Terms & Formulas

Question 1

Easement

Answer 1

The right to use another’s land for a stated purpose. It can be perpetual or have a time limit. An easement is a nonpossessory (incorporeal) interest in land and property conveying use, but not ownership, of a portion of that property.

Question 2

Easement in Gross

Answer 2

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 easement but no dominant estate. An example of an easement in gross is a utility easement that runs along a highway. It benefits all the property owners equally. Therefore, usually no adjustments are required.

Question 3

Easement appurtenant

Answer 3

An easement that is attached to, benefits, and passes with the transfer of the dominant estate; runs with the land for the benefit of the dominant estate and continues to burden the servient estate, although such an estate may be transferred to new owners. For example, Smith has a property that fronts along a highway. Jones owns the property behind and has a right of way to access the highway over the property of Smith. Jones (who owns the property in the rear) has the dominant interest and gains a benefit over the property of Smith (who then has the servient estate).

Question 4

An affirmative easement is defined as

Answer 4

The right to perform a specific act on a property owned by another.

Question 5

A negative easement is defined as

Answer 5

An easement preventing a property owner from certain, otherwise permitted, uses of his or her land, e.g., agreeing not to do something such as building a wall or fence blocking an adjoining property’s view.

Question 6

Right of Way (ROW)

Answer 6

A right to pass over land in some particular path; a strip of land used for transportation such as streets and roads, railways, utility lines, and for other private or public transportation uses. Rights of way also can be used for maintenance purposes, or to facilitate installation of electric and cable lines, pipelines and so forth. ROW easements may be acquired by private parties or public (governmental or quasi-governmental) entities.

Question 7

Ingress/Egress

Answer 7

For appraisal purposes, these terms describe how people and vehicles get onto and off of a property, such as via driveways and walkways. “Ingress” describes the access onto a property. “Egress” describes the access off or out of a property.

Question 8

Encroachment

Answer 8

Trespassing on the domain of another. For appraisal purposes, “encroachment” describes an improvement to real property that trespasses over the property line onto an adjoining property. It is usually something that occurred without the granting of an easement, right of way, license, or permission. Common examples include fences, sheds and outbuildings, driveways and paving, and in extreme examples, all or part of the principal building.

Question 9

Riparian Rights

Answer 9

A water right that, under common law, grants a landowner the ownership of waters that share a border with the parcel owned or that flows across the land. For appraisal purposes, riparian rights can be adversely affected when another party impacts the water on the subject property or when the subject property does something to adversely affect the water on another property. This can include changing the normal runoff from rain and snow.

Question 10

Littoral rights

Answer 10

The right of an owner of land abutting a body of water such as a lake, pond, or ocean to use and enjoy, but not alter, the shoreline.

Question 11

Navigable waters are defined as

Answer 11

Fresh or salt waters that, alone or with other waters, form a continuous waterway over which commerce may be conducted. Navigable waters are owned and controlled by either the state or federal government. Specifically, navigable waters of the United States are defined as: Waters that are subject to the ebb and flow of the tide shoreward to the mean high water mark; waters that are, have been, or can be used in transporting interstate or foreign commerce. Therefore, if you owned land that fronted directly on the Pacific Ocean or the Mississippi River, you would own only the land above the mean high water mark. The government would own the land that lies below the high water mark and under the water itself. The public has the right to use the water for enjoyment and commerce. With non-navigable waters, owners of properties that adjoin the water typically own the land under the water up to the center of the lake, pond, or stream. Generally, owners with riparian or littoral water rights have unlimited rights to use the water adjoining their property - but they cannot divert or interrupt the flow of water (as an example, for irrigation purposes).

Question 12

Beneficial Useis defined as

Answer 12

1. The right to the use and enjoyment of property when legal title is held by another. 2.In water rights, the doctrine that holds that the water resources of the state must be put to their most beneficial use. In some states, this doctrine supersedes the doctrine of riparian rights.

