SU # 40__Selecting and Adjusting Comparables

Question 1

If a comparable is better than the subject in some characteristic,

an amount is deducted from the sale price of the comparable.

no adjustment is necessary.

an amount is added to the sale price of the comparable.

all of the comparables must be adjusted accordingly.

Answer 1

an amount is deducted from the sale price of the comparable.

Question 2

Because the sale prices of the comparables are known, while the value and price of the subject are not, adjustments:

should always be exaggerated.

can be made only to the comparables’ prices, not to the
subject’s.

can be made only to the subject’s prices, not to the comparables’.

always reduce the subject’s value.

Answer 2

can be made only to the comparables’ prices, not to the subject

Question 3

One of the principal factors for adjustment in a CMA or
sales comparison appraisal is

location of mortgage lender.

current residence of buyer.

number of occupants.

time of sale.

Answer 3

time of sale.

Question 4

The main limitation of using a pending sale for a comparable is that

the final sales price is not known.

there is no date of sale.

the selling price is too close to the present to allow for adjustment.

a pending sale is not competitive with active listings.

Answer 4

the final sales price is not known.

Question 5

If a comparable sold for $200,000 but lacks a garage valued at $10,000, while the subject has one, the adjusted value of the comparable is

$190,000.00

$200,000.00

$210,000.00

not relevant.

Answer 5

$210,000.00

Question 6

As a rule, the fewer the total number of adjustments, the smaller the adjustment amounts, and the less the total adjustment amount:

the less reliable the comparable.

the more reliable the comparable.

the less reliable the subject.

the more reliable the subject.

Answer 6

the more reliable the comparable.

Question 7

All the following qualities are required in a good comparable for an appraisal EXCEPT

resemblance to the subject in utility and design.

locational identity to the subject.

sale in an arm’s-length transaction.

recent sale.

Answer 7

locational identity to the subject.

Question 8

As a comparable, an expired listing can be a useful indicator of

a listing period that was too short.

a listing price that was too high for the market.

a seller who was inflexible.

a property that was not as good as its competitors.

Answer 8

a listing price that was too high for the market.

Question 9

As a component of real estate value, the principle of substitution suggests that

a. if two similar properties are for sale, a buyer will purchase the cheaper of the two.
b. if one of two adjacent homes is more valuable, the price of the other home will tend to rise.
c. if too many properties are built in a market, the prices will tend to go down.
d. people will readily move to another home if it is of equal value.

Answer 9

a. if two similar properties are for sale, a buyer will purchase the cheaper of the two.

Question 10

Highest and best use of a property is that use which

a. is physically and financially feasible, legal, and the most productive.
b. is legal, feasible, and deemed the most appropriate by zoning authorities.
c. entails the largest building that zoning ordinances will allow developers to erect.
d. conforms to other properties in the area.

Answer 10

a. is physically and financially feasible, legal, and the most productive.

Question 11

The concept of market value is best described as

a. the price a buyer will pay for a property, assuming other similar properties are within the same price range.
b. the price an informed, unhurried seller will charge for a property assuming a reasonable period of exposure with other competing properties.
c. the price a buyer and seller agree upon for a property assuming stable interest rates, appreciation rates, and prices of other similar properties.
d. the price that a willing, informed, and unpressured seller and buyer agree upon for a property assuming a cash price and the property’s reasonable exposure to the market.

Answer 11

d. the price that a willing, informed, and unpressured seller and buyer agree upon for a property assuming a cash price and the property’s reasonable exposure to the market.

Question 12

A significant difference between an appraisal and a broker’s opinion of value is

a. the appraiser tends to use only one or two of the approaches to value.
b. the broker may not be a disinterested party.
c. the broker is subject to government regulation in generating the opinion.
d. the appraiser uses less current market data.

Answer 12

b. the broker may not be a disinterested party.

Question 13

A notable weakness of the sales comparison approach to value is that

a. there may be no recent sale price data in the market.
b. the approach is not based on the principle of substitution.
c. the approach is only accurate with unique, special purpose properties.
d. sale prices cannot be compared, since all real estate is different.

Answer 13

a. there may be no recent sale price data in the market.

Question 14

The steps in the market data approach are

a. choose nearby comparables, adjust the subject for differences, estimate the value.
b. gather relevant price data, apply the data to the subject, estimate the value.
c. select comparable properties, adjust the comparables, estimate the value.
d. identify previous price paid, apply an appreciation rate, estimate the value.

