Residential Sales Comparison and Income Approach Flashcards
How many comparables are typically used by appraisers in the Sales Comparison Approach?
No less than three
When choosing comparables, the appraiser analyzes:
Location, amenities, market conditions, Sales or financing concessions, Motivations of sellers and buyers, property rights
The Sales Comparison Approach was previously known as the:
Market Approach, Market Data Approach, Direct Sales Comparison Approach
“The perception that value is created by the expectation of benefits to be derived in the future” is the definition of the principle of
Anticipation
“The result of the cause and effect relationship among the forces that influence real property value” is the definition of the principle of
Change
Of the three appraisal approaches, the Sales Comparison Approach relies most heavily on the economic principle of:
Substitution
“The principle that real property value is created and sustained when contrasting, opposing, or interacting elements are in a state of equilibrium” is the definition of the principle of
Balance
“In appraisal, off-site conditions that affect a property’s value” is part of the definition of the principle of
Externalities
“The concept that a lower-priced property will be worth more in a higher-priced neighborhood than it would in a neighborhood of comparable properties” is the definition of the principle of
Progression
Which of the following is the sales comparison formula?
Price of comparable ± adjustments = value of subject
The first step in the Sales Comparison Approach procedure is
Research the market
Adjustments made in the sales comparison process always start with:
The comparable
An outdated name for the Sales Comparison Approach is
Market approach
The final step in the Sales Comparison Approach procedure is
Reconcile the value indications
The COMPETENCY RULE of USPAP says an appraiser must have “the _______________________ to complete the assignment competently.”
Knowledge and experience
How many comparables are typically used by appraisers in the Sales Comparison Approach?
No less than three
Which of the following is NOT a common unit of comparison when appraising 2-4 unit properties?
Price per SF of GLA
A transaction could be verified with all of the following parties EXCEPT
Another appraiser, A verification should be made with a party to the transaction; such as the buyer or seller - but not an appraiser
“A group of complementary land uses; a congruous grouping of inhabitants, buildings, or business enterprises” is the definition of
Neighborhood
“Data that relates to the four forces that affect real property values—social, economic, governmental, and environmental forces” is the definition of
General data
“The geographic region from which a majority of demand comes and in which the majority of competition is located” is the definition of
Market area
Specific data must be gathered concerning
Both the property being appraised and the comparable sale properties
When collecting comparable sales information, you can collect data concerning all of the following EXCEPT:
The purchaser’s ethnic background
A web site that is a portal to over 200 federal agencies is
usa.gov
The “normal course of business” in an area is determined by:
Both actions of appraiser’s peers and expectations of intended users, The “normal course of business” in an area is determined by the actions of both appraiser’s peers and the expectations of parties who are regularly intended users for similar assignments.
There are ______ basic elements of comparison in the Sales Comparison Approach.
10
MLS information is compiled for the convenience and use of
Sales agents
Which can be the largest?
Market area
Age of residents and average family size would be categorized as ___________ factors.
Social
“A group of complementary land uses; a congruous grouping of inhabitants, buildings, or business enterprises” is the definition of
Neighborhood
“Details about the property being appraised, comparable sale and rental properties, and relevant local market characteristics” is the definition of
Specific data
“Data that relates to the four forces that affect real property values—social, economic, governmental, and environmental forces” is the definition of
General data
When discussing verification, HUD says that __________ by itself, is not considered a verification source.
MLS
Lenders might be sources of information in all of the following areas EXCEPT
Lease terms
Attorneys may need appraisals for all the following reasons EXCEPT
Mortgage loans
“A type of market area characterized by homogeneous land use, e.g., apartment, commercial, industrial, agricultural” is the definition of
District
Which of the following would likely NOT be a source of comparable sales?
Title report
Qualitative analysis is used for elements that
Cannot be given a numerical value
The process by which a value indication is derived in the Sales Comparison Approach is called
Comparative Analysis
Comparative analysis may employ quantitative analysis and qualitative analysis
Separately or together
An analysis technique in which nearly identical properties are analyzed to isolate a single characteristic’s effect on value or rent is called
Paired data analysis
“A quantitative technique used to identify and measure trends in the sale prices of comparable properties; useful when sales data on highly comparable properties is lacking, but a broad database on properties with less similar characteristics is available. Market sensitivity is investigated by testing various factors that influence sale prices” is the definition of ___________ analysis.
Trend
A property sold for $250,000 and then sold later in the same year for $237,000. What was its percentage of decline?
