ problem.

• Governmental
• Social
• Ecological-environmental
• Financial

Answer 6

• Social

Question 7

The current or prior ownership who owns the real estate property is

• Very important to appraisers in all cases
• Never important to appraisers
• Very important to title insurance companies or abstractors
• Never important to title insurance companies.

Answer 7

• Very important to title insurance companies or abstractors

In a few cases, buyers for real property may be willing to pay more because of the prior ownership of the property if, for example, a famous or historically significant person was a prior owner. However, ownership is not a factor in most cases. While the appraiser should know about the ownership (option b), it is not a valid reason for adjusting a value opinion (option a). On the other hand, title insurance companies (option d) must know who owns the real property because they are insuring who has either the right to convey it or to mortgage it.

Question 8

The Federal Reserve just raised interest rates between banks, and long-term mortgage rates increased 1.0%. This will most likely affect real estate prices

• Very little
• Very Much
• Only if the lenders also change underwriting standards
• Only if buyers have offsetting earned income losses.

Answer 8

• Very much

Changing interest rates at the Federal Reserve usually impact mortgage interest rates. This in turn affects the affordability or profitability of real estate, which increases or decreases demand, which then affects values more than a little (option a). Changes in underwriting standards (option c) and changes in income levels for borrowers (option d) also affect real estate demand, but that is independent of this issue.

Question 9

Under pressure from parents in the city of Treemont, the local government passes an ordinance that lowers the speed limit to 15 miles per hour on all city streets. The result is many more speeding tickets and a more difficult time traversing the streets. This will likely cause

• More drivers to commute through the town
• Merchants to make more money due to slower traffic in the area
• Merchants to suffer because people will avoid the area and therefore the merchants
• Lower revenue for the city.

Answer 9

• Merchants to suffer because people will avoid the area and therefore the merchants

Treemont will not see an increase in drivers commuting through town (option a). Drivers will instead avoid the area and find different ways around. This will hurt gas stations, drugstores, and fast food restaurants that rely on traffic counts for business. This will lower demand for commercial real estate in the area and lower prices. While there could be some winners from the slower traffic, most merchants will suffer because people will avoid this area (option b). The increase in traffic tickets will generate more, not less, revenue for the city (option d).

Question 10

Several popular home decorating books have recently promoted an all-new motif, including a new color scheme, new plumbing and lighting styles, and new carpet designs. This motif is very different from any previous decorating scheme, and local builders report that 90% of the buyers are choosing it. This change in attitude will

• Not affect prices of existing improved competing residences
• Negatively affect vacant lot prices
• Make houses less expensive to build
• Cause most existing and older houses in the same market segment to suffer functional obsolescence because of changes in desired features that do not exist in the older homes

Answer 10

• Cause most existing and older houses in the same market segment to suffer functional obsolescence because of changes in desired features that do not exist in the older homes

The situation described would probably negatively affect existing homes that do not have the new style (option a). It should not affect land prices (option b), since the decorating has not yet been completed. This situation will also not affect cost much (option c), unless there were economic benefits in the new style.

Question 11

The subject is a vacant 0.75-acre lot on the side of a hill in a platted subdivision. All of the lots in the subdivision are priced at $75,000. The subject slopes 15% from left to right (as one faces the site). This lot will most likely be the last to sell because

• Buyers prefer right-to-left rather than left-to-right slopes.
• Buyers prefer a building site this is low in the center and higher near the edges, shaped like a bowl
• Buyers know that a steep site is much more expensive to build a house on
• It was underpriced

Answer 11

• Buyers know that a steep site is much more expensive to build a house on

Buyers would have no reason to choose a left-to-right slope vs. a right-to-left slope (option a) unless there is a sunlight or wind issue, which sometimes favors one direction. Sites with bowl-like topography (option b) are often not buildable because of poor drainage. The water drains to the building rather than away from it. Sites that are elevated at the building site are preferred because of drainage. The subject lot may or may not be underpriced (option d), but this is not specified.

