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Unit 16 Real Estate Appraisal > Unit 16 Exam > Flashcards

Unit 16 Exam Flashcards

1
Q

Match the following with the correct definitions. CMA, BPO, Appraisal.

A)
An opinion of value based on supportable evidence and approved methods

B)
Extensive report prepared by the real estate professional including information about the neighborhood and a listing of comparable properties. Often used by lenders for refinancing, short sales, and collections

C)
Report based on sales, current listings, and expired listings. Used to derive a likely listing price

A

CMA = D

BPO = B

Appraisal = A

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2
Q

The information used to perform an appraisal is divided into two basic classes: general data and specific data.

A

True

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3
Q

An appraisal is a conclusive statement of value based on the seller’s desired selling price.

A

False

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4
Q

Match the following with its definition. Scarcity, demand, utility, transferability.

A)
Need or desire for possession or ownership backed by the financial means to satisfy it

B)
A finite supply

C)
Property’s usefulness for its intended purpose

D)
Ease in which ownership can be conveyed

A 
Scarcity = B
Demand = A
Utility = C
Transferability = D
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5
Q

Maximum value is created when a property is in harmony with its surroundings under the principle of conformity.

A

True

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6
Q

According to the principle of change, value is created by the expectation that certain events will occur.

A

False

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7
Q

Match each Approach with the following correct definitions: Income, Market, Cost

A)
Depreciated reproduction cost

B)
Comparable properties used

C)
Replacement cost

D)
Based on investment potential

A

Income Approach = D
Market Approach = B
Cost Approach = A,C

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8
Q

The sales comparison approach is also called the market data approach.

A

True

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9
Q

An appraiser using the cost approach method estimates the current cost of constructing buildings and improvements on the land.

A

True

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10
Q

Value is created by the expectation that certain events will occur according to the principle of

A)
highest and best use.
B)
competition.
C)
anticipation.
D)
change.
A

Explanation

The answer is anticipation. The income approach to value is based on the principle of anticipation.

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11
Q

An appraiser who is estimating operating expenses is using what method of valuation?

A)
Gross rent multiplier
B)
Income
C)
Cost
D)
Sale comparison
A

Explanation
The answer is income. Appraisers using the income approach determine NOI (net operating income) by subtracting operating expenses from gross income.

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12
Q

The property being appraised is called

A)
the lot.
B)
the comparable property.
C)
the subject property.
D)
the parcel.
A

Explanation
The answer is the subject property. The subject property is the one being appraised. Comparable properties are properties similar to the subject property. Each comparable property is analyzed for differences and similarities between it and the subject property.

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13
Q

From the reproduction or replacement cost of a building, the appraiser deducts depreciation, which represents

A)
remodeling costs to increase rentals.
B)
costs to modernize the building.
C)
loss of value due to any reason.
D)
the remaining economic life of the building.
A

Explanation
The answer is loss of value due to any reason. Depreciation is loss of value from any reason. Some examples of such causes are physical deterioration (wearing out and/or deferred maintenance), external (economic) obsolescence, and functional obsolescence (lack of modernity or good design).

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14
Q

Which of the following BEST describes a capitalization rate?

A)
Rate of return an income property will produce
B)
Amount determined by the gross rent multiplier
C)
Rate at which the amount of property depreciation is measured
D)
Mathematical value determined by a sales price

A

Explanation
The answer is rate of return an income property will produce. In the income approach to appraisal, the capitalization rate is the relationship of the net annual income to the appraised value. Net annual income ÷ appraised value = capitalization rate.

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15
Q

The market value of a parcel of real estate is

A)
an estimate of the most probable price it should bring.
B)
its value without improvements.
C)
an estimate of its future benefits.
D)
the amount of money paid for the property.
A

Explanation
The answer is an estimate of the most probable price it should bring. An appraisal is the appraiser’s opinion of a property’s market value—the price a property would most probably bring.

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16
Q

Which of these concepts applies to every appraisal?

A)
Diminishing returns
B)
Plottage
C)
Highest and best use
D)
Assemblage
A

Explanation
The answer is highest and best use. The principal of highest and best use is the most profitable single use to which a property can be put, and is considered in every appraisal.

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17
Q

What principle of value states that if the increase in the value of the real estate is more than the cost to renovate, the sellers would financially benefit by doing the renovation?

A)
Consideration
B)
Contribution
C)
Cost
D)
Conformity
A

Explanation
The answer is contribution. The principle of contribution states that if the increase in the value of the real estate is likely to be more than the cost to renovate, the sellers would financially benefit by doing the renovation.