5.2%, 237,000 ÷ 250,000 = .948 or 94.8%. 1.00 - .948 = .052 or 5.2%
The procedure in which we employ just plusses and minuses in sales comparison is called ______________ analysis.
Relative Comparison
Which of the following is NOT a form of qualitative analysis?
Graphic Analysis
“The process of accounting for differences (such as between comparable properties and the subject property) that are not quantified; may be combined with quantitative analysis” is the definition of ____________ techniques.
Qualitative
“In the Sales Comparison Approach, the process of accounting for differences between comparables that are not quantified” is the definition of _________ analysis.
Qualitative
“A quantitative technique used to identify and measure adjustments to the sale prices of comparable properties; useful when sales data on highly comparable properties are lacking, but a broad database on properties with less similar characteristics is available” is the definition of ___________ analysis.
Trend
Which of the following is NOT a form of qualitative analysis?
Graphic Analysis
What is the name of the process by which a value indication is derived in the Sales Comparison Approach?
Comparative Analysis
Which is NOT a form of quantitative analysis?
Ranking Analysis
The procedure in the Sales Comparison Approach in which we employ just pluses and minuses is called ______________ analysis.
Relative comparison
A property sold for $225,000 and then sold 6 months later for $245,000. What was its average percentage of increase per month?
1.5%, $245,000 ÷ $225,000 = 1.09 or 9%. 9% ÷ 6 = 1.5% per month.
Which of the following is FALSE, concerning quantitative analysis?
It cannot be given a numerical value
“Divided or undivided rights in real estate that represent less than the whole, i.e., a fractional interest such as a tenancy in common, easement, or life interest” is the definition of
Partial interest
“Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat” is the definition of
Fee simple estate
In traditional appraisal theory, the first step in the adjustment sequence is an adjustment for
Real property rights appraised
“An easement that benefits a legal person or entity (individual, corporation, partnership, LLC, government entity, etc.) and not a particular tract of land; an easement having a servient estate but no dominant estate” is the definition of a(an)
Easement in Gross
A leasehold interest may have value when
The Contract Rent is less than Market Rent
When appraising a 4-unit property and at least one unit is leased, the property rights would be
Leased fee estate, When appraising a 4 unit property and at least one unit is leased, the property rights would be leased fee estate.
“The right to perform a specific act on a property owned by another” is the definition of
Affirmative Easement
“Trespassing on the domain of another” is the definition of
Encroachment
“A multi-unit structure, or a unit within such a structure, with a condominium form of ownership” is the definition of a
Condominium
The most desirable form of timesharing is called ___________ timesharing.
Fee
Which statement is TRUE about syndications?
They can be either a private or public partnership.
Which ownerships include a right of survivorship?
Joint Tenancy and Tenancy by the Entirety
A limited partnership has
Both general and limited partners
When appraising a 4-unit property and at least one unit is leased, the property rights would be
Leased fee estate
“Divided or undivided rights in real estate that represent less than the whole, i.e., a fractional interest such as a tenancy in common, easement, or life interest” is the definition of
Partial Interest
“An estate held by two or more persons, each of whom has an undivided interest” is the definition of
Tenancy in common, An ownership with undivided interest by two or more people is called Tenancy in Common.
Which is NOT a form of partial interest?
Fee simple estate
A remainderman is found in a _________ interest.
Life
___________ interest is defined as the ownership interest held by the lessor, which includes the right to receive the contract rent specified in the lease plus the reversionary right when the lease expires.
Leased fee
In traditional appraisal theory, the first item in the adjustment sequence is
Real property rights appraised
Which of the following adjustment elements typically applies only to income-producing properties?
Economic characteristics
“An easement that benefits a legal person or entity (individual, corporation, partnership, LLC, government entity, etc.) and not a particular tract of land; an easement having a servient estate but no dominant estate” is the definition of an
Easement in Gross
The sequence of adjustments is determined by the _______ and through analysis of the _______.
Market, data
A property has a first mortgage of $120,000, a second mortgage of $30,000, and a third mortgage of $15,000. It is foreclosed and sold for $145,000. The holder of the third mortgage gets $________ and the holder of the second mortgage receives $ _________.
0, $25,000
“A pledge of a described property interest as collateral or security for the repayment of a loan under certain terms and conditions” is the definition of a
Mortgage
Which of the following is a guaranteed loan?
VA
An ARM is
An adjustable rate mortgage
The primary participants in the secondary mortgage market are
Fannie Mae, Freddie Mac, and Ginnie Mae
A purchaser bought a property for $215,000, put 15% down and borrowed the rest at 6.75% interest for 25 years. The lender charged 2.5 points at the closing. How much was paid for the points?