Question 12

The subject is a commercial site improved with a 100,000-sq.-ft., multitenant retail building. This area has recently enjoyed a significant increase in employment because of the expansion of the widget plant at the edge of town. This increase in jobs will likely

• Increase the unemployment rate
• Decrease the number of families in the area
• Increase the number of families on the area, the amount of income, and sales within the shopping center.
• Increase the population, but decrease the sales volume in the shopping center

Answer 12

• Increase the number of families on the area, the amount of income, and sales within the shopping center.

The increase in jobs will likely decrease unemployment rates. An increase in jobs usually causes an increase in the number of families. An increase in population cause san increase in sales volume in the shopping center.

Question 13

The subject site is a 200-acre agricultural site. There is no demand for residential, commercial, or industrial land, and the soil productivity in this area has caused prices of farmland to increase. The most important economic factor for this parcel would be?

• The prices of products grown on the parcel( the price per bushel of corn, beans, etc)
• The cost of crop production (fuel, seeds, fertilizer, etc)
• The level of taxation by the government (income and property taxes)
• All of the above

Answer 13

• All of the above

The prices of products, the cost of production, and the level of taxation all affect the income from the farmland, which allows farmers to pay more or less for property.

Question 14

The subject real estate is a 90-unit apartment complex in Bigville. The apartment unit count in this market was recently increased substantially because of extra demand for apartments caused by a rash of recent single-unit foreclosures. Unfortunately, too many people got the idea to build new apartments at the same time, and now the market is overbuilt. This oversupply problem will cause

• Market rents and market values to increase
• Market rents to decrease and market values to increase
• Market rents and market values to decrease

Answer 14

• Market rents and market values to decrease

If there is an oversupply of units for rent, the market rents should decrease, which will cause gross and net incomes to decrease and therefore market values to decrease.

Question 15

Fill in the blank:
The subject is a residential property in a remote location and is accessible only by a dirt road. In the winter months, the road is impassable. The dirt road is a public right of way. This is considered a(n) ________ limitation.

• Governmental
• Social
• Environmental
• Geographic

Answer 15

• Governmental

The limitation is caused by government limits on road construction and maintenance.

Question 16

Fill in the blank:
The subject real estate is located 28 miles north of downtown Bigville and improved with a single-unit residence. The local brokers have repeatedly stated that this property is too far from the employment centers and the drive time is inhibiting a sale. This is an example of ________ influence on real estate.

• Governmental
• Economic
• Social
• Geographic

Answer 16

-Geographic

The government (option a) did not create this problem. Economic conditions (option b) are not responsible for this problem, nor are social norms (option c).

Question 17

Under which circumstances would the climate affect real estate prices?

• the subject real estate is improved with an apartment building in an area with high unemployment. There is a very high vacancy rate due to people leaving the area to find employment.
• The subject is an industrial building in a small town. The only users of such a building need a highly skilled workforce, which does not exist in the town or nearby areas.
• The subject is a single-unit residence. There is an oversupply because there was a particularly hard winter last year and many owners are moving to warmer areas.
• The subject is a fast food restaurant site, but the local government does not allow drive through window.

Answer 17

• The subject is a single-unit residence. There is an oversupply because there was a particularly hard winter last year and many owners are moving to warmer areas.

High unemployment in the market area (option a) is an example of an economic influence. An industrial building in an area that lacks a skilled workforce (option b) is an example of an economic or social influence. A fast food restaurant located in an area where the government forbids drive-through windows (option d) is an example of governmental influence.

Question 18

The subject real estate is a 1.5-acre site improved with a gas station and located next to a six-lane local thoroughfare. The last two gas stations on the site failed. Which of the following options provides a possible reason for this failure?

• Gas stations need low rather than high traffic counts
• Gas stations need easy ingress and egress; high traffic counts are useless if customers cannot get in or out conveniently.
• Gas stations must have long-term leases to allow for continuity of use.
• Gas stations do not need high-visibility locations.

Answer 18

• Gas stations need easy ingress and egress; high traffic counts are useless if customers cannot get in or out conveniently.