Question 13

Gross Lease

Answer 13

A gross lease is “A lease in which the landlord receives stipulated rent and is obligated to pay all of the property’s operating and fixed expenses; also called full-service lease.”

Question 14

Net Lease

Answer 14

This is defined as “A lease in which the landlord passes on all expenses to the tenant.” Often the terms net lease, net/net lease or net/net /net lease are used. These terms indicate the extent to which the tenant and landlord are dividing the expenses of utilities, taxes and insurance.

Question 15

Flat Rental Lease

Answer 15

This is defined as “A lease with a specified level of rent that continues throughout the lease term.” This is the easy kind, such as a two-year lease at $500.00 per month or $6,000 annually.In periods of stability, this is the most common type of lease. However, because the rental amount is locked in and the economy can change, many landlords keep flat rental leases for short-term situations.

Question 16

Revaluation lease

Answer 16

The definition is “A lease that provides for periodic rent adjustments based on the market rental rate of the space”. Revaluation leases are usually long term but also may be cast as a series of short-term leases with renewal options. The renewals, if exercised, would be at the rate indicated by a revaluation at the time of renewal. If the parties cannot agree as to the terms, it may require additional appraisals or arbitration.

Question 17

Escalator Lease

Answer 17

An escalator lease is “A lease that requires the lessor to pay expenses for the first year and the lessee to pay any necessary increases in expenses as additional rent over the subsequent years of the lease.” This is a sweetheart deal for landlords. They are guaranteed the same return each year, no matter what happens with tax rates or the cost of gas, oil, or electricity.

Question 18

Percentage Lease

Answer 18

This type of lease is defined as “A lease in which the rent or some portion of the rent represents a specified percentage of the volume of business, productivity, or use achieved by the tenant.” They are typically used for retail properties, where the tenant might be a supermarket or department store. A straight percentage lease may have no minimum rent but most include a guaranteed minimum rent and an overage rent.

Question 19

Graduated rental leases

Answer 19

This type of lease is defined as “A lease that provides for specified changes in rent at one or more points during the lease term, e.g., step-up and step-down leases, or leases with a set percentage adjustment.” A step-up lease allows a landlord to anticipate increasing future expenses to be offset by a corresponding increase in future income. It works great if your crystal ball is working clearly the day the lease is executed. The step-up lease may also be advantageous to the tenant as it allows lower payments in the beginning while a business is being established. It also just makes common sense. We said on the first page of the seminar that there is a relationship between income and value. Property values are usually expected to increase and higher values should be reflected in higher rents. Step-down leases are less common but may be employed in a situation where there are unusual situations such as the expected likelihood of reduced tenant appeal in the future, because of economic conditions or location factors. They also may be employed to account for the fact that the landlord put in extensive improvements to the property, prior to the tenant occupancy, and that expense will be recaptured during the beginning years of the lease.

Question 20

Index Lease

Answer 20

An index lease is defined as “A lease, usually for a long term, that provides for periodic rent adjustments based on the change in an economic index.” The consumer price index (CPI) is most often the index to which the lease is tied but it could be any recognized index.

Question 21

Client

Answer 21

The party or parties (i.e., individual, group, or entity) who engage an appraiser by employment or contract in a specific assignment, whether directly or through an agent.

Question 22

Date of the Report

Answer 22

The date that the appraiser completed and transmitted the appraisal report to the client. It is usually - but not always - different from the effective date of value stated in the appraisal report.

Question 23

Effective Date of Value

Answer 23

The date to which the value applies. It can be current, prospective, or retrospective. The effective date of value establishes the viewpoint from which the appraiser viewed the appraisal problem.

Question 24

Intended Use

Answer 24

The use(s) of an appraiser’s reported appraisal or appraisal review assignment results, as identified by the appraiser based on communication with the client at the time of the assignment.

Question 25

Intended User

Answer 25

The client and any other party as identified, by name or type, as users of the appraisal or appraisal review report by the appraiser, based on communication with the client at the time of the assignment. The client is always an intended user of an appraisal. Depending on the circumstances of the assignment, there might or might not be additional intended users. The appraiser is responsible for identifying intended users.

