Chapter 16

Front 1

What type of value does an appraiser most commonly estimate?

(a) Book

(b) Market

(c) Insurable

(d) Condemnation

Back 1

(b) Market

Front 2

How is investment value best defined?

(a) The value to an individual

(b) The highest price a property would sell for in an open market

(c) The value based on the use of the property

(d) The minimum value of a business opportunity

Back 2

(a) The value to an individual

Front 3

Which of the following conditions is necessary for the sales price of a property to equal its market value?

(a) The parties cannot be dealing with a self-interest.

(b) The property would have to be exposed to the market for an unreasonably short time.

(c) There can be no existing liens against the title.

(d) The transaction must involve a willing and informed buyer and seller.

Back 3

(d) The transaction must involve a willing and informed buyer and seller.

Front 4

What is market value?

(a) The amount a buyer is willing to pay.

(b) Tha amount a seller is willing to accept

(c) The amount that should be paid.

(d) The amount that was previously paid.

Back 4

(c) The amount that should be paid.

Front 5

How is a gross rent multiplier calculated?

(a) Multiply comparable property sales price by comparable property rent.

(b) Divide comparable property sales price by comparable property rent.

(c) Multiply comparable property sales price by subject property rent.

(d) Divide comparable property sales price by subject property rent.

Back 5

(b) Divide comparable property sales price by comparable property rent.

Front 6

Functional obsolescence includes which of the following?

(a) An over improvement

(b) Broken windows

(c) A waste water treatment plant next to the subject property

(d) A property located in the glide path to an airport

Back 6

(a) An over improvement

Front 7

Which appraisal approach would be given greater weight when appraising an apartment complex?

(a) Cost-depreciation

(b) Income approach

(c) Comparable sales

(d) Land residual

Back 7

(b) Income approach

Front 8

Which appraisal approach is most suitable for estimating the value of a single-family property?

(a) Cost-depreciation

(b) Sales comparison

(c) Income approach

(d) Land residual

Back 8

(b) Sales comparison

Front 9

What is the basis for the principle of substitution?

(a) An informed buyer will pay no more for a property than the cost of acquiring another equally desirable property with the same or equal utility.

(b) Properties will typically hold their value when properties in a neighborhood tend to be similar and conform to common standards.

(c) Although a property may have multiple potential uses, one will be the highest and best use. (

d) Smaller properties in a neighborhood of large properties will tend to increase in value, while larger properties in an area of smaller properties will tend to decrease in value over time.

Back 9

(a) An informed buyer will pay no more for a property than the cost of acquiring another equally desirable property with the same or equal utility.

Front 10

All of the following methods may be used to estimate replacement/reproduction cost, EXCEPT:

(a) Quantity survey

(b) Economic age-life

(c) Unit-in-place

(d) Comparative unit

Back 10

(b) Economic age-life

Front 11

What estimate is a result of income divided by a capitalization rate?

(a) Market value

(b) The effective gross income

(c) Reproduction cost

(d) The amount of accrued depreciation

Back 11

(a) Market value

Front 12

If income remains constant and the capitalization rate is reduced, what is the effect on value?

(a) Insufficient information is provided to determine the effect.

(b) The value decreases.

(c) The value increases.

(d) There is no effect on the value.

Back 12

(c) The value increases.

Front 13

A new airport built in proximity to a residential neighborhood may cause properties to lose value due to which of the following?

(a) Physical deterioration

(b) External obsolescence

(c) Functional obsolescence

(d) Proximity obsolescence

Back 13

(b) External obsolescence

Front 14

n the income approach, a capitalization rate can be derived from which of the following?

(a) Tables published nationally by appraisal organizations

(b) Rate schedules maintained by lending institutions

(c) The interest rate paid on Treasury bills

(d) The relationship between sale prices and income of similar properties

Back 14

(d) The relationship between sale prices and income of similar properties

Front 15

When making adjustments based on the following information, what should be done with the $2,000?

Comparable sales price... $40,000

Comparable property.........Two-car garage

Subject property................No garage

Garage value....................$2,000

(a) It should be added to the price of the comparable property.

(b) It should be added to the price of the subject property.

(c) It should be subtracted from the price of the subject property.

(d) It should be subtracted from the price of the comparable property.

Back 15

(d) It should be subtracted from the price of the comparable property.

Front 16

An appraiser is appraising a three-bedroom home that has only one bathroom. The standard for the neighborhood is two bathrooms. From an analysis of the market, the appraiser believes a bathroom contributes $4,000 to the value of a home. If a comparable property having three bedrooms and two baths recently sold for $126,000, and is similar in all other respects to the subject property, what value should be estimated for the subject property?

