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25 Cards in this Set

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Chap 12 Ques 1
When a property's value increases due to the impact of physical, governmental, economic and social forces at work affecting the subject property, that rise in value is called:
A: principal of anticipation
B: correlation
C: Recapture
D: unearned increment
D: unearned increment
=================
Unearned increment is defined as an increase in value due to no effort on the part of the owner.
Chap 12 Ques 2
The cost approach would be the least reliable method to use in estimating the value of a seventy year old building because of:
A: changes to building codes
B: the problem associated with estimating depreciation.
C: changes in the cost of labor and materials
D: the impact of new safety standards
B: The problem with estimating depreciation
=====================
Cost approach - One of the three approaches to value; it involves estimating the current cost of replacing all improvements, from which the amount of estimated accrued depreciation is deducted, and estimated value of the land is added.
Chap 12 -18
B: The cost or sumnation approach
Like the comparison approach, the cost approach to value is based on the principal of substitution; i.e a property is worth no more than the cost to replace it with a desirable substitute. The cost approach is most appropriate for special purpose, new properties, or any situation where comparable or income data are lacking. The difficulty of evaluating depreciation makes it more difficult for older buildings.
Chap 12 Ques 3
A properties utility value is:
A: The owners evaluation of the amenities
B: the value of oil, coal and mineral deposits
C: the sum of past expenses on the property
D: the ability to convey ownership
A: The owners evaluation of amenities
====================
Utility value is defined as the value to an owner or user of the property; a subjective value based upon the ability to use or enjoy a property
Chap 12 Ques 4
The owner paid $310,000 for a house 6 years ago. What effect will that number have on the estimate:
A: no effect at all
B: It will tend to raise the estimate
C: It will tend to lower the estimate
D: A lower limit is placed on his estimate
A: No impact at all
Chap 12 Ques 5
After a neighborhood experiences a period of growth, expansion and rising property values; the next phase of the change that it will experience is:
A: progression
B: decline
C: stability
D: balance
C: stability
===================
Chap 12-6
5. Principal of change
Porperty values are impacted by the lifecycle that the properties and the neighborhoods go through:
a - development phase, a period of growth, expansion and rising prop values.
b - Stability or equilibrium where growth ends and values level off
c - decline or disintegration where deterioration sets in and values fall.
In appraising, the term location is closely assosiated with:
A: Orientation
B: situs
C: correlation
D: key lot
B: situs
===================
Situs is defined as peoples preferance for a given location. We learned of situs in chap 1 as one of the economic characteristics of land.
Chap 12 Ques 7
In the capitalization approach which of the following steps comes first:
A: Estimating operatiing expenses
B: Selection of an appropriate cap rate
C: Determining potential gross income
D: Subtraction of vacancy and collection losses
C: determining potential gross income
=====================
Chap 12-24
V=NOI/CAP
Step 1
Projecting net operating income
In order to arrive at this number you have to get the Potential Gross income (annual) - vacancy & colletion
This gives the effective gross income.
Eff Gross - Op Exp = NOI
Net Operating Income
Chap 12 Ques 8
On an operating statement, the allowance for items that have a useful life of more than one year is called:
A: Accrued depreciation
B: Reserve for replacements
C: a variable operationg expense
D: dept service
B: Reserve for replacements
======================
Reserve for replacements - defined as money set aside each year for the replacement of items that have a useful life of more than one year such as furniture, appliances, carpet, etc
Chap 12 Ques 9
Which of the following is used when estimating value using the gross rent multiplier method?
A: Market rent of the subject property
B: Correlation technique
C: Operating expenses of comparable properties
D: Vacancy and collection losses
A: Market rent of subject property
=====================
Gross rent multiplier - A numenr that when multipied by a property's estimated gross rent, produces an indication of the property's value.
Chap 12 Ques 10
A new $300,000 house in a neighborhood with comparable values. The owner wants to make $200,000 in improvements. Which principle of valuation might suggest this is not a wise move
A: highest and best use
B: Decreasing returns
C: substitution
D: Progression and regression
D: progression and regression
=====================
Chap 12 - 6
6: Principle of Progression and regression
This principal explains the old saying that "you don't want to be the best house in the neighborhood." The most expensive house looses value because of its association with less valuable properties in the neighborhood. At the same time the least expensive property gains value because it is located near properties of greater value
Chap 12 Ques 11
Using a 12% cap rate, an apartment complex is valued at $480,000. What will the same complex be valued at with a 10% cap rate
A: $576,000
B: $400,000
C: $520,000
D: $440,000
A: $576000
==================
Using the power T

