Unit 16 Quiz Questions Flashcards
A property is listed for sale at $235,000. A buyer’s offer of $220,000 is rejected by the seller. Six months later, the seller reduces the price to $225,000. Another buyer offers $210,000, and the seller accepts because the seller has found another house to buy and needs to close quickly. The property is subsequently appraised at $215,000. Which of these figures MOST accurately represents the property’s market value?
a. $210,000
b. $215,000
c. $225,000
d. $235,000
$215,000
The property’s market price is $210,000, while its appraised value (and most probable market value) is $215,000. The seller accepted the lower price because of the pressure to close on the
new house.
Which appraisal approach would be BEST to appraise a 25-year-old owner-occupied house in a 30-year-old neighborhood?
a. Sales comparison
b. Income approach
c. Cost approach
d. GRM
Sales comparison
The most appropriate method to appraise an older home in an established neighborhood is the sales comparison approach.
When appraising a new home in which no one has ever lived, an appraiser will likely use the
a. sales comparison approach.
b. income approach.
c. cost approach.
d. GRM.
Cost approach
A newly constructed house may be appraised using the cost approach and omitting depreciation.
Assuming that all of the transactions are federally related, which of these properties would have to be appraised by a state licensed or certified appraiser?
a. Commercial property valued at $350,000
b. A condominium unit with a sale price of $167,850
c. Residential property valued at $262,500
d. Commercial property valued over $1 million in a refinance
Commercial property valued over $1 million in a refinance
Appraisals of residential property valued at $400,000or less and commercial property valued at $500,000 or less in federally related transactions need not be performed by licensed or
certified appraisers.
An appraiser’s role is to
a. set price.
b. average value.
c. determine value.
d. form an opinion of value.
From an opinion of value
An appraiser is an independent professional trained to provide an unbiased opinion of value based on recognized standards of appraisal practice.
The principle that maximum value is realized when land use is in harmony with surrounding standards is
a. contribution.
b. conformity.
c. highest and best use.
d. competition
Conformity
Contribution is the principle that evaluates the cost of adding an improvement against the value of the property as a whole. Competition is the interaction of supply and demand, while
highest and best use is the most profitable single use to which the property may be used.
With plans to build a large house in a neighborhood of smaller homes, a buyer purchases three neighboring lots from their three owners. What is the term for this activity?
a. Substitution
b. Plottage
c. Progression
d. Assemblage
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.
A small house in a highly desirable neighborhood consisting of large homes is purchased for $390,000. A nearly identical house in a neighborhood of similarly sized homes is purchased by
a different buyer for $290,000. What economic principle BEST describes the reason why one buyer paid more than the other?
a. Plottage
b. Substitution
c. Regression
d. Progression
Progression
The first buyer’s house benefits from being a smaller one alongside larger, more prestigious ones (i.e., progression). The second buyer’s house is appropriately valued for its neighborhood.
It cost approximately $350,000 to build a house and its various improvements on a parcel of property. If the property was vacant, undeveloped land, it would be worth about $80,000. As it currently exists, the structure’s physical deterioration equals about $60,000. If an appraiser were to apply the cost approach, what would be the value of this property?
a. $270,000
b. $370,000
c. $430,000
d. $480,000
$370,000
The cost approach subtracts depreciation from the current cost of improvements and then adds the value of the land as if it were vacant: $350,000 – $60,000 + $80,000 = $370,000.
If a property is found in Fannie Mae’s Collateral Underwriter (CU) database, it may qualify for a
a. preliminary appraisal approval.
b. property inspection waiver.
c. Desktop Underwriter appraisal.
d. licensed appraiser review.
Property Inspection Waiver
If a property appraisal has been included in Fannie Mae’s Collateral Underwriter database as part of an earlier transaction, and the same borrower is involved in a new transaction, a
property inspection waiver will be considered.
Air pollution from automobile traffic near a building with ornate exterior decoration has dissolved much of the intricate detail work. The cost of restoring the front of the building is roughly five times the building’s present value. These facts describe
a. curable external obsolescence.
b. incurable functional obsolescence.
c. incurable physical deterioration.
d. curable external deterioration.
Incurable physical deterioration
Air pollution has damaged the old design, and the cost of correcting the defect is not financially feasible. This is an example of incurable physical deterioration
The land on which a house was built is worth $50,000. The house was constructed in 1990 at a cost of $265,000 and was expected to last 50 years. None of the mechanical systems, roofing, or siding has been replaced in that time. Using the straight-line method, determine how much the house has depreciated by 2014.
a. $28,600
b. $96,600
c. $127,200
d. $145,200
$127,200
The value of the land is not relevant to this problem. The cost of the building is divided by the
number of years of its useful life and multiplied to determine the depreciation after 24 years:
$265,000 ÷ 50 = $5,300
$5,300 × 24 = $127,200.
Which of these reports would a sales associate MOST likely research and deliver to a prospective seller?
a. Comparative market analysis
b. Appraisal
c. Letter of intent
d. Cost benefit analysis
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 prospective seller’s home in location, style, and amenities. The CMA helps the owner set an appropriate asking price for the property.
What is the GRM for a residential duplex with a selling price of $234,000 if the monthly rent for each unit is $925?
a. l.054
b. 10.54
c. 126.5
d. 252.9
126.5
Because GRM for one-unit and two-unit residential properties is based on gross monthly rent, GRM = sales price ÷ gross rent: $234,000 ÷ (2 × $925) = 126.5 GRM.
Which of these approaches is given the greatest weight in reconciling the values resulting from different appraisal approaches for a two-bedroom, owner-occupied home?
a. Income approach
b. Sales comparison approach
c. Cost approach
d. Market value approach
Sales comparison approach
Most owner-occupied residences are best appraised by comparing them to similar properties—that is, by using the sales comparison approach
The characteristics of value include
a. demand, utility, scarcity, and transferability.
b. demand, utility, price, and transferability.
c. popularity, location, price, and transferability.
d. demand, scarcity, price, and popularity
demand, utility, scarcity, and transferability
Remember the acronym DUST
A house has been on the market for several months because most buyers do not want to walk through the primary bedroom to reach another bedroom. This floor plan is an example of
a. regression.
b. economic obsolescence.
c. functional obsolescence.
d. physical deterioration.
Functional Obsolescence
There is nothing physically wrong with the house, but the design is outdated (functionally obsolescent). Perhaps buyers would be more interested if the room adjacent to the primary
bedroom were marketed as a home office or walk-in closet.
A homeowner is considering installing a below-ground swimming pool, which may cost many thousands of dollars to build. The homeowner should consider the concept of
a. change.
b. competition with the neighbors.
c. conformity within the neighborhood.
d. contribution
Contribution
Before embarking on installing the pool, the owner should consider its overall contribution to the value of the property, especially for the neighborhood. Sometimes an improvement does not add value equal to its cost.
Which of these formulas is correct for the income approach?
a. Income x value = rate
b. Income x rate = value
c. Value x rate = income
d. Value ÷ rate = income
Value x Rate = income
As the capitalization rate goes down, the value increases.
A house is on the corner of a busy intersection. Two of the corners are occupied by gas stations, and directly across from the house is a fast food restaurant. The house’s owners have
been told that the property would be worth more if the lot were vacant. This is an example of
a. progression.
b. highest and best use.
c. regression.
d. conservation.
Highest and best use
Under the principle of highest and best use, the single most profitable use for this property is not residential; more likely, it would be better suited to another commercial use.