Real Estate Appraisal Principles and Methods, Exams of Business Economics

Download Real Estate Appraisal Principles and Methods and more Exams Business Economics in PDF only on Docsity! Residential Market Analysis and Highest and Best Use Assessment Questions And Answers A property owner constructs a six-car garage at a cost of $80,000. It only adds $40,000 in value to the property. What economic principle does this best demonstrate? - Correct Answers Contribution What are the four agents of production? - Correct Answers land, labor, capital, coordination The principle of contribution is most closely associated with: - Correct Answers the Sales Comparison Approach (The contributory value of a given amenity is the public's perception of its actual contribution to value when considering the overall value of the property as a whole) When supply is higher than demand, the value of a product: - Correct Answers declines Finish the sentence: Profit encourages ___________. - Correct Answers competition What is another name for the principle of inclining and declining periods? - Correct Answers Integration and Disintegration An appraiser must value the land and the improvements based on the same use. Which economic principle or theory does this demonstrate? - Correct Answers Consistent Use (The Consistent Use Theory holds that the land and the buildings must all be valued considering the same highest and best use of the property. The appraiser cannot value the land under one use and the improvements under another use) When analyzing the life cycle for a neighborhood, which stage is characterized by equilibrium of supply and demand? - Correct Answers Stability The principle of surplus productivity is associated with which approach to value? - Correct Answers Income Approach What does USPAP say about market value? - Correct Answers appraisers are cautioned to identify the exact definition of market value and its authority What type of value recognizes the cost to replace the improvements but does not include the land value? - Correct Answers insurance value The amount of money that a financial institution is willing to lend the borrower on a particular property is the: - Correct Answers loan value Which statement is TRUE about property purchase loans and down payments? - Correct Answers The greater the down payment, the less chance the borrower will default. A single-family home is situated in a growing commercial area. The highest and best use is to raze the home and construct a commercial building. A client asks an appraiser to value the property as a single-family home, and not under its highest and best use as a commercial site. What type of value is this client asking for? - Correct Answers value in use What type of value is based on the property's current use? - Correct Answers value in use Why does insurance value typically not include the value for the land? - Correct Answers land typically cannot be destroyed Assessed value is also known as: - Correct Answers ad valorem value (assessing property owner’s taxes) Most real property appraisal assignments are intended to develop an opinion of: - Correct Answers market value What type of value includes an operating business with both tangible and intangible assets? - Correct Answers going concern value The market value of a property is $255,000 and the loan-to-value ratio is 70%. What is the loan value for this property? - Correct Answers $178,500 What type of value is generally considered equivalent to market value? - Correct Answers value in exchange How is the type of value used in an appraisal assignment determined? - Correct Answers the appraiser identifies the type of value, based on the intended use of the appraisal The definition of market value included in USPAP Advisory Opinion 22: - Correct Answers is only an example When valuing a piece of real property, the appraiser is really valuing: - Correct Answers the rights of ownership In relation to real property, the term SLUGER refers to: - Correct Answers bundle of rights Which period in a neighborhood's life cycle will mean a demand for more social services to be supplied by the community? - Correct Answers growth In a market area, there were 168 single-family sales last year, and there are currently 98 properties on the market. How long will it take to sell this existing inventory? - Correct Answers 7 moths In a market area, there were 168 single-family sales last year, and there are currently 98 properties on the market. What is the monthly absorption rate? - Correct Answers 14 moths A neighborhood in the decline phase of its life cycle may reach a point where the most likely buyer for properties will be: - Correct Answers investors If the market achieves balance, or equilibrium, it is considered to be: - Correct Answers stable There were 24 sales in a subdivision in the last year, and there are currently 10 properties on the market. What is the monthly absorption rate? - Correct Answers 2 per month There were 24 sales in a subdivision in the last year, and there are currently 10 properties on the market. How long will it take the market to absorb this existing inventory? - Correct Answers 5 months In a market area, there were 327 single-family sales last year, and there were 29 expired listings that did not sell. What is the expiration ratio for this area? - Correct Answers 8% Conclusions derived in the market analysis phase of the appraisal assignment can be used in which approach to value? - Correct Answers d) all of these The real estate life cycle applies to: - Correct Answers d) all of these Which of these