UNIT 17

Question 1

The income approach to value would be MOST important in the appraisal of

a. a condominium.
b. an office building.
c. a single-family residence.
d. a vacant residential lot.

Answer 1

b. an office building.

Question 2

Which of the following is generally considered to be an incurable form of depreciation?

a. Physical deterioration
b. Functional obsolescence
c. Economic obsolescence
d. Interior obsolescence

Answer 2

c. Economic obsolescence

Question 3

All of the following are characteristics of value EXCEPT

a. scarcity.
b. transferability.
c. obsolescence.
d. utility.

Answer 3

c. obsolescence.

Question 4

Economic obsolescence might result from

a. deferred maintenance on the property.
b. factors outside of the property.
c. antiquated, out-of-date equipment.
d. poor design of the improvement.

Answer 4

b. factors outside of the property.

Question 5

An appraiser is MOST commonly asked to

a. create property value.
b. compute tax value.
c. determine actual value.
d. estimate market value.

Answer 5

d. estimate market value.

Question 6

The term depreciation refers to the

a. value of real estate after the expiration of its useful life.
b. loss of value in real estate from any cause.
c. costs incurred in renovating or modernizing a building.
d. capitalized value of lost rental income.

Answer 6

b. loss of value in real estate from any cause.

Question 7

When appraising real estate, the first consideration of the appraiser should be the

a. asking price of the property.
b. highest and best use of the property.
c. original cost of the property.
d. selling prices of similar properties.

Answer 7

b. highest and best use of the property.

Question 8

Which of the following has the greatest effect on real property values?

a. Tax rates
b. Location
c. Availability
d. Indestructibility

Answer 8

b. Location

Question 9

It is necessary to calculate a dollar value for depreciation when using which of the
following?
a. The sales comparison approach to value
b. The cost approach to value
c. The income approach to value
d. Gross rent multipliers

Answer 9

b. The cost approach to value

Question 10

An appraiser employs the income approach to make use of

a. equalization.
b. depreciation.
c. appreciation.
d. capitalization.

Answer 10

d. capitalization.

Question 11

In the valuation of a large apartment complex, the MOST weight would probably be
given to which of the following approaches to value?
a. The cost approach
b. The income approach
c. The sales comparison approach
d. The gross rent multiplier method

Answer 11

b. The income approach

Question 12

In the cost approach to value, the appraiser makes use of the

a. owner’s original cost of the building.
b. estimated replacement cost of the building.
c. sales prices of similar buildings in the area.
d. assessed value of the building.

Answer 12

b. estimated replacement cost of the building.

Question 13

The sales comparison approach to value would be MOST important when estimating the
value of
a. a resale residence.
b. an apartment building.
c. a retail location.
d. a new residence.

Answer 13

a. a resale residence.

Question 14

In the income approach, the appraiser makes use of

a. reproduction cost.
b. capitalization rate.
c. depreciation schedules.
d. replacement cost.

Answer 14

b. capitalization rate.

Question 15

When using the sales comparison approach to value, an appraiser might consider all of
the following highly similar properties to be legitimate comparables EXCEPT
a. a home that was sold between six and twelve months ago.
b. a home that was sold recently but is located in a similar nearby neighborhood.
c. a home that was sold by the owners who were undergoing a foreclosure.
d. a home that was sold recently but is located on a much larger lot.

Answer 15

c. a home that was sold by the owners who were undergoing a foreclosure.

Question 16

Using which of the following approaches would require the value of the land to be
calculated separately from the value of the improvements?
a. The income approach
b. The cost approach
c. The sales comparison approach
d. The gross rent multiplier method

Answer 16

b. The cost approach

Question 17

Reconciliation is BEST described as

a. selecting the highest value given by the three approaches to value.
b. comparing comparable properties and identifying their amenities.
c. determining the final value by selecting one value from those given.
d. analyzing the results obtained from the three approaches to value.

Answer 17

d. analyzing the results obtained from the three approaches to value.

