Valuing Real Property

Question 1

Can a Real Estate agent appraise a property as part of their duties?

Answer 1

Only a state-certified appraiser can complete an appraisal.

Question 2

What is a Comparative Market Analysis?

Answer 2

A Comparative Market Analysis (CMA) is a valuation tool used by brokers to determine the current value of a property or, how much a buyer should pay for the property.

Question 3

How does a CMA differ from an appraisal?

Answer 3

1. The broker’s market analysis gives a range of prices rather than a specific value to real property.
2. A Comparative Market Analysis does not meet lender specifications regarding the financing of a property

Question 4

The characteristics of value create the acronym of DUSTS. What are these characteristics?

Answer 4

Demand
Utility
Scarcity
Transferability
Situs.

Question 5

What are the seven steps in the appraisal process?

Answer 5

1. State the problem.
2. Gather, record and verify the data.
3. Analyze and interpret the data.
4. Estimate the land value.
5. Estimate the value of the property.
6. Reconcile estimated values.
7. Make a final report.

Question 6

What are the three approaches used to determine value?

Answer 6

1. Sales Comparison Approach
2. Cost-Depreciation Approach
3. Income Approach.

Question 7

What are the five components of Real Propety in the State of Florida?

Answer 7

1. Subsurface rights
2. Water rights
3. Natural rights
4. Air rights
5. Fructus Naturales.

Question 8

What is the test for determining if an item is a fixture?

Answer 8

M - Method of Annexation
A - Adaptability
I - Intent of the parties
D - Damage

Question 9

What is a Paired Sales Analysis used for?

Answer 9

A Paired Sales Analysis is used to compare a subject property with comparable sold properties.

Question 10

In a paired sales analysis, if the subject property is better than a comparable property, how would this be reconciled?

Answer 10

If the subject property is better, add the appropriate value to the comparable. (SBA)

Question 11

In a paired sales analysis, if a comparable property is better than the subject property, how would this be reconciled?

Answer 11

If the comparable property is better, subtract the appropriate value from the comparable. (CBS)

Question 12

When is the cost approach used?

Answer 12

The cost approach is primarily used for those buildings with difficult to determine values while taking depreciation into account.

Question 13

In which appraisal approach does the appraiser estimates the land independent from the building; determine either replacement or reproduction cost of the building; deduct all accrued depreciation and add the estimated value of the land to the value of the depreciated building to get market value.

Answer 13

The cost approach.

Question 14

Which appraisal approach divides Net Operating Income by Capitalization Rate to get value?

Answer 14

The income approach

Question 15

What three categories of comparables should be used when doing a CMA?

Answer 15

Currently on the market
Recent (6 - 12 months) sales
Recent expireds or taken off market

Question 16

What three steps are used to determine market price and list price from adjusted comparable sales?

Answer 16

1. Find the probable sales price or range of value. For example, $154,000 - $162,000.
2. Decide on a market price with the seller.
3. Determine a list price that is slightly higher than the desired sales price (depending on the ratio of list price to sale price). For example, if the MLS comparables tell the broker that a property sells at 97% of list price, the broker will know the asking price should be approximately 3% greater than the intended sale price.

Question 17

The term “going concern” means:

Answer 17

An existing business that is for sale.

Question 18

Of these four, which of the following is the LEAST reliable in projecting value of a business?
The Sales Comparison Approach.
The Cost Depreciation Approach.
The Income Capitalization Approach.
The Liquidation Value Approach.

Answer 18

The Cost Depreciation Approach.

Question 19

Business intangibles differ from personal intangibles in what way?

Answer 19

A business intangible reflects integrity of a business where a personal intangible reflects the integrity of the current owner.

Question 20

Which ratio is determined by dividing the company’s liabilities by its value and the higher the ratio, the greater the risk is?

Answer 20

Debt-to-worth ratio.

Question 21

A broker who seeks to be involved in business brokerage must have all of the following EXCEPT which of these four competencies?:
Knowledge of corporate financing.
Knowledge of business accounting.
Knowledge of the valuation of business.
Knowledge of personnel laws for business.

Answer 21

Knowledge of personnel laws for business.

Question 22

The first step in the appraisal process is:

Answer 22

State the problem.

Question 23

What is Pro Forma?

Answer 23

It is a projection of income in the future and should be labeled as such.