X
______________________
480000 | 12%

$480,000X12%=57600

therefore
57600
----------------------------------
x | 10%

$57600/10% = 576000
Chap 12 Ques 12
A key lot is:
A: the most desireable lot in e residential neighborhood
B: one located at the end of a culdesac
C: the one in the center of the subdivision
D: essential plottage
D essential plottage
==================
Key Lot is defined as one that loins the rear corner lot. For residential use, such lots are not desireable because of the view of the neighbors back yard. For commercial use, a key lot can be advantageous because of its improtance in an attempt to assemble several lots under one ownership. (assemblage)
Chap 12 Ques 13
The method of estimating proposed construction costs by adding the costs of all the bulind's component parts is call the:
A: square foot method
B: unit in place method
C: quantity survey method
D: summation method
B: Unit in place method
====================
Unit in Place method is a method of estimating the current cost of reconstructing an improvement by estimating the cost of each component part (foundation, walls, roof, heating system etc) in place
Chap 12 Ques 14
When using the sales comparison approach the appraiser would utilize data derived from:
A: acquisition cost to present owner
B: foreclosue sale
C: cubic foot method
D: data from MLS
D: data from MLS
Chap 12 Ques 15
the gross rent multiplier produces the best results when used to estimate the value of:
A: ofc bldg
B: warehouse
C: apt bldg
D: shopping ctr
C: apt bldg
====================
chap 12-27
The GRM is derived by dividing the sales prices of comparable properties by there estimated gross income.
For example, if a comparable property sold for 12 x's its annual rentals and the subject property we are evaluating has annual rentals of $8400, then it is probably worth
$8400 X 12 = $100,800
Chap 12 Ques 16
When estimating the capitalization of a property
A: the lower the cap rate the lower the estimated value
B: the lower the cap rate the higher the estimated value
C: the hight the cap rate, the higher the estimated value
D: the cap rate has no effect on value
B: the lower the cap rate the higher the value
======================
mathmatically: V=NOI/CAP
as the denominator gets smaller the V gets larger
Chap 12 Ques 17
Which of the following would not be considered an operating expense of an apartment bldg?
A: Manager's salary
B: Utlities
C: Collection losses
D: Repairs and reserve for replacements
C: Collection losses
===================
Vacancy and collection losses are calculated separately as part of the effective gross income.
Managers salary, utilities and repairs are all subtracted from the effective gross part of the operating exp
Chap 12 Ques 18
When selecting comparables for a comparision approach to value, it is a good practice to:
A: choose as many as you can find
B: place emphasis on the ones that require the fewest adjustments.
C: select only the sales that were within a very short distance from the subject property
D: pay particular attention to the one sale that was much lower in price.
B: place emphasis on the ones that require the fewest adjustments
Chap 12 Ques 19
Given: 20 unit apt bldg
10 units @ $300.00/mo
5 units @ $325.00/mo
5 units @ $350.00/mo
Vac & col = 5% of PGI
Opex = $31,950
CAP = 12%
find value if CAP rate is 10%
-------
A: $453,900
B: $407,250
C: $380,500
D: $400,000
B: $407250
---------------------------------
step one - find PGI (Potential gross Income)
(10 units X $300 X 12 months)=$36,000.00
(5 units X $325 X 12 months)= $19500.00
(5 units X $350 X 12 months)
= $21,000.00
------
total PGI
36,000
21,000
19,500
=======
76,500
vac and losses = 5% PGI
76,500 X 5% = 3825
EGI = PGI - vac and loss
EGI = 76500-3825
EGI = $72,675.00
NOI = EGI - OPEX
NOI = 72675-31950
NOI = 40725
V = NOI/CAP
V = 40725/10%
V = 407250
in the cap approach to establishing value, the selection of the cap rate to use reflects all of the following except:
A: an investment return currently sought by investors
B: how much net income the property will produce
C: how long the property will continue to produce the projected net
D: how soon the property can be resold for profit
D: how soon the porperty can be resold for profit
Chap 12 Ques 21
which of the following approaches to value estimation is based on the calculation of construction at current prices of a property that serves the same purpose or function.
A: Sales comp
B: replacement comp
C: income
D: Reproduction cost
B: replacement cost
Chap 12 Ques 22
which of the following can be used to figure accrued depreciation:
A: Age-life or straight line method
B: Economic obsolescence
C: Net Operating income
D reserve for replacement method
A: Age life or straight line method
==============
The straight line depreciation is a method of measuring depreciation either past (accrued) or future, as occuring in equal amounts each year over the useful life of the building; frequently used because of ease of application
Chap 12 Ques 23
in the appraisal of residential property, the cost approach is most reliable in the case of:
A: a new home
B: older home
C: multi-family home
D: all of the above
A: new home
=================
Cost approach is best with new homes because of the difficulty of estimating depreciation on older homes.
Chap 12 Ques 24
The most difficult depreciation to correct would be:
A: functional
B: Physical
C: Economic
D: Accelerated
C: economic depreciation
====================
is almost always incurable because the causes are outside the owners control
Chap 12 Ques 25
In the sale comparison approach, the value of a feature present in the subject property but NOT in the comparable would be:
A: added to the seeling price of the comp
B: subtracted from the selling price of the comp
C: omitted from the final estimate
D: subtracted from the value of the subject property
A: added to the value of the comparable property
====================
CIA comp inferior add.