Question 18

A building is valued at $215,000 and contains four apartments that rent for $470 each per

month. The owner estimates that the net operating income is 65% of the gross rental
receipts. What is the capitalization rate?
a. 3.7%
b. 6.8%
c. 10.5%
d. 14.2%

Answer 18

b. 6.8%

$470 × 4 = $1,880 mo. rent × 12 mo.
= $22,560 PGI × 0.65= $14,664 NOI
÷ $215,000 value = 0.0682 = 6.8%

Question 19

The steps in the appraisal process include all of the following EXCEPT

a. gathering specific data on the subject property.
b. gathering general data for the area of the subject property.
c. considering the seller’s estimate of the property’s value.
d. applying the three approaches to value to the collected data.

Answer 19

c. considering the seller’s estimate of the property’s value.

Question 20

The gross rent multiplier is used as a guideline for estimating value based on the

a. ratio of the gross rents to the net rents after expenses.
b. proportion of rents due to the actual rents collected.
c. capitalization of the annual gross rental income.
d. relationship of the sales prices to the gross rental income.

Answer 20

d. relationship of the sales prices to the gross rental income.

Question 21

Defined as a loss in value from any cause, depreciation is generally divided into three

categories. The loss of value due to the normal wear and tear on a property is called
a. external depreciation.
b. physical depreciation.
c. functional obsolescence.
d. economic deterioration.

Answer 21

b. physical depreciation.

Question 22

To find the value of a property using the income approach to value, if the net operating
income and the capitalization rate were known, the appraiser would
a. multiply the net operating income by the capitalization rate.
b. multiply the effective gross income by the capitalization rate.
c. divide the net operating income by the capitalization rate.
d. divide the capitalization rate by the net operating income.

Answer 22

c. divide the net operating income by the capitalization rate.

Question 23

An appraiser’s estimate of the market value of a parcel of vacant land will likely include
reference to all of the following EXCEPT
a. the highest and best use of the parcel.
b. the listed price of the parcel.
c. the most probable price the parcel will bring.
d. the physical dimensions of the parcel.

Answer 23

b. the listed price of the parcel.

Question 24

When appraising a commercial property, the appraiser is MOST concerned with the:

a. accrued depreciation on the property.
b. income generated by the property.
c. sales prices of comparable properties.
d. total debt service on the property.

Answer 24

b. income generated by the property.

Question 25

The basic premise of the income approach to value is based upon the theory of
capitalization, which is based upon
a. actual gross income.
b. effective gross income.
c. net operating income.
d. before tax cash flow.

Answer 25

c. net operating income.

Question 26

The period of time over which an improvement to the property will contribute to its value
is known as its
a. amortized life.
b. chronological life.
c. actual life.
d. economic life.

Answer 26

d. economic life.

Question 27

Which of the following would be considered specific data in an appraisal report?

a. The dimensions of the subject property
b. The employment opportunities in the area
c. The sales data for comparable properties
d. The gross rent multipliers for the area

Answer 27

a. The dimensions of the subject property

Question 28

In estimating the value of real estate via the cost approach, an appraiser should
a. estimate the replacement cost of the building.
b. deduct an amount for the total depreciation of the land and the improvements
thereon.
c. subtract the value of the land that was determined by the sales comparison
approach.
d. use the quantity survey method to estimate the replacement value of a typical
residence in a typical subdivision.

Answer 28

a. estimate the replacement cost of the building.

Question 29

The market price of real estate is generally the same as the

a. sales price.
b. market value.
c. highest and best use.
d. assessed value.

Answer 29

a. sales price.

Question 30

Reconciliation is an appraisal term used to describe the

a. appraiser’s determination of a property’s highest value.
b. average of real estate values for properties similar to the subject property.
c. appraiser’s analysis of the results of each appraisal approach.
d. method used to determine the most appropriate cap rate for a property.

Answer 30

c. appraiser’s analysis of the results of each appraisal approach.