Question 26

Personal Property

Answer 26

Any tangible or intangible article that is subject to ownership and not classified as real property, including identifiable tangible objects that are considered by the general public as being “personal,” such as furnishings, artwork, antiques, gems and jewelry, collectibles, machinery and equipment; and intangible property that is created and stored electronically such as plans for installation art, choreography, emails, or designs for digital tokens.

Question 27

Real Estate

Answer 27

An identified parcel or tract of land, including improvements, if any. Real estate is the physical thing and includes anything attached to it by nature or by humans.

Question 28

Real Property

Answer 28

The interests, benefits, and rights inherent in the ownership of real estate. This often is referred to as the “bundle of rights” associated with owning real estate. These rights include: The right tosellthe property; The right toleaseor rent the property; The right tousethe property; The right togivethe property away; The right toenteror leave the property; and The right torefuseto do anything with the property.

Question 29

Cost

Answer 29

The actual or estimated amount required to create, reproduce, replace or obtain a property. Cost is either a fact or an estimate of fact.

Question 30

Replacement cost

Answer 30

The estimated cost to construct, at current prices as of the effective appraisal date, a substitute for the building being appraised using modern materials and current standards, design, and layout.

Question 31

Reproduction cost

Answer 31

The estimated cost to construct, at current prices as of the effective date of the appraisal, an exact duplicate or replica of the building being appraised, using the same materials, construction standards, design, layout, and quality of workmanship and embodying all the deficiencies, superadequacies, and obsolescence of the subject building.

Question 32

Direct costs

Answer 32

Also often referred to as “hard” costs, these are the costs that include labor and materials, perhaps a general contractor’s overhead and similar that are incurred and required to create the building and improvements.

Question 33

Indirect costs

Answer 33

Also known as “soft costs,” these are all of the “non-hard” costs that are incurred and necessary to create the building and improvements including but not limited to architect’s fees, legal fees, construction loan interest, financing fees, title insurance and costs to carry the property during construction, such as insurance, taxes, water, sewer, electrical power, and similar.

Question 34

Depreciation (for appraisal purposes)

Answer 34

The difference between the contributory value of an improvement and its cost at the time of the appraisal. A simple way to explain it would be to say that the total depreciation attributable to a property is the difference between the total replacement (or reproduction) cost new to create the property (new-today) and its current value.

Question 35

Physical deterioration

Answer 35

Wear and tear from regular use, the impact of the elements, or damage. (This is a form of depreciation.)

Question 36

Functional obsolescence

Answer 36

A flaw in the structure, materials, or design that diminishes the function, utility, and value of the improvement. (This is a form of depreciation.)

Question 37

External obsolescence

Answer 37

A temporary or permanent impairment of the utility or salability of an improvement or property due to negative influences outside the property. (This is a form of depreciation and previously is often referred to as economic obsolescence.)

Question 38

Form 1004 (70)

Answer 38

Uniform Residential Appraisal Report

Question 39

Form 2055 (2055)

Answer 39

Exterior-Only Inspection Residential Appraisal Report

Question 40

Form 1073 (465)

Answer 40

Individual Condominium Unit Appraisal Report

Question 41

Form 1075 (466)

Answer 41

Exterior-Only Inspection Condominium Unit Appraisal Report

Question 42

Form 1025 (72)

Answer 42

Small Residential Income Property Appraisal Report

Question 43

Form 2000 (1032)

Answer 43

One-Unit Residential Appraisal Field Review Report

Question 44

Contract rent

Answer 44

The actual rent reflected in a lease.

Question 45

Market rent

Answer 45

The rent that a property commands in the current open market. It is often referred to as a property’s economic rent and/or street rent.

Question 46

Base year expense stops

Answer 46

A commercial lease clause that requires the lessee to annually pay his or her pro-rata share of the increases of a building’s specified operating costs, such as taxes and operating expenses.