(a) $118,000

(b) $122,000

(c) $126,000

(d) $130,000

Back 16

(b) $122,000

Front 17

A residence has a living area measuring 42 ft by 38 ft and a garage that measures 24 ft by 22 ft. An appraiser feels that today's cost to reproduce the living area would be $63.00 per square foot and to reproduce the garage would be $19.00 per square foot. The home, which is 5 years old, is estimated to have a useful life of 50 years. Based on this information, what is the depreciated cost of the property? Hint: Start by calculating the current reproduction cost of the property.

(a) $11,058

(b) $99,522

(c) $110,580

(d) $121,638

Back 17

(b) $99,522

Front 18

If net operating income is $4,000 and the capitalization rate is 16%, what is the value of the investment property?

(a) $21,000

(b) $24,360

(c) $25,000

(d) $64,000

Back 18

(c) $25,000

Front 19

An investment property has a value of $300,000. If the capitalization rate is 12%, what is the net operating income?

(a) $36,000

(b) $250,000

(c) $264,000

(d) $300,000

Back 19

(a) $36,000

Front 20

What is the capitalization rate of an investment property that has a value of $450,000 and income of $56,250?

(a) 8%

(b) 12%

(c) 12.50%

(d) 87.50%

Back 20

(c) 12.50%

Front 21

The monthly rent of a residence that recently sold for $91,800 is $850. What is the monthly gross rent multiplier?

(a) 0.09

(b) 9

(c) 10.8

(d) 108

Back 21

(d) 108

Front 22

A warehouse sold for $740,000. If market evidence indicates an annual gross income multiplier (GIM) of 8 is appropriate, how much income should be produced?

(a) $1,081.50

(b) $59,200.00

c) $80,937.50

(d) $92,500.00

Back 22

(d) $92,500.00

Front 23

As used by an appraiser, what does the term "price" refer to?

(a) The asking price in the listing contract

(b) The amount of money paid by a buyer to a seller in a transaction

(c) The market value

(d) The total cost of land, labor, and materials

Back 23

(b) The amount of money paid by a buyer to a seller in a transaction

Front 24

Complete the statement. Highest and best use of a property is the single use that produces the greatest return on:

(a) similar properties.

(b) neighboring properties.

(c) properties of similar use.

(d) the land and any improvements to it.

Back 24

(d) the land and any improvements to it.

Front 25

If an owner built a 6 bedroom house in an area surrounded by two bedroom houses, this would be considered an overimprovement. For appraisal purposes, what would an over improvement create?

(a) Physical deterioration

(b) Functional obsolescence

(c) External obsolescence

(d) Excess depreciation

Back 25

(b) Functional obsolescence

Front 26

. A residence recently sold for $300,000 that was rented for $2,850 per month. What is the monthly gross rent multiplier?

(a) 87

(b) 88

(c) 95

(d) 105

Back 26

(d) 105

Front 27

An appraiser has selected a comparable sale for inclusion in an appraisal that recently sold for $95,000. The comparable has 3 bedrooms, 2 baths and a pool. The subject has 4 bedrooms, 2 baths and no pool. Analysis by the appraiser indicates a bedroom is worth $10,000 and a pool is worth $7,500. What is the adjusted sales price of the comparable property?

(a) $77,500

(b) $92,500

(c) $97,500

(d) $112,500

Back 27

(c) $97,500

Front 28

Which approach to value is typically used to estimate the value of special purpose properties?

(a) Comparable Sales or Sales Comparison approach

(b) Income Capitalization approach

(c) Gross Income Multiplier Approach

(d) Cost Depreciation Approach

Back 28

(d) Cost Depreciation Approach

Front 29

A homeowner visited a resort which contained a beautiful pool with caves and a lazy river. The homeowner then spent $100,000 to create a similar setting in their own yard. When the property was appraised for financing purposes, the appraiser only allocated $10,000 for the pool. What is this an example of?

(a) An un-informed appraiser

(b) Straight line depreciation

(c) Accelerated depreciation

(d) An over improvement

Back 29

(d) An over improvement

Front 30

A comparable property recently sold for $575,000, with a golf course view. The subject property is similar in all other respects, but has no golf course view. In this area a golf course view is estimated to add $15,000 to the value of a property. Which would be the correct adjustment?

(a) Increase the adjusted selling price of the subject property to $590,000.

(b) Decrease the adjusted selling price of the subject property to $560,000.

(c) Increase the adjusted selling price of the comparable to $590,000.

(d) Decrease the adjusted selling price of the comparable to $560,000.

Back 30

(d) Decrease the adjusted selling price of the comparable to $560,000.

Front 31

What will happen to the value of a property if the capitalization rate remains the same, but the net operating income is reduced?

(a) The value will increase.

(b) The value will decrease.

(c) There will be no change in the value.

