Sales Comparison Approach Flashcards
Example: The average per capita income is $11,855, while the average household income is $23,776. This information estimates that there are two income-generating persons in each household, and one child.
Question: Why is the average household income important?
Question: Why is the monthly household allowance important?
.
Answer: The household income predicts the amount of typical monthly household allowance
Answer: The monthly household allowance helps determine if there is a need for the subject property.
Which is a fact?
- Cost
- Price
- Value
Cost and price are facts (or estimates of fact)
Value is a complex concept. It is not a fact to be found. Value is an amorphous concept, created in the mind of an individual or market participant. For instance, the value of a particular item is created based on the item’s use (utility) and whether it can be exchanged for something of worth such as money or compensation. For the valuation of real property, the market participants include sellers who would like to transfer their property in exchange for compensation, and buyers who wish to acquire the property. By analyzing and interpreting the actions of actual buyers and sellers of similar properties, an appraiser may be able to develop an opinion of what he or she believes the value of an identified piece of real property to be.
What is the focal point of a real estate appraisal?
The value of real property rights is the focal point of a real estate appraisal. After all, real property value is created when certain economic and legal characteristics coexist, including utility, scarcity, desire, and transferability (purchasing power).
real estate = the land and everything permanently attached thereto
real property = rights and benefits inherent in the ownership of real estate.
Office buildings range in size from under 10,000 to over a million square feet. These office buildings are placed into three categories: low-rise (XXX to XXX stories), mid-rise (XXX to XXX stories), and high-rise (XXX stories or more).
low-rise -1 to 3 stories
mid-rise - 4 to 15 stories),
high-rise - 16 stories or more).
The average per capita income is $11,855, while the average household income is $23,776. This information estimates that there is/are ___ income-generating person(s) in each household, and one child.
Why is the average household income important? The household income predicts the amount of typical monthly household
Why is the monthly household allowance important? The monthly household allowance helps determine if there is a need for the ___________________.
two income-generating persons
need for the subject property
4 Steps of Scientific Method
- Observation -Define the problem and research objectives
- Formulation - Develop research plan
- Prediction - Implement plan (collect and analyze data)
- Analysis - Interpret & report results
1st Step of Scientific Method:
- Observation: This is a description of a group of phenomena. In appraisal____________
This step defines a problem to be solved and the research objectives. For example, the growth of the condominium housing market next to a college campus might be observed for a market analysis within an appraisal.
2nd Step of Scientific Method:
- Formulation: This theory explains the formulation of a hypothesis. In appraisal______________
The hypothesis within an appraisal is the purpose of the appraisal such as to estimate market value. To estimate value, a research plan is implemented to test supply and demand factors, which are characteristics of a real estate market. For example, a developer may believe converting an apartment building into condominiums is feasible. A plan is then created to verify feasibility.
3rd Step of Scientific Method:
- Prediction: The use of the theory predicts the existence of other phenomena, or to predict quantitatively the results of new observations. In appraisal____________
In an appraisal, this step is the implementation of a plan to collect and analyze data, which determines the approaches necessary. For example, a developer contracts an appraiser to perform an appraisal detailing the feasibility of the condominium conversion. This example, Step 3, executes the plan developed in Step 2.
4th Step of Scientific Method:
- Analysis: Experimental tests of the theories by several independent parties are conducted to ensure validity of the first three steps. In appraisal____________
Interpretation and reporting the results occur in an appraisal after testing various analyses (statistical, analogy, observation, etc). For example, the cash flows of the condominium conversion project might include a variety of parameters resulting in different analyses such as different development times, build-out, sales price per unit, unit sizes, or amenities. As a result, the appraiser and developer can project the feasibility based on the most likely circumstances.
Real Estate Cycle - 4 stages
Expansion
Contraction
Recession
Recovery
Real Estate Cycle - 1 stage explanation
Expansion is the preliminary stage in a life cycle that refers to increased development of an area. During this time, costs are stable, or they may be reduced due to economies of scale achieved by volume increases. As the pool of buyers increases, profits also increase. This stage is characterized by rising occupancy, absorption rates, and increasing prices. An example would be a mixed-use development where financing is available for construction. As a result, many homes are constructed, along with shopping facilities and restaurants. This stage is rapid compared to the other stages since profit is higher and money is typically more readily available.