Question 47

Common Area Maintenance (CAM/Operating Expense) contributions

Answer 47

A commercial lease clause that requires the lessee to pay his or her annual pro-rata share of the building’s common area maintenance costs, or CAM, that (unless treated separately) usually includes but is not limited to insurance, water and sewer, trash removal, common area electric (exterior building lighting, parking lot lighting and other), common area HVAC (if applicable), all maintenance, repairs, and building supply-type items, janitorial and supplies, maintenance staff payroll, payroll taxes and benefits, lawn care, landscaping, snow removal, advertising/brochures, and/or marketing.

Question 48

Direct Capitalization

Answer 48

A method used in the Income Capitalization Approach to convert a single year’s income expectancy into a value indication. Direct Capitalization, in which one year’s forecast income is converted to a value opinion through use of a capitalization rate.

Question 49

Yield Capitalization

Answer 49

A method used “to convert future benefits, typically a periodic income stream and reversion, into present value by discounting each future benefit at an appropriate yield rate or by applying an overall rate (extracted using one of the yield methods) that explicitly reflects the investment’s income pattern, value change, and yield rate.”

Question 50

Annual mortgage constant

Answer 50

An annual constant is a percentage rate or “factor” that is greater than the interest rate (because it includes and reflects the mortgage amortization) that is applied to the initial or current loan balance of a fixed interest rate mortgage to determine the annual debt service of a mortgage that features or requires fixed level debt service payments.

Question 51

Equity dividend

Answer 51

The portion of the Net Operating Income that remains after debt service is paid. Like annual Net Operating Income, a single year’s equity dividend may represent a steady stream of fixed income, the starting level of a changing income stream, or the equity income for a particular year of the analysis.

Question 52

(Equity) yield rate

Answer 52

A rate of return on capital, usually expressed as a compound annual percentage rate. A yield rate considers all expected property benefits, including the proceeds from sale at the termination of the investment” [i.e., it is the combined total of all of the annual net incomes as well as the reversion].

Question 53

Fixed expenses

Answer 53

A building’s “operating expenses that generally do not vary with occupancy and that prudent management will pay whether the property is occupied or not.”

Question 54

Variable expenses

Answer 54

A building’s “operating expenses that generally vary with the level of occupancy or the extent of services provided.”

Question 55

Interest rate swap

Answer 55

An interest rate “swap” is a binding financial contract wherein one party exchanges a stream of interest or cash flow payments for another’s stream of interest or cash flow payments. When utilized in an income property mortgage situation, the more appropriate term to use is “interest rate hedge.”

Question 56

Interest rate hedge

Answer 56

A binding financial contract usually purchased to effectively “fix” the interest rate of a floating interest rate mortgage.

Question 57

Three common methods used by appraisers to estimate depreciation are

Answer 57

Market Extraction method, Economic Age-Life method, and Breakdown method

Question 58

Three sources of depreciation are

Answer 58

Physical deterioration, Functional obsolescence, and External obsolescence

Question 59

Three methods of estimating direct costs

Answer 59

The Comparative-Unit Method, The Unit-in-Place Method, and The Quantity Survey Method. In your narration, you only need to explain which one of the three methods you used, what it is, and why you used it. Explaining the other two is of no benefit to the intended user.

Question 60

What is the recommended sequence of adjustments?

Answer 60

1. Real property rights conveyed, 2. Financing terms, 3. Conditions of sale, 4. Funds expended immediately after closing, 5. Market conditions, 6. Location, 7. Physical characteristics, 8. Economic Characteristics, 9. Use, 10. Non-realty components such as personal property

Question 61

What are the steps to develop the Sales Comparison Approach?

Answer 61

Step 1: Research the market for comparable sales, listings, etc. Step 2: Verify the information. Step 3: Select a unit of comparison. Step 4: Perform and provide a comparative analysis. Step 5: Adjust the comparables for differences (part of the comparative analysis). Step 6: Reconcile the adjusted data into an opinion of value.