Answer 14

c. select comparable properties, adjust the comparables, estimate the value.

Question 15

In the sales comparison approach, an adjustment is warranted if

a. the buyer obtains conventional financing for the property.
b. the seller offers below-market seller financing.
c. a comparable is located in another, albeit similar neighborhood
d. one property has a hip roof and the other has a gabled roof.

Answer 15

b. the seller offers below-market seller financing.

Question 16

To complete the sales comparison approach, the appraiser

a. averages the adjustments.
b. weights the comparables.
c. discards all comparables having a lower value.
d. identifies the subject’s value as that of the nearest comparable

Answer 16

b. weights the comparables.

Question 17

One weakness of the cost approach for appraising market value is that

a. builders may not pay market value for materials or labor.
b. weights the comparables.
c. comparables used may not have similar quality of construction.
d. new properties have inestimable costs and rates of depreciation.

Answer 17

b. weights the comparables.

Question 18

The cost of constructing a functional equivalent of a subject property is known as

a. reproduction cost.
b. replacement cost.
c. restitution cost.
d. reconstruction cost.

Answer 18

b. replacement cost.

Question 19

An office building lacks sufficient cooling capability to accommodate modern computer equipment. This is an example of

a. physical deterioration.
b. economic obsolescence.
c. incurable depreciation.
d. functional obsolescence.

Answer 19

d. functional obsolescence.

Question 20

A home is located in a neighborhood where homeowners on the block have failed to maintain their properties. This is an example of

a. curable external obsolescence.
b. incurable economic obsolescence.
c. functional obsolescence.
d. physical deterioration.

Answer 20

b. incurable economic obsolescence.

Question 21

In appraisal, loss of value in a property from any cause is referred to as

a. deterioration.
b. obsolescence.
c. depreciation.
d. deflation.

Answer 21

c. depreciation.

Question 22

The first two steps in the cost approach are to estimate the value of the land and the cost of the improvements. The remaining steps are

a. estimate depreciation, subtract depreciation from
cost, and add back the land value.

b. subtract deterioration from cost, estimate land depreciation, and total the two values.
c. estimate depreciation of land and improvements, subtract from original cost.
d. estimate obsolescence, subtract from the cost of land and improvements.

Answer 22

a. estimate depreciation, subtract depreciation from

cost, and add back the land value.

Question 23

The roof of a property cost $10,000. The economic life of the roof is 20 years. Assuming the straight-line method of depreciation, what is the depreciated value of the roof after 3 years?

a. $10,000
b. $8,500
c. $7,000
d. $1,500

Answer 23

b. $8,500

Question 24

The income capitalization approach to appraising value is most applicable for which of the following property types?

a. Single family homes
b. Apartment buildings
c. Undeveloped land
d. Churches

Answer 24

b. Apartment buildings

Question 25

The steps in the income capitalization approach are:

a. estimate gross income, multiply times the gross income multiplier.
b. estimate effective income, subtract tax, apply a capitalization rate.
c. estimate net income, and apply a capitalization rate to it.
d. estimate potential income, apply a capitalization rate to it.

Answer 25

c. estimate net income, and apply a capitalization rate to it.

Question 26

Net operating income is equal to

a. gross income minus potential income minus expenses.
b. effective gross income minus debt service.
c. potential gross income minus vacancy and credit loss minus expenses.
d. effective gross income minus vacancy and credit loss.

Answer 26

c. potential gross income minus vacancy and credit loss minus expenses.

Question 27

If net income on a property is $20,000 and the cap rate is 5%, the value of the property using the income capitalization method is

a. $100,000.
b. $400,000.
c. $1,000,000.
d. $4,000,000.

Answer 27

b. $400,000.

Question 28

The principal shortcoming of the gross rent multiplier approach to estimating value is that

a. numerous expenses are not taken into account.
b. the multiplier does not relate to the market.
c. the method is too complex and cumbersome.
d. the method only applies to residential properties

Answer 28

a. numerous expenses are not taken into account.

Question 29

If the monthly rent of a property is $3,000, and the gross rent multiplier (GRM) is 80, what is the value of the property?

a. $45,000
b. $240,000
c. $267,000
d. $288,000

Answer 29

b. $240,000