Real Estate Cycle - 2nd stage explanation
Contraction follows the growth stage, especially when an area grows at a slower rate. In other words, absorption rates, construction, and rental rates begin to decline. At the beginning of this stage, competition among sellers increases causing decreases in profits. At this stage, eventually it becomes less profitable to build, as inventory increases.
Real Estate Cycle - 3rd stage explanation
Recession occurs when an economy or area can no longer compete at a profitable level due to decreases in sales, occupancy, absorption rates, and construction. Other economic factors take place such as increases in unemployment and lack of disposable income. If the recession is national (as opposed to local or regional) in its scope, the government typically responds with lower interest rates to maintain construction, and to promote refinancing of mortgages, which increases disposable income. During this time, however, older improvements may become functionally inadequate due to age and lack of funds for renovation. As a result, maintenance levels decrease causing a loss of market appeal and declining values.
A knowledgeable person would not pay more for a used property than a new property.
Cost and value may be equal under the following circumstances:
- The property is new or proposed
- The improvement represents the highest and best use of the property
- Supply and demand are in balance
Adjustments in the sales comparison approach should be made in this order:
property rights
financing terms
conditions of sale
market conditions
location
physical characteristics
economic characteristics
Appraisers can employ several techniques for extracting adjustments. Some of these include:
Paired sales technique
Rent analysis
Market survey
Cost analysis
Regression analysis
Extracting adjustments - Paired sales technique
- Locate sales of similar properties that can be paired
- Isolate a single factor that influenced value
- Subtract the price of each sale to extract the value of a single factor
- Apply the adjustment in the Sales Comparison Approach
Extracting adjustments - Rent Analysis
Rent Analysis
The Rent Analysis method of extracting adjustments is based on analysis of the additional rent that a feature would command in the market. This type of analysis can be applied to all types of properties, but it is most applicable to income-producing properties.
Simply put, the amount of rent that is attributable to a particular feature or attribute is isolated. These rental amounts can be compared and a percentage adjustment extracted, or the additional rent may be multiplied by a GIM or divided by a capitalization rate to extract a contributory value for that feature. This analysis also can be applied in reverse; the rent loss due to a property’s lack of a particular feature can also be multiplied or capitalized to arrive at an adjustment amount.
Extracting adjustments - Market Survey Method
This method is sometimes also called the contingent valuation method (CVM), or stated preference method.
The market survey method is just what it says: an appraiser will survey market participants, including buyers, sellers, renters, brokers, salespersons, property managers, other appraisers - anyone with market knowledge that could possibly be in a position to help the appraiser come up with an adjustment. After the appraiser surveys a sufficient number of individuals, a pattern should develop, which the appraiser can use as the basis for an adjustment. This type of technique is particularly useful when appraising stigmatized properties, properties that are subject to construction defects, or properties with structural stability issues.
Extracting adjustments - Cost Analysis
Cost Analysis
In a previous chapter, we covered the principle of contribution, which states that the value of a particular feature or attribute of a property is based upon its contribution to the property. We are also aware that cost does not necessarily equal value. However, if an appraiser is somehow able to establish a link between cost and value, this link can sometimes be used to estimate adjustment amounts.
Example: An appraiser is trying to estimate an adjustment for an outdoor all-weather sports court which is part of an agricultural-residential property. This court is new, and was installed at a cost of $80,000. The appraiser has no sales of properties with sports courts in order to extract an adjustment. The appraiser is able to analyze sales of properties with in-ground swimming pools; this analysis indicates that pools contribute 40% of their cost in value to the property. Because both pools and sports courts are recreational amenities with similar seasonal capabilities for use, the appraiser estimates that this 40% ratio of cost to value would likely be applicable. The appraiser applies this 40% factor to the cost of the subject’s sports court (i.e., its contribution to value is 40% of its cost) and makes an adjustment of $32,000 to each of the comparable sales for this amenity.