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18
Q

Appraisals are required for

A)
private loans over $600,000.
B)
FHA and all federally related loans.
C)
rural loans with seller financing.
D)
installment land contracts.
A

Explanation

The answer is FHA and all federally related loans. Appraisals are required for all federal loan programs.

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19
Q

Appraisers are expected to follow

A)
the Uniform Standards of Professional Appraisal Practice (USPAP).
B)
the directions of the client as to expectations of value.
C)
the directions of the real estate broker as to expectations of value.
D)
the directions of the mortgage lender as to expectations of value.

A

Explanation
The answer is the Uniform Standards of Professional Appraisal Practice (USPAP). Appraisers are expected to follow the Uniform Standards of Professional Appraisal Practice (USPAP) that are established by the Appraisal Standards Board of the Appraisal Foundation.

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20
Q

A business plans to build a large warehouse store in an area of smaller stores, so the business purchases five neighboring lots from their five owners. What is the term for this activity?

A)
Assemblage
B)
Plottage
C)
Progression
D)
Substitution
A

Explanation
The answer is assemblage. The process of merging separately owned lots under one owner is called assemblage. Plottage holds that merging these lots together into a single larger one may produce a greater total land value than the sum of the individual lots valued separately.

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21
Q

The appraised value of a residence with four bedrooms and one bathroom would probably be reduced because of

A)
external obsolescence.
B)
functional obsolescence.
C)
curable physical deterioration.
D)
incurable physical deterioration.
A

Explanation
The answer is functional obsolescence. Depending on the other homes in the marketplace, a home with four bedrooms and only one bathroom may be undesirable.

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22
Q

When appraisers use the expression “most probable price,” they are referring to a property’s

A)
supply and demand.
B)
market value.
C)
market price.
D)
progression.
A

Explanation
The answer is market value. Market value reflects what knowledgeable buyers are willing to pay and realistic sellers are willing to accept.

23
Q

If a home recently sold for $384,800 and its monthly rental income was $2,600, the GRM for the property would be

A)
142.
B)
158
C)
152.
D)
148.
A

Explanation
The answer is 148.
Sales price divided by monthly gross rent is the formula for the gross rent multiplier (GRM).

$384,800 ÷ $2,600 = 148

24
Q

The MOST probable price is market

A)
price.
B)
cost.
C)
value.
D)
income.
A

Explanation

The answer is value. Market value is defined as the most probable price that a willing buyer will pay.

25
Q

The cost approach to value is based on the principle of

A)
change.
B)
substitution.
C)
highest and best use.
D)
conformity.
A

Explanation
The answer is substitution. What would a reasonable person pay for a similar property with the same improvements and degree of depreciation?

26
Q

Which would be found in an appraisal but NOT in a CMA?

A)
Description of the subject’s amenities
B)
Adjustment of comparable sales
C)
Description of highest and best use
D)
Listing of current properties
A

Explanation

The answer is description of highest and best use. A CMA considers sales and asking prices of comparable properties.

27
Q

A two-unit apartment building is being appraised. In this neighborhood, the accepted gross rent multiplier is 144. The annual income generated by the building is $16,800 (both units rented). The monthly expenses are $300. Based on the income approach, what is the estimated market value of the apartment building?

A)
$224,800
B)
$232,500
C)
$201,600
D)
$258,600
A

Explanation
The answer is $201,600.

The monthly rental income is $1,400 ($16,800 ÷ 12 = $1,400).

Rental income × GRM = estimated market value:

$1,400 × 144 = $201,600.

The monthly expenses are not included in the calculation.

28
Q

The acronym BPO stands for

A)
buyer's property opinion.
B)
broker's price opinion.
C)
broker property opinion.
D)
buyer's price opinion.
A

Explanation
The answer is broker’s price opinion. This might be requested by a lender when an existing borrower has requested a refinancing or home equity line of credit.

29
Q

Which of these formulas is incorrect for the income approach?

A)
Value ÷ rate = income
B)
Income ÷ value = rate
C)
Income ÷ rate = value
D)
Value × rate = income
A

Explanation

The answer is value ÷ rate = income. As the capitalization rate goes down, the value increases.

30
Q

Which of the following is TRUE about a comparative market analysis?

A)
It is made by a professional appraiser.
B)
It is the same as an appraisal.
C)
None of these.
D)
It is based on a detailed market analysis of market conditions, property features, recent sales and listings, land value, and construction costs.
A

Explanation
The answer is none of these. A comparative market analysis is based on recently closed properties, those currently on the market, and expired listings. It is prepared by a real estate professional and is not as detailed as an appraisal performed by a licensed or certified appraiser.