is NOT an accepted method of estimating site value? - Correct Answers surrogate method S In a market area, there were 168 single-family sales last year, and there are currently 98 properties on the market. How long will it take to sell this existing inventory? - Correct Answers 7 months How would an appraiser estimate the estimated length of time it will take to sell the existing available inventory in a market? - Correct Answers absorption rate During which period in a neighborhood's life cycle will there be a strong demand for additional community infrastructure? - Correct Answers growth Questions about balance must be answered by the appraiser in order to: - Correct Answers measure the trends of the market area Market analysis in appraisals can be divided into _____ distinct categories. - Correct Answers two When the market becomes saturated with a certain type of housing, what happens in the market? - Correct Answers marketing times lengthen How might an appraiser determine if a neighborhood is in the decline phase of its life cycle? - Correct Answers analyze the ratio of owner occupied-properties to tenant- occupied properties There is a significant oversupply of high-value homes on the market in Community A, and demand for these homes has not increased. Which statement is FALSE? - Correct Answers The value of all homes in the area will decline. What is the first step in the market analysis process? - Correct Answers defining the market segment Which statement is TRUE regarding market identification? - Correct Answers The market may be subdivided more than once in order to arrive at an appropriate segmentation. When analyzing a market for a high-value home, what is the MOST important consideration? - Correct Answers the number of acceptable and qualified buyers in the market for this type of property (not all of these) Which would NOT be an appropriate segmentation for a market analysis? - Correct Answers Residential - retail - restaurant Market identification involves: - Correct Answers subdividing the larger market into a workable study area What would be an appraiser's concern in analyzing the market for a high-value residential property? - Correct Answers How many buyers can afford to purchase this property in this location? One of the problems in appraising high-value homes is: - Correct Answers Many of these homes are custom built for their current owners, and may not match the needs and desires of buyers. Who is responsible for making an appropriate scope of work decision in an appraisal assignment? - Correct Answers the appraiser only If you are appraising in a stable market: - Correct Answers market conditions adjustments may not be necessary An investor wants to construct a four-unit apartment building. She engages an appraiser to analyze the market and tell her if the market "needs" such a building, and if the building will be worth what it costs to construct. What type of analysis is this? - Correct Answers feasibility analysis Which statement is TRUE regarding the scope of work decision in an appraisal assignment? - Correct Answers It is the sole responsibility of the appraiser. Who determines the appropriate level of analysis for appraisal assignment? - Correct Answers the appraiser What helps an appraiser determine the appropriate level of analysis to employ in an appraisal assignment? - Correct Answers communication with the client What type of analysis consists of primary economic research by an analyst? - Correct Answers fundamental analysis Who determines the appropriate level of analysis for appraisal assignment? - Correct Answers the appraiser What does a real estate investor expect in return for tying his or her money up in an investment property? - Correct Answers an acceptable rate of return A community's total employment is 52,220. The number of total core industry employees is 37,300. For every 10 jobs added in the core industry, how many additional jobs will be generated in the community? - Correct Answers four A community's total employment is 52,220. The number of total core industry employees is 37,300. What is the base core multiplier? - Correct Answers 1.4 In most appraisal situations, what is the appraiser's best source for data about the subject property's physical characteristics? - Correct Answers visual inspection of the subject property What is the most common type of market study that appraisers are asked to complete? - Correct Answers feasibility analysis A community's total employment is 29,120. The number of total core industry employees is 18,200. What is the base core multiplier? - Correct Answers 1.6 When a client asks for a feasibility analysis, what do they want to know? - Correct Answers whether a proposed project is feasible for the market place at this time the following conclusions is MOST TRUE? - Correct Answers An increase in the supply of housing is necessary. What is an appraiser's responsibility in determining whether the home's footings are at least one foot below the frost line? - Correct Answers assume the home was inspected at the time it was built An appraiser's highest and best use conclusion is always: - Correct Answers an opinion The use that produces the optimum value for the property is its: - Correct Answers Highest and best use The two types of highest and best use analysis are: - Correct Answers as vacant and as improved What is the reasonably probable and legal use of a property that is physically possible, appropriately supported, financially feasible, and results in the highest value? - Correct Answers highest and best use It is a