Extracting adjustments - Linear Regression
Linear Regression
Regression analysis is somewhat similar to paired sales analysis, in that actual sales of properties are analyzed, and adjustments extracted based on the comparisons. What distinguishes regression analysis from paired sales analysis is that regression analysis usually depends on computer-based applications or programs, and requires larger sample sizes. Of course, regression analysis can be accomplished with smaller sample sizes, but like any other statistical application, it becomes more reliable as the sample sizes become larger.
Simple regression utilizes only one independent variable. For example, we can analyze sale prices of commercial lots, using the size as the independent variable and the sale price as the dependent variable. After all, the sale price is dependent upon the lot size. This can easily be done by an appraiser, even without the help of a computer, with just a piece of graph paper.
Multiple regression is more complex, and can be used to estimate adjustment amounts for several variables at once. In order for this analysis to be credible, it requires a computer program and a large amount of reliable data.
In the Sales Comparison Approach, elements of comparison can be placed into two categories: intangible and tangible. Intangible are also sometimes called _____________ and are _______________
transactional adjustments
Property rights conveyed
Financing
Conditions of sale
Market conditions (time)
In the Sales Comparison Approach, elements of comparison can be placed into two categories: intangible and tangible.
Tanglible are also sometimes called ____________ and are _____________
property adjustments
Tangible or property differences between the comparable sales and the subject include:
Location, visibility, traffic patterns, market appeal, size, zoning, age, view, quality, and condition of improvements, or other factors.
Formulas for
Capitalization Rate (CR)
Gross Rent Multiplier (GRM)
Expense and Vacancy Rate (EVR)
Capitalization Rate
CR = NET Operating Income / Value
Gross Rent Multiplier / Gross Income Multiplier
GRM = Value / GROSS Income
Expense and Vacancy Rate
EVR = 1 - GRM x CR
What is forced sale/partition?
Forced sales generally occur because owners of property are unable to agree upon certain aspects of the ownership. The owners may disagree on how to use the property, the amount of money to invest into the property, on their right to occupy and use the whole of the property. If the parties cannot come to an agreement, the case moves to court through a petition to partition action.
Property may be owned by more than one person either as joint tenants, tenants in common, and in some states tenants by the entirety
three kinds of partition which can be awarded by court: partition in kind, partition by allotment, and partition by sale.[3][4]
- A partition in kind is a division of the property itself among the co-owners.
- In a partition by allotment, which is not available in all jurisdictions, the court awards full ownership of the land to a single owner or subset of owners, and orders them to pay the person or persons divested of ownership for the interest awarded.
- Partition by sale constitutes a forced sale of the land, followed by division of the profits thus realized among the tenants. Generally, the court is supposed to order a partition sale only if the land cannot be physically divided, although this determination often rests on whether the economic value of the divided pieces is less in the aggregate than the value of the parcel as a single piece.
What happens in a contract for deed when the seller retains the legal title to the property?
The purchaser is permitted to take possession of the real estate for most purposes other than legal ownership.
Question: What type of sampling technique does the Bureau of the Census perform for the Department of Housing and Urban Development?
Stratified sampling
To ensure quality, the survey questions are programmed into the field representatives’ computers for completion by either telephone or personal visits.
standard deviation is also known as _________________
standard deviation is also known as the standard error of the mean.
the empirical rule states ____________________________
the empirical rule states that 68% of the observations will fall within one standard deviation from the mean.
What are two other names for the empirical rule?
Answer:
68-95-99.7
the three-sigma rule.
Question: What are the factors that an appraiser must identify and analyze when researching the effect on use and value of real estate?
Answer: Standards Rule 1-3 (a & b) states, “when necessary for credible assignment results in developing a market value opinion, an appraiser must identify and analyze the effect on use and value of existing land use regulations, reasonably probable modifications of such regulations, economic supply and demand, and the physical adaptability of the real estate, market area trends, and develop an opinion of the highest and best use of the real estate.”
Standards Rule 1-4 (a-g) states, “in developing a real property appraisal, an appraiser must collect, verify, and analyze all information necessary for credible assignment results … in the sales comparison, cost, and income approach.”17
In conclusion, an essential step in developing an opinion of market value is the development of a highest and best use opinion of the subject property, which, in turn, determines which valuation approaches will be developed, which comparable sales are to be utilized, and ultimately what approach or approaches are given the most weight in final reconciliation. The end result is that the public is protected when an appraiser provides appraisal services in an independent, impartial, objective, and unbiased manner.