31
Q

A property use that is physically possible, legally permitted, economically feasible, and maximally productive is

A)
the property's competitive use.
B)
anticipated use.
C)
nonconforming use.
D)
highest and best use.
A

Explanation
The answer is highest and best use. A property is at its highest and best use when its use is physically possible, legally permitted, economically or financially feasible, and its most profitable or maximally productive use.

32
Q

An appraisal used in connection with a federally related transaction must be performed by a competent individual whose professional conduct is subject to supervision and regulation by the state as mandated by

A)
the regulations established by the Department of Housing and Urban Development.
B)
the Fair Housing Act.
C)
the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA).
D)
the Equal Credit Opportunity Act (ECOA).
A

Explanation
The answer is the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA). Title XI of FIRREA defines a federally related transaction as any real estate-related financial transaction in which a federal financial institution or regulatory agency is engaged, subject to monetary limits.

33
Q

The owners of a modest ranch house in a neighborhood of larger, more expensive homes may find that the value of their home is affected by what principle?

A)
Progression
B)
Regression
C)
Increasing returns
D)
Competition
A

Explanation
The answer is progression. The value of modest homes in an area may increase with the presence of luxurious homes. This is an example of the principle of progression.

34
Q

The work of an appraiser should comply with

A)
the real estate licensing law.
B)
the NAR code of appraiser conduct.
C)
the Uniform Standards of Professional Appraisal Practice.
D)
the FIRREA state licensing criteria
A

Explanation
The answer is the Uniform Standards of Professional Appraisal Practice. USPAP was established and is continually reviewed by the Appraisal Standards Board of the Appraisal foundation.

35
Q

Which of these reports would a sales associate MOST likely research and deliver to a prospective seller?

A)
Appraisal
B)
Letter of intent
C)
Cost benefit analysis
D)
Comparative market analysis
A

Explanation
The answer is comparative market analysis. A real estate sales associate often prepares a comparative market analysis (CMA), a comparison of the prices of recently sold homes that are similar to a listing seller’s home in terms of location, style, and amenities. The CMA helps the owner set an appropriate asking price for the property.

36
Q

A very small home with a single-car garage is for sale in a neighborhood where all other homes are at least twice as large and have three-car garages. The value of this home is MOST likely to be affected by what principle?

A)
Assemblage
B)
Change
C)
Regression
D)
Progression
A

Explanation
The answer is progression. The value of smaller homes in a lavish neighborhood will be drawn up by the presence of larger, more lavish homes; progression is the opposite of regression.

37
Q

A successful assemblage of properties may increase the value of the combined parcel in a demonstration of the principle of

A)
supply and demand.
B)
plottage.
C)
competition.
D)
increasing and diminishing returns.
A

Explanation
The answer is plottage. The consolidation of adjacent lots into a single larger parcel to produce a greater total land value than the sum of the two sites valued separately is an example of plottage.

38
Q

Which of these is NOT an essential assumption in determining market value?

A)
The payment must be in cash or its equivalent.
B)
The property must be on the market for at least three months.
C)
The buyer and seller must be unrelated.
D)
The buyer and seller must be acting without excessive pressure.

A

Explanation
The answer is the property must be on the market for at least three months. Market value is the most probable price that a property should bring on the open market. The property must be on the market for a reasonable time, but no specific time period must be met.

39
Q

A broker’s price opinion (BPO) should not be confused with an appraisal, which consists of a more in-depth analysis of gathered information and

A)
is likely to require a licensed or certified appraiser.
B)
which requires more work by the broker.
C)
for which the broker charges more.
D)
which may be performed by the broker under the supervision of a licensed appraiser.
A

Explanation
The answer is is likely to require a licensed or certified appraiser. A BPO may be useful in certain situations, such as when a homeowner is requesting a refinance of an existing mortgage from the same lender.

40
Q

New roofing is an example of curing

A)
external obsolescence.
B)
physical deterioration.
C)
straight-line depreciation.
D)
functional obsolescence.
A

Explanation
The answer is physical deterioration. Replacing the roofing is an example of curing physical deterioration. External obsolescence is always incurable. Functional obsolescence is a loss in value from the market’s response to the item.

41
Q

The methodical collection and analysis of data is

A)
a mechanical function that can be performed by anyone.
B)
an appraisal task that can be accomplished by means of data collection software.
C)
of less importance to an appraisal than the licensing or certification of the appraiser.
D)
key to an accurate appraisal.

A

Explanation
The answer is key to an accurate appraisal. The appraisal process is an orderly set of procedures used to collect and analyze data to arrive at a justifiable conclusion of value.

42
Q

Which principle of value indicates that a developer’s very profitable real estate project will attract others to engage in similar activity in the same area and thus drive down profits?