requirement to develop an opinion of the highest and best use of a property: - Correct Answers in market value appraisal assignments How are existing improvements valued in a market value appraisal assignment? - Correct Answers based on their contributory value to the land All appraisal assignments that require a market value opinion imply that: - Correct Answers the property will be valued at its highest and best use The market value of the land is always determined based on: - Correct Answers its highest and best use all of these statements concerning Fannie Mae's position on highest and best use are true, except for - Correct Answers If the current improvements clearly do not represent the highest and best use of the site as an improved site; the appraiser should stop and not complete the appraisal report. Is an opinion of highest and best use required in an appraisal that is NOT based on market value? - Correct Answers No, but it still may be necessary for credible assignment results In highest and best use analysis, how do we determine maximum productivity? - Correct Answers the use that results in the highest land value If the improvements have a negative value, an appraiser must consider __________ in the feasibility analysis. - Correct Answers demolition cost Which highest and best use criterion would require an appraiser to consider minimum lot sizes and height restrictions imposed by a local municipality? - Correct Answers legally permissible A single-family home site is worth $40,000. The owner plans to build a 4,000 square foot home on it, at a cost of $600,000. When it is completed, the property will be worth $620,000. Which statement is TRUE regarding the proposed 4,000 square foot home? - Correct Answers It is not financially feasible A vacant site is zoned for use as a single-family home site, and it is unlikely to be changed. As a single-family home site, the site is worth $75,000. As a commercial site, it would be worth $150,000. What is the highest and best use of this property? - Correct Answers single-family home site Which highest and best use criterion would require an appraiser to consider private deed restrictions? - Correct Answers legally permissible Which highest and best use criterion would require an appraiser to consider excavation or filling that may be required in order for a site to accommodate an improvement? - Correct Answers physically possible When testing for highest and best use, which criterion (or test) is applied last? - Correct Answers maximally productive Which highest and best use criterion would require an appraiser to consider the shape of the site? - Correct Answers physically possible Which highest and best use criterion would require an appraiser to consider what improvements would fit on the site? - Correct Answers physically possible Which highest and best use criterion would require an appraiser to consider the availability of public utilities to a site? - Correct Answers physically possible Only those uses which produce a positive return are considered _________. - Correct Answers financially feasible When testing for highest and best use, which two criteria (or tests) are applied first? - Correct Answers legally permissible and physically possible An appraiser is analyzing a parcel of vacant land, on a back road in a rural area. The owner tells the appraiser he plans to build a fast-food restaurant on the land. There is no zoning, and no other significant land use restrictions. The appraiser determines the highest and best use is NOT to build a fast food restaurant. What is the most likely reason for this conclusion? - Correct Answers it is not financially feasible Which highest and best use criterion would require an appraiser to consider the need for the land use, or how many similarly-used land areas are in the market area? - Correct Answers financially feasible A single-family home is situated on a commercially-zoned lot. It would not be financially feasible to convert the home to commercial use, because there is not enough demand for commercial properties at this time. Demand for industrial property is very strong; however, a zoning change is unlikely. Demand for commercial properties is expected to increase as the community grows. What is the ultimate highest and best use for this property? - Correct Answers Commercial use A commercial building which is a legal nonconforming use in a residential neighborhood would be considered: - Correct Answers over-improvement A single-family residence is located in a commercially-zoned area. Residential sale prices in the area range from $80-90 per square foot. The residence could be converted to offices at a cost of $25 per square foot. Office space in this area is selling at $90-100 per square foot. What is the highest and best use of this property? - Correct Answers continue use as a single-family home A property has one acre, in an area where half-acre lots are common. There is a single- family home located at one end of the property, and is situated in such a way that a half- acre site could be sold off and developed without affecting the existing homesite. Which statement best describes this situation? - Correct Answers This is an excess land situation. A property has two acres, in an area where one-acre lots are common. There is a home built on the property at one corner. The property is situated in such a way that one acre could be sold off and developed without affecting the existing homesite. This would be considered ___________ situation. - Correct Answers an excess land Land that is larger than typical for the