Question 62

Quantitative

Answer 62

Specific numeric adjustments to the sale prices of the comparable sales, either positive or negative. Quantitative adjustments are often expressed as specific dollar amounts (-$25,000) or percentages (+25%).

Question 63

Qualitative

Answer 63

These are positive and negative adjustments, but they are not “quantified” by expressing them as percentages or dollar amounts. Qualitative adjustments are often simply expressed with the symbols “+” or “-“ or by using words such as “superior” or “inferior”.

Question 64

What is a Subordinated Lease?

Answer 64

A lender presented with a ground lease loan must first determine whether the ground lessor will “subordinate” its fee interest in the land to the lien of the lender’s mortgage. In a subordinated ground lease, the landowner offers the land as collateral for the developer’s mortgage, giving the landowner a significant stake in the development risk. The subordinated ground lessor is considered a secondary lender with junior rights set behind the primary lender, usually a bank or other financial institution. Another way to explain a subordinated ground lease is as follows: A subordinated ground lease is an agreement by the landowner to allow the tenant’s construction lender to have superior rights to the land. Put another way, the role of a lessor in a subordinated lease is analogous to holding a second trust deed vs. a first trust deed (the first trust deed holder would be the lender). Similar to a second trust deed holder, the risk to a holder of a second trust deed is significantly higher than the risk to a first trust deed holder. In the case of a subordinated lease, the risk is default on the mortgage, rather than default on the lease. This is a significantly riskier position for the lessor. The primary risk is if the lessee defaults on the mortgage loan on the improvements with a subordinated lease, where the improvements are inadequate to pay off the loan. In that circumstance, lessors can find themselves having to bid on a foreclosure sale to ensure ownership of the land that is collateral for the improvements loan. Consistent with that logic, overall cap rates on leased fee interests (the lessor’s interest) for properties with unsubordinated leases are typically lower than for properties with subordinated leases (for the same property type). The risk to the lessor is lower by being in the first position with an unsubordinated lease.

Question 65

Exterior wall “knock-out panels”

Answer 65

Occasionally, in addition to featuring a number of truck loading doors, a building will have pre-installed “knock-out” panels featured in its exterior walls. They can be easily “knocked out” to permit the installation of additional truck docks.

Question 66

Party Walls

Answer 66

Party walls are the “common” walls between apartment units. There are three main types: 1. Concrete block covered with drywall on either side. This type of party wall is typical for two- to three-story, garden style buildings. The block can run to just above the interior ceiling of the top floor unit. Also, it can run to the underside of the roof or can penetrate through the roof. The latter is considered to be the best because it minimizes the ability of a fire to spread from unit to unit. 2. Double-layered drywall over metal or wood stud that has a one-hour fire or “burn” rating: Occasionally the studs for this type of party wall are “staggered.” This provides better protection and minimizes sound penetration. 3.Drywall over lightweight concrete blocks, or double-layered drywall over studs with a one-hour fire rating: This type of party wall is typical in elevator-served buildings.

Question 67

Structural Insulated Panels (SIP)

Answer 67

Structural insulated panels (SIPs) are high performance building panels used in floors, walls, and roofs for residential and light commercial buildings. The panels are typically made by sandwiching a core of rigid foam plastic insulation between two structural skins of oriented strand board (OSB). Other skin material can be used for specific purposes. SIPs are manufactured under factory-controlled conditions and can be custom designed for each home. The result is a building system that is extremely strong, energy efficient, and cost effective.

Question 68

A conservation easement is defined as

Answer 68

An interest in real estate restricting future land use to preservation, conservation, wildlife habitat, or some combination of those uses. A conservation easement may permit farming, timber harvesting, or other uses of a rural nature as well as some types of conservation-oriented development to continue, subject to the easement.