An arm’s length transaction:
An arm’s length transaction is a real estate contract where the purchaser and sellers of a real estate property are acting independently, without coercion, of their own self-interest, and are not related to one another.
Before-tax cash flow (equity dividend):
Before-tax cash flow (equity dividend): Cash flow often used to evaluate the cash flow from an income-producing property by subtracting the debt service from the net operating income.
Bottom-up approach:
Bottom-up approach: In business development, a bottom-up approach means that the adviser takes the needs and wishes of the would-be entrepreneur as the starting point, rather than a market opportunity (which would be a “top-down” approach).
Break-even ratio (also known as default ratios):
Break-even ratio (also known as default ratios): A ratio that indicates the property’s ability to generate sufficient income to pay for debt services.
Debt coverage ratio (DCR):
Debt coverage ratio (DCR): The ratio that indicates the property is producing adequate income to cover the loan payment. This ratio assists investors and lenders with their investment decisions. A DCR less than “one” means a property does not produce adequate income to make the loan payment.
Effective gross income multiplier:
Effective gross income multiplier: The EGIM is the sales price divided by the effective gross income at stabilized occupancy. This calculation is utilized for investment properties.
Which of the following is another name for the market survey method of extracting adjustments?
- Contingent valuation method
- Simple linear regression
- Paired sales technique
- Grouped data analysis
Contingent valuation method (sometimes also called stated preference method)
An appraiser has developed all three approaches to value in an appraisal assignment. When might the value indication of the Cost Approach NOT be reflective of market value?
- When the property’s use is the highest and best use
- When insufficient market data is available
- When entrepreneurial profit plays a significant role in the market
- When the property is currently leased or has the potential to produce income
- When entrepreneurial profit plays a significant role in the market
A property recently sold for $185,000, with the seller agreeing to carry the financing for the buyer, at a below-market rate. An appraiser is considering the use of this property as a comparable sale. There are very few other sales in this market. What should the appraiser do?
- Use the $185,000 sale price and make no adjustment
- Adjust the sale price upward to cash equivalency
- Adjust the sale price downward to cash equivalency
- Do not use the sale
Adjust the sale price downward to cash equivalency
Upon which valuation principle is the concept of adjustments in the Sales Comparison Approach primarily based?
-Change
-Contribution
-Externalities
-Substitution
Contribution
Which of these is the most appropriately rounded value conclusion for a property that is 2,711 square feet and is valued at $184 per square foot?
-$498,824
-$498,825
-$498,800
-$500,000
$500,000
This single-value estimate should be appropriately rounded, so as not to be misleading. This property is 2,711 square feet, multiplied by $184 indicates $498,824. This could be rounded to the nearest $1,000 or $5,000. In this case, rounding to the nearest $5,000 would probably be most appropriate. Rounding to the nearest $25 or $100 would likely be inappropriate. (Chapter 4, Single-point Value)
Unverified sales data gathered from a local multiple listing service would be considered ________ data.
- Primary
- Secondary
- Public
- Tertiary
Secondary
What type of appraisal data pertains only to the subject property and comparables?
- General data
- Specific data
- Primary data
- Secondary data
Specific data
From whose viewpoint is the cash equivalency of a comparable sale determined?
-Buyer
-Seller
-IRS
-Local tax assessment office
Seller
When valuing an improved retail commercial property, what would be the most common unit of comparison used by an appraiser?
- Price per square foot of land
- Price per square foot of building area
- Price per room
- Price per front foot
Price per square foot of building area
An appraiser is writing up the results of his reconciliation in a real property appraisal report. How much information about an appraiser’s reconciliation does USPAP require?
- At least one paragraph
- It varies according to the SCOPE OF WORK RULE
- Sufficient information so that it can be understood
- None; reconciliation is optional
Sufficient information so that it can be understood
It is likely that in the Sales Comparison Approach, each comparable sale used ___________.