area, but cannot be separated and used effectively and is not capable of a separate use, is: - Correct Answers surplus land Land that is larger than typical for the area, larger than what is required for the subject's use, and is capable of being sold for a separate use is: - Correct Answers excess land A residential dwelling which is a legal nonconforming use in a commercial area would be considered: - Correct Answers under-improvement A duplex is located in a commercially-zoned area. Residential sale prices in the area range from $75-85 per square foot. The residence could be converted to professional offices at a cost of $15 per square foot. Office space in this area is selling at $110-120 per square foot. What is the highest and best use of this property? - Correct Answers convert the residence into offices Going concern value includes an operating business with ______________________ assets. - Correct Answers Both tangible and intangible A neighborhood is characterized by _____________ land uses; whereas a district is composed of _________ land uses. - Correct Answers Complementary, homogeneous Employing zero lot lines and attach the garage areas between two houses is called ___________ housing. - Correct Answers Uniplex Which of these is NOT one of the four agents of production? - Correct Answers Building Codes The improvements are normally valued for their ___________ value relative to the highest and best use of the land. - Correct Answers Contributory Part of the definition of Market Value is that it is the "price that a property should bring in a(n) ________________ market." - Correct Answers Open and competitive When appraisers survey the market during a feasibility analysis, they rely primarily on ______________. - Correct Answers General data Some investors require a higher rate of return because of a greater investment ____________________. - Correct Answers risk Markets will generally fall into the following categories, EXCEPT for _______________. - Correct Answers Mixed-Use Mixed-Use - Correct Answers 5 months In a neighborhood, there were 180 single-family sales last year, and there were 60 expired listings that did not sell. What is the expiration ratio for this area? - Correct Answers 25% ________________ involves subdividing the larger market into a workable study area. - Correct Answers Market identification _______________ analysis examines the present worth of a future benefit. - Correct Answers Investment What is the first step in a feasibility analysis? - Correct Answers Survey the market. The ability to sell or transfer the property freely in the marketplace is known as ___________________. - Correct Answers Transferability Research into the number of actual sales that have occurred in the neighborhood during the previous 12 month period what kind of data? - Correct Answers primary A _______________ usually produces general marketing information for a geographic area. - Correct Answers Market study The real estate market life cycle will affect the ___________ attitudes of the buying public. - Correct Answers Social In the USPAP Scope of Work Rule, it says "Communication with the client is required to establish most of the information necessary for problem identification. However, the identification of relevant characteristics is a judgment made by the _________________. - Correct Answers Appraiser When the intended use of the appraisal is for a mortgage finance transaction, the assignment normally involves an opinion of _______________ Value. - Correct Answers Market A(n) ___________________ is the analysis of a specific property type in a defined area and involves rate differentials measuring the absorption rates for a particular type of property in a given area. - Correct Answers Marketability study To provide an estimate of the length of time it took to sell properties during the period of analysis, we can look at _______________. - Correct Answers Absorption rates. Which highest and best use criterion would require an appraiser to consider the current zoning compliance? - Correct Answers Legally permissible Inferred analysis is principally performed using ____________data, while Fundamental analysis relies primarily on _____________ data. - Correct Answers Secondary, Primary A property suffers from functional obsolescence because it lacks air conditioning. Installation of air conditioning would cost $15,000 and would increase the value of the property by $20,000. This functional obsolescence is _________________. - Correct Answers Curable The ability of the public to be able to purchase a commodity or property is called ______________ purchasing power. - Correct Answers Effective The structure's ___________________ are included in the GLA. - Correct Answers Finished areas above grade When improvements are added, such as roads, water and sewer; then _________ becomes _____________. - Correct Answers Land, a site An Apartment building has rents of $800, $835, $850, $850, and $875 per month. What is the Range of the rents? - Correct Answers $75 Competition is good for the market -- - Correct Answers Up to a certain point. Which of these is NOT one of the inherent characteristics of land? - Correct Answers Homogeneity Which highest and best use criterion would require an appraiser to consider the frontage of the site? - Correct Answers Physically possible _________________ are the most restrictive of the restrictions in place for the land's use. - Correct Answers Developer's Covenants The length of time that a given structure will prove beneficial and contribute to the overall value of