Question 69

Transferable Development Rights (TDR’s) are defined as

Answer 69

A development right that cannot be used by the landowner, or that the owner chooses not to use, but can be conveyed to landowners in another location or leased for a period of years to then revert back to the original owner; TDRs are said to be transferred from a landowner in a sending district to the use of a landowner in a receiving district. As mentioned in the definition, the sale of development rights can be an effective tool in preserving agricultural land. Although there are variations among the states, transferable development rights are generally considered to be an interest in real property only as long as they are attached to the land. Once they are sold, they become personal property. Once they are transferred and attached to a second property, they would again gain status as a real property right. If you’re lucky enough to find adequate sales data, you could value a TDR through sales comparison analysis. Lacking market activity and market evidence, TDR’s may be valued by an income capitalization technique. You could capitalize the value added due to the acquisition of a TDR.

Question 70

Comparative Analysis

Answer 70

The process in which a value indication is derived in the Sales Comparison Approach. Comparative analysis may employ quantitative or qualitative techniques, either separately or in combination.

Question 71

Elements of Comparison

Answer 71

The characteristics or attributes of properties and transactions that cause the prices of real estate to vary; they include real property rights conveyed, financing terms, conditions of sale, expenditures made immediately after purchase, market conditions, location, physical characteristics, other characteristics such as economic characteristics, use and non-realty components of value.

Question 72

Sales Comparison Approach

Answer 72

The process of deriving a value indication for the subject property by comparing market information for similar properties with the property being appraised, identifying appropriate units of comparison, and making qualitative comparison with or quantitative adjustments to the sale price (or unit prices, as appropriate) of the comparable properties based on relevant, market–derived elements of comparison.

Question 73

Substitution

Answer 73

Applies to the Sales Comparison Approach on the premise that a knowledgeable purchaser would not pay more to acquire a property than the cost of acquiring a similar site and building with similar utility within a reasonable time period. Application of the principle is a comparative method which is exactly what the appraiser does in the Sales Comparison Approach - he or she makes comparisons.

Question 74

Supply and Demand

Answer 74

Should always be explained as applicable to the Sales Comparison Approach because an over-supplied or under-supplied market (in relation to demand) affects value.

Question 75

Balance

Answer 75

Always applicable to the Sales Comparison Approach because appraisers must investigate if the market’s supply and demand are in equilibrium (i.e., the number of properties matches the demand). They also consider balance to see if the subject property or any of the sale, listing, or pending sale properties are either an over-improvement or an under-improvement in relation to what can be placed on the land or in the building, and what improvements can be made.

Question 76

Highest and Best Use

Answer 76

Always applicable to the Sales Comparison Approach because the subject’s highest and best use guides the appraiser when researching a market for the sale of comparable properties that have the same or similar highest and best use.

Question 77

Externalities

Answer 77

Always applicable to the Sales Comparison Approach because the appraiser considers and analyzes the impact and effect of external influences on the value of the subject property and comparable properties. Examples of external influences are economic conditions, location differences, off-site amenity differences, real estate tax differences, and others. Be sure to cite and explain the applicable external influences and their impact.

Question 78

Condominium Ownership

Answer 78

If the property is owned in a condominium form, the site will be encumbered by the condominium documents. You should read them and describe the form of ownership.

Question 79

Air Rights

Answer 79

The right to undisturbed use and control of designated air space above a specific land area within stated elevations. Air rights may be acquired to construct a building above the land or building of another or to protect the light and air of an existing or proposed structure on an adjoining lot. Air rights do not always include development rights. While this is rare, the air rights above a property may be owned by others. Their existence is usually disclosed in a title report. If they exist, they usually limit the value of the subject in some way, which must be described and explained. Without owning air rights, you could never build a building atop your own land. Air rights are part of your bundle of rights and may be bought, sold or leased. For example, Madison Square Garden is built in air rights above Penn Station in Manhattan.

Question 80

Site Amenities

Answer 80

Many on-site amenities can exist, such as tennis courts, swimming pools, jogging and biking trails, and others. All of these enhance the overall quality of a site, and you should describe them in the report.

