Unit 5 Property Valuation Flashcards
Which approach should be used to appraise a 12 year old single family home in a residential neighborhood
A. Sales comparison approach
B. Cost approach
C. Income approach
D. Gross rent multiplier
A
The sales comparison approach is the most important approach for the appraisals single family residences
A property that has a net operating income of $18,000 and a value of $200,000 would have a rate of return (capitalization rate) of
A. 6%
B. 8%
C. 9%
D. 10%
C
The net operating income ($18,000) divided by the value ($200,000) equals a rate of return of .09 or 9%
R=I divided by V
Which appraisal method considers the cost to build a replacement for the improvements?
A. Income approach
B. Market data approach
C. Cost approach
D. Gross rent adjustment
C
The cost approach estimates the replacement cost, subtracts depreciation from all sources, and adds the value of the land to arrive at an estimate of value
A five bedroom home with one bath is an example of
A. Functional obsolescence
B. Physical deterioration
C. Economic obsolescence
D. Gross rent adjustment
A
Inadequate design or equipment is functional obsolescence
All of these are examples of obsolescence EXCEPT
A. Neighborhood decline
B. An impractical floor plan
C. A two-story home with one bathroom located in the basement
D. A leaky roof
A leaky roof is an example of physical deterioration (not functional or economic obsolescence)
Reproduction cost is defined as
A. The current cost to rebuild with the same highly similar materials
B. Replacing an improvement with another that has the same utility
C. The cost determined by capitalization rate and value
D. None of these
A
Reproduction cost is the cost of building replica
An appraiser would MOST likely rely on the cost approach when appraising a
A. Single-family home
B. Duplex
C. Church
D. Town house
C.
The cost approach is used most often for unique or special purpose properties (eg-churches and schools
Income capitalization is MOST likely to be associated with the appraisal of
A. A condominium project
B. A single-family home
C. An apartment building
D. A town house
C
Income capitalization (the income approach to value) is used to appraise income-producing properties (office buildings, shopping centers, and apartment buildings)
In the market data approach, adjustments to the comparable would be made for all of these EXCEPT
A. Number of baths
B. Square footage
C. Time of Sale
D. Capitalization
D- the appraiser does not consider the cost of the property
Capitalization
The purpose of capitalization is to estimate
A. Present value based on current or expected outcome
B. Future value based on current gross income
C. Present value by multiplying net income by rent multiplier
D. Operating expenses based on the highest and best use
A
Capitalization is the process by which present value is estimated based on expected income
Which principle of value underlies all three approaches to value?
A. Change
B. Substitution
C. Regression
D. Aggression
B.
The principle of substitution states that buyers would not pay more for a property than they would have to pay to acquire a similar substitute property
A building valued at $195,000 has a gross income of $27,000 and expenses of 45%. What is it’s cap rate?
A. 6.2%
B. 7.6%
C. 13.8%
D. 45%
27,000 (gross income) x 45% or 0.45 (expenses) = $12,150 expenses
Gross income-expenses=net income
$27,000-$12,150=$14,850
Net income (divided by) property value = cap rate
$14,850 (divided by) $195,000= 0.076 or 7.6% cap rate
While writing an appraisal report based on the cost approach, an appraiser referred to “replacement cost new.” This is the present cost of replacing the subject improvements with another that
A. Has the same function and utility
B. Uses the same or highly similar materials
C. Was built on similar lot
D. Was built in the same year as the subject property
A
Replacement cost new is the present cost of replacing the subject improvement with another having the same function and utility, using current construction standards and costs
A salesperson has done a BPO for a bank. The salesperson must make sure that the bank understands that
A. The opinion is not an appraisal
B. Because the salesperson cannot be paid for the opinion the bank is obligated to list the property with the salesperson.
C. The opinion is comparable in scope to an appraisal.
D. The opinion is equal to an appraisal and the salesperson will be paid the same as an appraiser
A
A salesperson completing a BPO may be paid but must make sure the receiver (in this case, the bank) knows the opinion is not an appraisal.
A broker performed a competitive market analysis and determined that the comparable homes are in better overall condition than the sellers property what adjustments should be made?
A. The sales prices of the comparables should be adjusted upward
B. The sales price of the subject should be adjusted upward
C. The sales prices of the comparables should be adjusted downward
D. The listing price of the subject should be assessed value
C
The sales prices of the comparables should be adjusted downward
Adjustments are always made to the comparables. If the comparable is superior to the subject, the sales price of the comparable is adjusted downward