- Is equally relevant
- Must be placed on a sales grid and adjusted
- Will produce its own indicated value
- All of these answers
- Will produce its own indicated value
If the appraiser selected a GIM of 5.8, what would be the indicated value of the subject property, based on a gross income of $43,200, an effective gross of $41,040, and a net income of $28,363?
- $250,560
- $238,032
- $164,505
- Cannot tell from the information provided
$250,560
If the appraiser selected an 9.9% Overall Rate (OAR), what would be the indicated value of the subject property, based on a gross income of $43,200, an effective gross of $41,040, and a net income of $28,363?
- Cannot tell from the information provided
- $286,495
- $313,288
- $342,444
$286,495
Which of these is the most appropriately rounded value conclusion for a property that is 2,711 square feet and is valued at $184 per square foot?
- 498824
- 498825
- 498800
- 500000
500000
A comparable property sold for $400,000. In the sales comparison grid, it is adjusted downward 5% for property rights, downward 10% for financing terms, and upward 15% for market conditions. What is the net adjusted sale price?
- 384000
- 393300
- 400000
- 402600
393300
An appraiser is valuing a vacant land parcel which can legally be used for residential, commercial, or industrial use. What is the highest and best use of the property?
- Residential
- Commercial
- Industrial
- Cannot determine from the information provided
Cannot determine from the information provided
An appraiser is valuing an operating bar/restaurant property, and includes the booths, stools, signs, and kitchen equipment in the appraisal. These items would be considered ____________.
- Functional obsolescence
- Intangible items
- Trade fixtures
- Deferred maintenance
Trade fixtures
Another term for a variable is:
- Viable
- Variate
- Convention
- Predictor
Variate
An appraiser makes a field inspection of a subject property, which is an office condominium unit. The appraiser?s measurements and field notes from the inspection would be considered what type of data?
- General data
- Secondary data
- Specific data
- Public record data
Specific data
Property A sold for $305,000. It is a four-unit apartment building with a four-car garage. Property B sold for $294,000. It is a similar four-unit apartment building with no garage. What is the indicated adjustment for a four-car garage?
- 7000
- 9000
- 11000
- 13000
11000
By definition, what type of data is measured?
- Quantitative data
- Class data
- Qualitative data
- Division data
Quantitative data
There are four characteristics of value - utility, scarcity, desire, and purchasing power. What happens when one or more of these value characteristics changes in relation to a specific property?
- The property’s value changes
- The property’s value stays the same
- The property’s value is increased based on a standard formula (i.e., inflation)
- The property’s value decreases (i.e., depreciation)
The property’s value changes
An appraiser concludes that an industrial building with an inadequate loading dock has an annual rent of $0.20 less per square foot than a property with an adequate loading dock. If the gross income multiplier is 8, what would be the dollar adjustment on a 30,000 square foot warehouse with an inadequate loading dock?
- 24000
- 36000
- 60000
- 48000
48000
A comparable sale property sold for $1,100,000. It required a positive $100,000 adjustment for location, a negative $80,000 adjustment for site, and a negative $60,000 adjustment for square footage. What is the gross adjustment to this comparable sale?
- -40000
- 240000
- 40000
- 1060000
240000
An appraiser is valuing an agricultural property and decides to appraise it based on value per acre. This is an example of ____________.
- External obsolescence
- Items of comparison
- Units of comparison
- Unacceptable appraisal practice
Units of comparison
Unverified sales data gathered from a local multiple listing service would be considered ________ data.
- Primary
- Secondary
- Public
- Tertiary
Secondary
An appraiser is valuing a property that is owned in fee simple. One of the comparables sold as a leased fee interest, and the appraiser makes an adjustment in the Sales Comparison Approach for this difference. What would this adjustment be considered?
- Conditions of sale
- Property rights conveyed
- Market conditions
- Financing terms
Property rights conveyed
An appraiser is performing market segmentation. In doing this, the appraiser defines and subdivides a large homogeneous market into segments based on which criteria?
- Location
- Demographics
- Consumer behavior
- All of these
All of these
You are using gross income multiplier to value an industrial property. What two factors do you need for the comparable sales in order to extract a GIM from the market?