Question 81

Subsurface Rights

Answer 81

1.The rights to the use and profits of the underground portion of a designated property; usually refers to the right to extract coal, minerals, oil, gas, or other hydrocarbon substances as designated in the grant; may include a right of way over designated portions of the surface. 2. The right to construct and maintain tunnels, subways, subcellars, pipelines, sewers, etc.

Question 82

Estuary

Answer 82

An estuary is a partially enclosed body of water where saltwater from the sea mixes with freshwater from rivers, streams, and creeks.

Question 83

Wetlands

Answer 83

Wetlands are lands transitional between terrestrial and aquatic systems where the water table is usually at or near the surface or the land is covered by shallow water. For purposes of this classification wetlands must have one or more of the following three attributes: (1) at least periodically, the land supports predominantly hydrophytes; (2) the substrate is predominantly undrained hydric soil; and (3) the substrate is nonsoil and is saturated with water or covered by shallow water at some time during the growing season of the year.

Question 84

USPAP Standards Rules 1-5(a) and (b) state

Answer 84

When the value opinion to be developed is market value, an appraiser must, if such information is available to the appraiser in the normal course of business: (a) analyze all agreements of sale, options, or listings of the subject property current as of the effective date of the appraisal; and (b) analyze all sales of the subject property that occurred within the three (3) years prior to the effective date of the appraisal.

Question 85

Legally permissible

Answer 85

Explains what is permitted by current zoning, deed restrictions, and other land use restrictions. Any significant land use restrictions that would affect the property’s use need to be explained.If the subject is a legal non-conforming use, explain this as well. Provide a conclusion explaining what is legally permissible on the site.

Question 86

Physically possible

Answer 86

A description of the site’s ability to physically accommodate the existing or proposed improvements. Items discussed can include the availability of utilities, soil conditions, street access, and other factors. Provide a conclusion about what is physically possible; i.e., the existing or proposed use.

Question 87

Financially feasible

Answer 87

For an income producing property, this includes items such as market demand, rents, vacancies, operating expenses, the property’s ability to produce a positive net income, secure financing and, if necessary, securing equity funding. All these should be examined and explained. Provide a conclusion about the financial feasibility of the existing or proposed use.

Question 88

Maximally productive

Answer 88

The conclusion of what use, existing or proposed, is the maximally productive use, i.e., the usethat provides the greatest return on the investment in the property.

Question 89

Highest and Best Use

Answer 89

Highest and Best Use is the reasonably probable and legal use of vacant land or an improved property that is legally permissible, physically possible, appropriately supported, financially feasible and that results in the highest value. When you are performing a market value appraisal, and reporting it inan Appraisal Report, USPAP requires that when an opinion of highest and best usewas developed by the appraiser, state that opinion and summarize the support and rationale for that opinion. In a Restricted Appraisal Report, the appraiser’s highest and best use conclusion need only be stated.

Question 90

Hypothetical Condition

Answer 90

A hypothetical condition is an assumed condition defined as”a condition, directly related to a specific assignment, which is contrary to what is known by the appraiser toexist on the effective date of the assignment results,- but is used for the purpose of analysis.” Hypothetical conditions are contrary to known facts about physical, legal, or economic characteristics of the subject property; or about conditions external to the property, such as market conditions or trends; or about the integrity of data used in an analysis.

Question 91

Extraordinary Assumption

Answer 91

An Extraordinary Assumption is an assignment-specific assumption, as of the effective date, which, if found to be false, could alter the appraiser’s opinions orconclusions. Uncertaininformation might include physical, legal, or economic characteristics of the subject property; orconditions external to the property, such as market conditions or trends; or the integrity of data used in an analysis.

Question 92

What are the two “types” of appraisal reports USPAP specifically provides for?