(d) The value cannot be determined without knowing the dollar amount of the operating expenses.

Back 31

(b) The value will decrease.

Front 32

The various approaches to estimating value are based upon which of the following principles?

(a) Alignment

(b) Retribution

(c) Substitution

(d) Capital Investment

Back 32

(c) Substitution

Front 33

For the purposes of calculating net operating income, which of the following would be considered an operating expense?

(a) Mortgage payment

(b) Mortgage principal payments

(c) Water bill

(d) Capitalization rate

Back 33

(c) Water bill

Front 34

Calculate the reproduction cost of the following property using the Cost/Depreciation Approach to Value: the lot measures 100' x 100', and land in the area sells for $40 per square foot. The structure measures 50' x 90' and construction costs in the area are estimated to be $90 per square foot. The building is 10 years old and has a useful life of 50 years.

(a) $900,000

(b) $405,000

(c) $400,000

(d) $180,000

Back 34

(b) $405,000

Front 35

An investment property has three units which rent for $1,200 per month, per unit. The vacancy and collection losses are 5%. Property taxes are $5,000, insurance is $5,000, and all other expenses are $10,000. Reserve for replacements is $2,000. Using a cap rate of 6%, estimate the value of the property. Round your final answer to the nearest thousand.

(a) $41,000

(b) $43,000

(c) $317,000

(d) $397,000

Back 35

(c) $317,000

Front 36

What are the characteristics of value in an appraisal?

Back 36

D emand

U tility

S carcity

T ransferability

Front 37

Appraisal Costdefinition:

Back 37

actual or estimated amount required to create, produce, or obtain a property

Front 38

Appraisal Pricedefinition:

Back 38

amount that is actually paid in a real estate transaction

Front 39

Appraisal Value definition:

Back 39

an opinion of the worth of a property at a given time in accordance with a specific definition of value

Front 40

What is the liquidation value?

Back 40

amount that remains after all assets of a business have been sold in a hurried, but not forced, sale and all liabilities have been paid. (value of failing business)

Front 41

What is the market value?

Back 41

Market value is the value to a typical buyer and a typical seller. This is the MOST COMMON type of value that is estimated by appraisers.

Front 42

Increase in value resulting from an assemblage, or combining, of two or more adjacent parcels of land under one owner is called____________________

Back 42

PLOTTAGE VALUE

Front 43

What is the principle of highest and best use?

Back 43

State that the best use for the property, known as its highest, best and most profitable use, s that which will most likely produce the greatest net return to the lander over a given period of time

Front 44

Principle of substitution:

Back 44

when a higher priced property is constructed or an existing property is over-improved in an area that consists of lower-priced properties

EX: house is worth 95k and buyers in the market can obtain a substitute property with eh same features and utilities for 90k, therefore sellers property has value of apprx 90K, no 95K

Front 45

What are the three approaches to value during an appraisal?

Back 45

Sales comparison approach **

cost-depreciation approach

income approcah

Front 46

What is the sales-comparison approach

Back 46

also refereed to as the comparable sales approach it is used to estimate the value indicated by the recent sales of comparable properties in the market

Front 47

replacement cost approach for appraisal(CD APPROACH)

Back 47

estimated cost at current prices to construct a comparable building with equal utility to the subject building by using modern materials, design, and features.

Front 48

reproduction costapproach for appraisal (CD APPROACH)

Back 48

is the estimated cost to construct at current prices an exact duplicate or replica of the building that is being appraised by using the same materials, design and layout of the subject property.

Front 49

Functional Obsolescence is caused by either deficiency or an over- improvement of a property. AN OVER IMPROVED PROPERTY MAY SUFFER FUNCTIONAL OBSOLESCENCE SINCE IT WILL NOT SELL IN THE MARKET FOR THE AMOUNT INVESTED

Front 50

External Obsolescence

Back 50

loss in value caused by factors beyond the boundaries of the subject property

ex: if you live near a landfill

Front 51

Direct capitalization is a mathematical process in which future income is converted into a present value. What is the formula?

Back 51

PGI (potentional gross income)

- V&C (vacancy and collection losses %)

+ OI (other income)

gives you the EGI (effective gross income)

EGI (effective gross income)

- OE(operation expenses

gives you the NOI (net operating expenses)

Front 52

DO operating expenses in direct capitalization technique include mortgage payments, tax, depreciation, personal expenses?

Back 52

NOOOOOOOO

Front 53

Estimate the value of the subject property by dividing the net operating income that you find using the capitalization technique NOI/ overall capitalization rate

Back 53

Value(v)= Net operating income / capitalization rate

Front 54

gross multiplier technique

Back 54

used gross rent or income instead of net operating income to estimate the value of properties.

Comparable sales price/ gross monthly rent