Gas stations need high traffic counts (option a) and high visibility (option d). Gas stations also need easy access and direct and crossover ingress and egress. A gas station next to an interstate highway without an exit ramp is likely to fail. Long-term leases (option c) are not related to this situation.

Question 19

The subject real estate is located in a county with no zoning or land use controls in place. The surrounding counties all have zoning controls. This will probably lead to:

• Excellent land use compatibility.
• Higher prices for commercial than in similar areas with zoning controls.
• Fewer offensive land uses in the area (landfills, oil refineries, and other noisy, smelly, or ugly land uses)
• More offensive land uses in the area ((landfills, oil refineries, and other noisy, smelly, or ugly land uses)

Answer 19

• More offensive land uses in the area ((landfills, oil refineries, and other noisy, smelly, or ugly land uses)

When one area does not have zoning but others do, offensive land uses will be drawn to the area without the zoning (options a and c). Since any parcel can be used for commercial purposes, the supply will be much higher and prices will usually be lower (option b). The only limit on commercial use will be the frontage on busy streets.

Question 20

Theodore died without a will or any known relatives. The state took the property and auctioned it off. The state’s right to do this is known as:

• Condemnation absolute
• Police Power
• Eminent domain
• Escheat

Answer 20

• Escheat

The state’s right to the property is known as escheat. Police power (option b) is the right of the government to regulate property to protect public health, safety, and welfare, and eminent domain (option c) is the right of government to acquire property for the common good with just compensation.

Question 21

Langley owned a small 100-acre farm in Hamilton County. He had no heirs, no friends, and no will when he died. Which of the following statements is true?

• The land will stay in Langley’s name forever because he died without heirs.
• The land will pass to the adjacent property owners equally
• The land will pass to the first person to occupy the land for seven years – i.e., squatter’s rights
• The state will take the property and sell it.

Answer 21

• The state will take the property and sell it.

To prevent land owned by persons without heirs from becoming unusable, the common-law rule of escheat allows the state to take the property if nobody else has claim to it (option a). The adjacent property owners may wish they could inherit the property, but they won’t
(option b). The state will take the property if there are no heirs. Adverse possession may occur, but it takes many years (depending on the state where the property is located) for this to happen (option c). If there are no heirs, the state will take the property and resell it to provide for future use. This is known as the power of escheat.

Question 22

A fee simple interest in real property is limited by the government’s right of

• Taxation, eminent domain, police power, and easements
• Taxation, eminent domain, police power, and escheat
• Eminent domain, police power, leases, and escheat
• Eminent domain, police power, zoning, and escheat

Answer 22

• Taxation, eminent domain, police power, and escheat

The government does not retain easements when they initially sell land to private citizens. Easements must be purchased (option a), even by the government. Leases are not a government right retained for all properties (option c). Zoning is a form of police power (option d).

Question 23

The fifth Amendment to the US Constitution

• Prohibits the consumption of alcoholic beverages
• Requires the government to pay just compensation for land taken for the common good.
• Limits the number of terms the president can serve.
• Gave women the right to vote

Answer 23

• Requires the government to pay just compensation for land taken for the common good.

The Eighteenth Amendment prohibited the consumption of alcohol, but it was repealed by the Twenty-First Amendment (option a). The Twenty-Second amendment limited the number of terms the president can serve to two (option c). Women’s voting rights were provided for in the Nineteenth Amendment (option d). The Fifth Amendment established rules for grand juries, eminent domain (just compensation), due process, and double jeopardy.

Question 24

A state government decided to widen a road in front of the Anderson residence. The government’s right to acquire this property for the public use is known as

• Eminent Domain
• Condemnation
• Easement
• Taxation

Answer 24

• Eminent Domain

Governments have the right to take property for the public good with payment of just compensation. The right to do this is known as eminent domain, and the process is known as condemnation.