- Price and overall rates
- Income and rental rates
- List price and sale price
- Income and price
Income and price
Market conditions adjustments are _________ .
- Always upward
- Always downward
- Not required if the sales sold within the prior 90 days
- Not be necessary in all markets and in all appraisals
Not be necessary in all markets and in all appraisals
Intangible adjustments are also known as:
- Rule of thumb adjustments
- Unsupportable adjustments
- Transactional adjustments
- Property adjustments
Transactional adjustments
An appraiser obtains data on a sold property from the local MLS. The appraiser personally verifies elements of the transaction and the physical characteristics of the property with the seller. After verification, this sale would now be considered what type of data?
- Primary data
- General data
- Demographic data
- Secondary data
Primary data
In a bell-shaped curve with a normal distribution, what percentage of observations will fall within two standard deviations of the mean?
- 50
- 63.5
- 68
- 95
95
An appraiser makes a field inspection of a subject property, which is an 8-unit apartment building. The appraiser?s measurements and field notes from the inspection would be considered what type of data?
- General data
- Secondary data
- Primary data
- Non-verified data
Primary data
An appraiser is analyzing sales of office buildings, and finds a 10,000 square foot office building which sold for $50 per square foot. Considering the economies of scale principle, which of these would be the MOST likely unit sale price for a 5,000 square foot office building?
- $60 per square foot
- $50 per square foot
- $40 per square foot
- $30 per square foot
$60 per square foot
When using a sale that was the result of the execution of a contract for deed, what is usually the most significant problem for an appraiser?
- Determining how much was paid in transfer taxes
- Developing an opinion of the property?s highest and best use
- Determining the date when the actual meeting of the minds took place between the buyer and seller
- Finding the sale documentation in poorly-organized municipal records
Determining the date when the actual meeting of the minds took place between the buyer and seller
An appraiser is valuing a property as of a date in the past. Which statement is TRUE regarding this situation?
- This is a retrospective value opinion
- This appraisal involves the use of a hypothetical condition
- This is a prospective value opinion
- The appraiser has violated USPAP
This is a retrospective value opinion
A comparable sale property sold for $1,100,000. It required a positive $100,000 adjustment for location, a negative $80,000 adjustment for site, and a negative $60,000 adjustment for square footage. What is the net adjustment to this comparable sale?
- -40000
- 240000
- 40000
- -60000
-40000
Which of these BEST expresses the formula for the Cost Approach?
- Value = Cost ? Depreciation + Site Value
- Value = Cost + Depreciation + Site Value
- Value = Income x Rate
- Value = Cost
Value = Cost ? Depreciation + Site Value
When performing the Sales Comparison Approach, what is the final step?
- Reconciliation of the indicators
- Making adjustments
- Verification of the sales data
- Application of units of comparison
Reconciliation of the indicators
A dilapidated commercial building is situated in an economically depressed section of the city. No local market participants have the financial capability to renovate and use such a large building, so it sits vacant. This is an example of what force?
- Government
- Economic
- Environmental
- Social
Economic
When applying the paired sales technique to extract adjustments, which of these would result in a more reliable analysis?
- Use a larger set of data where the appraiser can support each adjustment with more than one pair of sales
- Use only sales that are identical to the subject
- Use a smaller set of data where the appraiser can support each adjustment with one carefully selected pair of sales
- Use one pair of sales with a significant number of dissimilarities, which would enable the appraiser to extract several adjustments at once
Use a larger set of data where the appraiser can support each adjustment with more than one pair of sales
A vacant land property sold for $408,000. Nine months later, it re-sold for $371,000. No changes or improvements were made to the property during this time. What is the monthly adjustment for market conditions indicated by this sale and re-sale?
- Downward 9%
- Upward 9%
- Downward 1%
- Upward 1%
Downward 1%
What type of appraisal data pertains only to the subject property and comparables?
- General data
- Specific data
- Primary data
- Secondary data
Specific data
A comparable property sold for $800,000. In the sales comparison grid, it is adjusted downward 5% for financing terms, and upward 10% for conditions of sale. What is the dollar adjustment for conditions of sale?