A)
Value
B)
Competition
C)
Anticipation
D)
Progression
A

Explanation
The answer is competition. A successful project invites imitators (competitors) to do the same thing nearby. This drives profits down for a developer and costs down for a consumer-buyer.

43
Q

Which of these approaches is given the greatest weight in reconciling the appraised value of a two- bedroom, owner-occupied home?

A)
Income approach
B)
Market value approach
C)
Sales comparison approach
D)
Cost approach
A

Explanation
The answer is sales comparison approach. Most owner-occupied residences are best appraised by comparing them to similar properties—that is, by using the sales comparison approach.

44
Q

All of these reflect basic principles of value EXCEPT

A)
anticipation and conformity.
B)
competition and plottage.
C)
financing concessions.
D)
change.
A

Explanation
The answer is financing concessions. The basic principles of value include the concepts of anticipation, change, competition, conformity, contribution, highest and best use, increasing and diminishing returns, plottage, regression and progression, substitution, and supply and demand. Financing concessions do not reflect the basic principles of property value.

45
Q

All of the following can result in a loss of value resulting from depreciation EXCEPT

A)
outmoded design or layout.
B)
lack of maintenance of structures.
C)
a negative condition that affects real property.
D)
land value.
A

Explanation

The answer is land value. Land is not considered a depreciating asset.

46
Q

All of the following are characteristics that contribute to value EXCEPT

A)
transferability.
B)
obsolescence.
C)
scarcity.
D)
utility.
A

Explanation
The answer is obsolescence. To have value, there must be monetary worth. Obsolescence is not a desirable trait and therefore, is part of the lack of desirability of the property.

47
Q

The sellers are not sure whether to renovate the kitchen before selling their home. The principle of value that will determine whether the renovation is financially feasible is

A)
contribution.
B)
consideration.
C)
cost.
D)
conformity.
A

Explanation
The answer is contribution. The principle of contribution states that if the increase in the value of the real estate is more than the cost to renovate, the sellers would financially benefit by doing the renovation.

48
Q

Which appraisal method uses a rate of investment return?

A)
Gross income multiplier method
B)
Cost approach
C)
Sales comparison approach
D)
Income approach
A

Explanation
The answer is income approach. The income approach uses the rate of investment return, which is the relationship between the appraised value and the net annual income.

49
Q

An appraiser asked for an opinion of the value of an existing shopping center would probably give the MOST weight to which approach to value?

A)
Income approach
B)
Index method
C)
Sales comparison approach
D)
Cost approach
A

Explanation
The answer is income approach. The income approach is likely to be given the most weight in an analysis of income-producing property. Circumstances may dictate a different approach when, for instance, the property’s current use is no longer its highest and best use.

50
Q

The essential elements of value are

A)
demand, supply, utility, and transferability.
B)
transferability, demand, scarcity, and utility.
C)
title, demand, supply, and utility.
D)
desire, supply, usefulness, and title.
A

Explanation
The answer is transferability, demand, scarcity, and utility. Remember the memory aid DUST: demand, utility, scarcity, and transferability.

51
Q

There are two vacant adjacent lots in an area zoned for commercial use, each worth approximately $50,000. If their owner sells them as a single lot, however, the combined parcel will be worth $120,000. What principle does this illustrate?

A)
Progression
B)
Substitution
C)
Plottage
D)
Regression
A

Explanation
The answer is plottage. The principal of plottage is that additional market value can be obtained in some instances by combining, and selling as a single parcel, two or more contiguous (i.e., adjacent) properties. This value exceeds the combined total that the individual properties would bring if sold separately.

52
Q

At the risk of seeming boring or monotonous, properties will still be at their highest value if the neighborhood exhibits

A)
contribution
B)
conformity.
C)
anticipation.
D)
change.
A

Explanation

The answer is conformity. Maximum value is created when a property is in harmony with its surroundings.

53
Q

The work of an appraiser should comply with

A)
the Uniform Standards of Professional Appraisal Practice.
B)
the NAR code of appraiser conduct.
C)
the real estate licensing law.
D)
the FIRREA state licensing criteria
A

Explanation
The answer is the Uniform Standards of Professional Appraisal Practice. USPAP was established and is continually reviewed by the Appraisal Standards Board of the Appraisal foundation.

54
Q

The standards of appraisal practice are

A)
USPAP.
B)
ECOA.
C)
RESPA.
D)
FNMA.
A

Explanation
The answer is USPAP. USPAP (Uniform Standards of Professional Appraisal Practice) is promulgated by the Appraisal Foundation and revised every two years.

Unit 16 Real Estate Appraisal (1 decks)

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