Answer 92

They are an Appraisal Report and a Restricted Appraisal Report. Appraisal Report:includes a summary presentation of theinformation. Not all of the information in the appraiser’s workfile will appear inan Appraisal Report; for example certain supporting datamight remainin theworkfile,ready to be provided if necessary. Restricted Appraisal Report:This type of report contains even less information than an Appraisal Report. This report option is the least detailed. Much of the information in the reportcan be simply stated, as opposed to explaining it in summary form. Many industry participants think that the Restricted Appraisal Reporttakes the place of the former one- or two-page “letter(s) opinion of value” that was often provided by appraisers before the existence of USPAP. USPAP uses the terms “form,” “format,” or “style” to describe how the report is composed. For example, a form report, such as using the Fannie Mae Uniform Residential Appraisal Report (1004 form) in a residential appraisal or a narrative format. But when USPAP uses the term “type” in referencing and appraisal report is referring to the two options of Appraisal Report or Restricted Appraisal Report, which have to do with the level of detail in the report. Be sure to distinguish in your mind (and on the quizzes and final exam) between the appraisal “type” and the appraisal “form, or format.”

Question 93

STANDARD 2 of USPAP says

Answer 93

In reporting the results of a real property appraisal, an appraiser must communicate each analysis, opinion, and conclusion in a manner that is not misleading. STANDARD 2 addresses the content and level of information required in a report that communicates the results of a real property appraisal. STANDARD 2 does not dictate the form, format, or style of real property appraisal reports. The substantive content of a report determines compliance.

Question 94

The SCOPE OF WORK RULE states, in part

Answer 94

The report must contain sufficient information to allow intended users to understand the scope of work performed. The scope of work performed may be described in one section or throughout the report.

Question 95

Exposure Time and Marketing Time

Answer 95

Exposure Time is an opinion, based on supporting market data, of the length of time that the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal. Exposure time is an opinion developed by an appraiser, and it is required by USPAP when exposure time is a component of the definition of value being used. Exposure time is the appraiser’s opinion of the amount of time the property would have been on the market before the effective date. Exposure time is different than marketing time. Marketing time looks out into the future; it answers the question “If this property were put on the market today, how long would it take to sell it?” Unlike exposure time, an opinion of marketing time is not required by USPAP, although some clients may request it in certain assignments. Appraisers using Fannie Mae/Freddie Mac form reports will need to supplement the form with an exposure time opinion. There is no specific blank on the form which asks for exposure time; the appraiser may put this opinion anywhere on the form, or in an addendum.

Question 96

What does USPAP Standards Rule 2-2 (a) address?

Answer 96

Standards Rule 2-2 (a) addresses the content of an Appraisal Report.

Question 97

The steps in the appraisal process include

Answer 97

1. Identification of the problem; 2.Determination of the scope of work; 3.Collection and analysis of the data; 4.Determination of highest and best use; 5.Application of the approaches to value; 6.Reconciliation; 7.Reporting of the appraisal

Question 98

Scope of Work is defined in USPAP as

Answer 98

The type and extent of research and analyses in an appraisal or appraisal review assignment.

Question 99

The SCOPE OF WORK RULE in USPAP says

Answer 99

An appraiser must properly identify the problem to be solved in order to determine the appropriate scope of work. The appraiser must be prepared to demonstrate that the scope of work is sufficient to produce credible assignment results.

Question 100

What are the recoomended four different sections of an appraisal report?

Answer 100

1. Introduction; 2. Appraisal problem and scope of work; 3. Presentation of data; 4. Analysis and conclusion

Question 101

Standards Rule 1-2(e) states, in part

Answer 101

In developing a real property appraisal, an appraiser must: (e) identify the characteristics of the property that are relevant to the type and definition of value and intended use of the appraisal, including: (i) its location and physical, legal, and economic attributes; …

Question 102

Additionally, Standards Rule 2-2(a) states, in part

Answer 102

The content of an Appraisal Report must be consistent with the intended use of the appraisal and, at a minimum: (iii) summarize information sufficient to identify the real estate involved in the appraisal, including the physical, legal, and economic property characteristics relevant to the assignment;