- 72000
- 74000
- 76000
- 80000
76000
When should an appraiser simply average the results of the value range indicated by the comparable sales to reach a value indication?
- Never
- Always
- Only if the result would be acceptable to the client
- Only when performing a non-mortgage-lending appraisal
Never
Factors that have an effect on the sale prices or value of comparable properties, for which adjustments are made in the Sales Comparison Approach, are known as _________.
- Meaningful numbers
- Elements of comparison
- Units of comparison
- Identifiers
Elements of comparison
It is important for appraisers to consider ________ that is appropriate for the appraisal assignment being undertaken.
- the definition of value
- the client’s desired outcome
- building cost and depreciation
- the borrower’s estimate of value
the definition of value
When an appraiser is reconciling within the Sales Comparison Approach, what might the appraiser consider?
- The total demand for the type of real estate offered in the open market by all economic agents within a defined market area
- The loss of income due to vacancy and bad debts that must be subtracted from potential gross income
- The time value of money, which indicates that a dollar today is worth more than a dollar in the future
- The validity of each element for each sale compared to the subject property
The validity of each element for each sale compared to the subject property
In a prospective appraisal, how is the subject property being valued?
- As of a current date based on proposed improvements
- As of a prior date
- As of a future date
- Contrary to the requirements of USPAP
As of a future date
An apartment building is worth less than other buildings in its market because it has fewer bathrooms than what is expected by market participants. This is an example of ___________.
- Functional obsolescence
- External obsolescence
- Gentrification
- Decline or recession
Functional obsolescence
Which of the following methods and concepts are most appropriate to the Sales Comparison Approach?
- Economics and money matters
- Economics and statistics
- Economics and financial
- Figures and financial
Economics and statistics
What is name of the principle which state that in a normal bell-shaped curve, 68% of the observations will fall within one standard deviation of the mean?
- Monte Carlo rule
- Rule of sevens
- Empirical rule
- Rule of threes
Empirical rule
A comparable property sold for $400,000. In the sales comparison grid, it is adjusted downward 5% for property rights, downward 10% for financing terms, and upward 15% for market conditions. What is the dollar adjustment for financing terms?
- 40000
- 38000
- 36000
- 48000
38000
While researching a potential comparable sale, an appraiser realizes that he had previously appraised the property. He goes into his prior workfile and is able to retrieve the measurements and field notes from his property inspection three years prior. This is an example of what type of data?
- Secondary data
- Primary data
- Demographic data
- Principal data
Primary data
If the subject of an appraisal is a commercial building (as opposed to a residential dwelling), an appraiser is __________ to use a report form with a pre-printed adjustment grid.
- Less likely
- More likely
- Not permitted
- Required by USPAP
Less likely
Which economic principle states that a prudent purchaser will pay no more for a property than he or she would pay for a similar or comparable property?
- Substitution
- Externalities
- Change
- Conformity
Substitution
When applying the Sales Comparison Approach to a particular property, an appraiser is making adjustments for conditions of sale, financing terms, and market conditions. What is the proper order of these adjustments?
- The order of these adjustments does not matter
- Financing terms, conditions of sale, market conditions
- Conditions of sale, market conditions, financing terms
- Conditions of sale, financing terms, market conditions
Financing terms, conditions of sale, market conditions
An appraiser is analyzing three comparable sales in the sales comparison approach, but is not making numeric adjustments. Sale 1 sold for $125,000 and is rated overall superior to the subject. Sale 2 sold for $108,000 and is rated overall inferior to the subject. Sale 3 sold for $115,000 and is rated overall inferior to the subject. The appraiser reconciles the indicated value of the subject at $120,000. This is an example of what type of analysis?
- Regression
- Improper
- Quantitative
- Qualitative
Qualitative
When using gross income multiplier (GIM) to appraise income-producing non-residential properties, what type of rental rate is used?
- Annual
- Monthly
- Weekly
- Daily
Annual
A(n) __________ can be used to demonstrate any variable that clusters around the mean.
- Normal distribution curve
- Abnormal allocation wave
- Allocation wave
- Normal allocation curve
Normal distribution curve
There are two kinds of adjustments may be made for elements of comparison. What are they?