$4,568.75
Mortgage assumptions are:
Attractive when rates are rising
Cash equivalency adjustments are typically made when
A transaction involved non-market financing
Mortgages that are either insured by the FHA or guaranteed by the VA:
Tend to offer favorable terms
The term ARM means
Adjustable rate mortgage
Liens placed on a property after a previous lien has been made and recorded; a lien made subordinate to another by agreement” are called __________ liens.
Junior
Mortgages with payments that start out low and gradually increase are called _____________ loans.
Graduated payment
The primary participants in the secondary mortgage market are
Fannie Mae, Freddie Mac, and Ginnie Mae
A property has a first mortgage of $125,000, a second mortgage of $30,000, and a third mortgage of $10,000. It is foreclosed and sold for $140,000. In this situation, the holder of the third mortgage gets $________ and the holder of the second mortgage receives $ _________.
0, $15,000
A cash equivalency adjustment is required when the loan is:
Seller financed, A seller financing a buyer may charge an interest rate that is different from market rates and terms, either more or less favorable that market rates. If the rate and terms are significantly different, it may have affected the purchase price and an adjustment would be justified. FHA and VA loans are generally considered at market rates and would not need a cash equivalency adjustment, though they may need a seller concessions adjustment if that was present.
A purchaser bought a property for $215,000, put 15% down and borrowed the rest at 6.75% interest for 25 years. The lender charged 2.5 points at the closing. How much was paid for the points?
$4,568.75
Mortgage assumptions are
Attractive when rates are rising
Market condition adjustments are also commonly known as:
Time adjustments
Your research of a comparable sale reveals that the purchase price was $200,000, but the purchaser realized the property needed extensive repairs to the mechanical systems. The estimated cost to cure the problems was $15,000 but the actual costs turned out to be $20,000. What should you do?
Adjust the property sale price by $15,000
The definition of arms-length is a transaction between ___________ parties acting in their own _______ interests.
Unrelated, best
Changes in a market cycle may be cyclical, one-time-only, ___________ and ____________.
Seasonal, exponential
The life cycle of a market area typically includes the stages of growth, _____________, decline and _______________.
stability, revitalization
Long-term market cycles are:
Caused by national or international conditions
You are in a very hot real estate market with values going up monthly by 2%, and lenders are taking months to process transactions, creating extended closing times. As an appraiser, you should:
Adjust the comparables from their contract date of sale to the effective date of the appraisal
A property sold in November for $312,500. It sold again 9 months later for $354,800. What was its average monthly rate of appreciation?
1.50%, $354,800 - $312,500 = $42,300. $42,300 ÷ 312,500 = .135. .135 ÷ 9 = 0.015 or 1.5%
You live in a summer resort town. Real estate prices typically drop 15% during autumn and winter. A house sold for $200,000 in July. What would it sell for in December?
$170,000
You are in a very hot real estate market with values going up monthly by 2%, and lenders are taking months to process transactions, creating extended closing times. As an appraiser, you should
Adjust the comparables from their contract date of sale to the effective date of the appraisal
A home sold five months ago for $232,000. Since then, property values have appreciated by 1% per month. (Use simple interest.) The appraiser estimates that its inferior location depreciates the total value by 10%. What is its estimated value?
$219,240
The real estate market tends to be
An early responder to short-term economic cycles
Which would NOT typically be a cause of duress that could result in a transaction that would not be considered arms-length?
Sale to a corporation
The life cycle of a market area typically includes the stages of growth, _____________, decline and _______________.
Stability, revitalization
You live in a winter resort town. Real estate prices typically rise 20% during autumn and winter. A house sold for $200,000 in July. What would it sell for in January?
$240,000, With your 12C enter: 200,000 ENTER 120% Answer is $240,000.
Your subject is located in an area where property values have been rising consistently at 1.5% a month for the past twelve months. You have located a comparable that is practically identical to your subject. It sold seven months ago for $200,000. How much should you adjust the price?
$21,000
Changes in a market cycle may be cyclical, one-time-only, ___________ and ____________.
Seasonal, exponential
If a sale is not arms-length, the appraiser
May either discard it or use it with adjustments
The concept of real estate value being linked to location comes to us from the economist
Alfred Marshall
A district is an area characterized by ____________ land use.
Homogeneous
“A group of complementary land uses; a congruous grouping of inhabitants, buildings, or business enterprises” is the definition of
Neighborhood