Question 25

An appraiser was asked to appraise a 200-acre farm and to give consideration to the productivity of the land. The owner was afraid the appraiser would not credit the property with its superior soil type, drainage, and fertility. There is no potential for any type of use on the land other than farming. If the appraiser did give consideration to the productivity of the land, this appraisal would be best described as

• A market value appraisal
• An insurable value appraisal
• An investment value appraisal
• Unethical

Answer 25

• A market value appraisal

Insurable value is value for insurance purposes, according to the definition specified by the insurance policy. Insurable value does not usually include land value (option b). Investment value is based on the investor’s criteria (option c). In this situation, the owner is not asking for any consideration other than what the typical buyer would give. Giving consideration to the productivity of the land is not unethical unless the appraiser’s value opinion is exaggerated (option d).

Question 26

A client asked an appraiser to value the ABC industrial property based on the assumptions that:
* The consummation of the sale occurred within a short time period
* The seller was under extreme compulsion to sell
* The exposure time was short
* There was no special financing
The value is best described as:

• Market value
• Liquidation value
• Sheriff’s value
• Value in use

Answer 26

• Liquidation value

Liquidation value assumes a short exposure time and closing period in which the seller is highly motivated and the financing is not special.

Question 27

An REO (real estate owned) sale:

• Is the sale of a property by a bank after they have foreclosed and obtained control of the property by a sheriff’s sale or other processes; this type of sale can be made to an investor or owner/user.
• Is a sale in which a property transfers from the real estate owner (REO) to the next owner.
• Always involves the original mortgagor.
• Is between the lender and the court and only occurs at the order of the court.

Answer 27

• Is the sale of a property by a bank after they have foreclosed and obtained control of the property by a sheriff’s sale or other processes; this type of sale can be made to an investor or owner/user.

REO stands for “real estate owned” rather than “real estate mortgaged.” Both types of sales are asset classes for a bank, but REOs involve foreclosed properties or sometimes branch bank properties (option b). In an REO sale, the original mortgagor lost the property through the foreclosure process. The sale occurs after the foreclosure, and the prior owner (mortgagor) has nothing to do with it (option c). The lender and the courts are involved in sheriff’s sales but not REO sales (option d).

Question 28

A market that is declining is any market in which:

• Market values are lower today than they were one month ago
• Market values are lower today than they were on year ago
• Market values are lower today than they were one decade ago
• Market values are lower today than they were at a prior specified date.

Answer 28

• Market values are lower today than they were at a prior specified date.

When an appraiser states that prices are declining, he or she should specify that they are declining as compared to a specific date.

Question 29

An appraiser is asked to develop an opinion of market value for an assessment appeal. According to state law, the appraisal must provide an opinion of the assessed value of the subject. The assessed value:

• Is always defined in the Appraisal Institute’s appraisal dictionary.
• Is defined by state law
• Is always ¹⁄􀀁 of the market value
• Is always ¹⁄􀀂 of the market value

Answer 29

• Is defined by state law

The definition of assessed value varies from state to state, so it cannot be defined in a nationally used dictionary.

Question 30

In most market value appraisals, the appraiser should assume

• A 30-day exposure time
• A 30-day exposure time
• A 365-day exposure time
• A reasonable exposure time based on the property type

Answer 30

• A reasonable exposure time based on the property type.

Exposure time depends on the property type. For example, a shopping center may have a normal exposure time of five years.

Question 31

The most common definition of market value used in the United States includes the following specification:

• The buyers are unmotivated
• The sellers are indifferent to an offer
• The buyers are motivated but the sellers are indifferent
• Both the buyers and the sellers are typically motivated

Answer 31

• Both the buyers and the sellers are typically motivated

The most common definition of market value includes the specification that the buyer and seller are typically motivated.

Question 32

The most common definition of market value used in the United States includes the following specification:

• Buyers and sellers are well informed and acting in their own best interests
• Buyers and sellers are uninformed about the market and/or their options
• Buyers and sellers are well informed but do not look to their own best interests
• Buyers and sellers are well informed or well advised about the market

Answer 32

• Buyers and sellers are well informed and acting in their own best interests

The most common definition of market value includes the specification that buyers and sellers are well informed and acting in their own best interests.