- Complete and limited
- Supported and unsupported
- Qualitative and quantitative
- Development and reporting
Qualitative and quantitative
In an appraisal in which three approaches to value are developed, and multiple comparable sales are used:
- Reconciliation is not important if the appraisal is prepared for a use other than mortgage lending
- There will typical be multiple indications of value
- A value range must be provided instead of a single-point value
- There may be only one indication of value
There will typical be multiple indications of value
The Sales Comparison Approach would likely be the primary method of valuing which property?
- 10 acres of undeveloped land
- A 100-unit apartment building that is fully occupied
- A 10-unit retail strip center that is fully occupied
- The sales comparison approach would not be useful for any of these properties
10 acres of undeveloped land
An appraiser is analyzing a newer, high-tech steel producing facility. In delineating the market for this property, which of these should the appraiser most likely consider?
- Properties within one mile of the subject
- Properties within the state only
- Properties within a region or even the entire country
- Market delineation is not necessary in industrial appraisals
Properties within a region or even the entire country
The appraisal or valuation process is BEST described as:
- A sequence of steps used by the appraiser to develop a value conclusion
- A computer-generated program that utilizes real estate information obtained from real estate agents, appraisers, public records, and other sources
- The total demand for a type of real estate offered on the open market by all economic agents in an economy that may be leased or sold during a certain period
- The method used to allow for loss of compound interest which money would typically earn if not invested in real estate
A sequence of steps used by the appraiser to develop a value conclusion
Which term refers to the loss of income as the result of not choosing an alternative?
- Externality
- Contribution to value
- Economies of scale
- Opportunity Cost
Opportunity Cost
In reconciling the data in the Sales Comparison Approach, the appraiser should:
- Ensure that the most reliable data is given the most weight
- Make as few adjustments as possible in order to make the analysis appear more credible
- Reconcile to the high end of the range to help the client achieve his/her goals
- Reconcile to the center of the range so as not to be accused of bias
Ensure that the most reliable data is given the most weight
Which of the following is an example of secondary data that might be used by an appraiser?
- National surveys by valuation companies
- Government information compiled by the Census Bureau
- All of these are secondary data
- Research statistics from a chamber of commerce
All of these are secondary data
An appraiser contacts the buyer of a comparable property and verifies that the property was purchased on the open market, between a typically-motivated seller and buyer who were not related to each other. What type of sale is this?
- Non-market transaction
- Forced sale
- Arm?s length transfer
- Short sale
Arm?s length transfer
In which approach is there a process to itemize and adjust for the differences between the subject and the comparable sales?
- Cost Approach
- Sales Comparison Approach.
- Income Capitalization Approach.
- Discounted Cash Flow Analysis
Sales Comparison Approach.
Why is it not advisable for an appraiser to use a standard pre-printed residential sales comparison grid in his/her commercial appraisal report?
- Pre-printed residential sales comparison grids are prohibited by USPAP
- Most commercial appraisers do not understand the techniques used in residential appraising
- By using a residential sales comparison grid, the appraiser is stating that the property?s highest and best use is residential
- Many of the elements of comparison on residential grids are not typical value-related elements of comparison for commercial properties
Many of the elements of comparison on residential grids are not typical value-related elements of comparison for commercial properties
According to the Concentric Zone Model, Zone 1 is the CBD, which contains:
- Most of the tertiary employment
- Primarily high quality housing
- Residential zones for working-class residents
- Very little public transportation infrastructure
Most of the tertiary employment
Which term is defined as the land, and everything permanently attached thereto?
- Fee simple absolute
- Physical plant
- Real property
- Real estate
Real estate
An appraiser loans $1,000 to her friend for a one-year period, after which the friend promises to pay her back $1,100. What principle does this demonstrate?
- Contribution
- Market value
- Time value of money
- Highest and best use
Time value of money
What is the primary use and purpose of the Sales Comparison Approach?
- Subtract depreciation from cost new to indicate depreciated cost
- Establish the client?s preferred value so the subject property will close
- Decide the listing price of the subject property
- Provide a value indication for the subject property
Provide a value indication for the subject property