the property is its __________ life. - Correct Answers Economic Supply usually __________ the demand for a commodity or property. - Correct Answers Lags behind A community's total employment is 77,700. The number of total core industry employees is 55,500. What is the base core multiplier? - Correct Answers 1.4 Determination of the highest and best use of the property needs to be _________________________ . - Correct Answers As of an effective date Which of these would NOT be considered a special purpose property? - Correct Answers 6 story cooperative apartment building Another name for Assessed Value is ______________ Value. - Correct Answers Ad Valorem When supply and demand are out of balance, the market tends to move______________ . - Correct Answers Towards equilibrium There were 36 sales in a subdivision in the last year, and there are currently 15 properties on the market. How long will it take the market to absorb this existing inventory? 5 months - Correct Answers 5 months The Growth Cycle of a neighborhood is characterized by ___________. - Correct Answers Strong demand "A prediction of future market conditions based on comparison of a quantified estimate of future demand with a quantified estimate of future supply" is the definition of __________________. - Correct Answers Fundamental analysis The __________ equates to a rate of return for the initial investment. - Correct Answers Cash flow Another name for Renewal Period is _____________ Period. - Correct Answers Revitalization Who will ultimately determine what a given amenity will contribute to the overall property value? ________________. - Correct Answers Market participants (buyers and sellers) There were 36 sales in a subdivision in the last year, and there are currently 12 properties on the market. What is the monthly absorption rate? - Correct Answers 3 Legally nonconforming use is "a use that was lawfully established and maintained, but no longer conforms to the use regulations of the _______________ in the zone where it is located." - Correct Answers Current zoning To measure the trends of the market area, the appraiser must ask questions about ______________________. - Correct Answers All of these items Which is NOT a type of framing? - Correct Answers Mansard Market visualization of the real estate life cycles will ultimately determine the ____________ for these individual properties. - Correct Answers Typical buyers Which highest and best use criterion would require an appraiser to consider CC&Rs? . - Correct Answers Legally permissible Part of the definition of Highest and Best Use is that it is "Physically _______________..." - Correct Answers Possible ________ Land is capable of a separate or alternative use. - Correct Answers Excess Which of these agencies agree in principle with the ANSI Standards? - Correct Answers All of them The ________________ Cycle of a neighborhood is characterized by demand and supply trending toward equilibrium. - Correct Answers Stability "A neighborhood characterized by homogeneous land use, e.g., apartment, commercial, industrial, agricultural" defines ________. - Correct Answers District The principle of balance is most closely related to the following principle: _______________. - Correct Answers Supply and Demand A highest and best use opinion must be developed ____________________________. - Correct Answers When it is necessary for credible assignment results USPAP says that ______________ is a fact, or an estimate of fact. - Correct Answers Cost The principle of Surplus Productivity states that after paying The costs of _____________________________ , any residual income is attributed to the land. - Correct Answers The first three agents of production Place these types of siding in historical order; from oldest to newest: - Correct Answers Wood, aluminum, vinyl, composite Regression and Progression are parts of the Principle of ____________________. - Correct Answers Inclining and Declining Periods Market value is generally considered equivalent to ___________________. - Correct Answers Value in Exchange Competition in the market place is encouraged by ______________. - Correct Answers Profit Which highest and best use criterion would require an appraiser to consider whether the site is in a flood zone? - Correct Answers Physically possible. A property with restaurants and retail shops on the lower level and apartments on levels above is called a(n) ___________ property. - Correct Answers Multi-Use All properties will go through __________ stages of the life cycle. - Correct Answers The first three Who will decide if the individual improvement is in conformance with the neighborhood or not? - Correct Answers The appraiser. "The geographic region from which a majority of demand comes and in which the majority of competition is located" is the definition of _________________. - Correct Answers Market Area A residential property is currently zoned for residential use, but its highest and best use is expected to change to Light industrial use within the next 2-4 years. The subject property's current use is considered ___________________. - Correct Answers Interim Use. A loan is $180,000 and the loan-to-value ratio is 90%. What is the Market Value for this property? - Correct Answers $200,000. Which highest and best use criterion would require an appraiser to consider the soil composition of the site? - Correct Answers Physically possible. __________ Land cannot be separated. - Correct Answers Surplus Data that describe the local market area or neighborhood of the subject property are called ___________ data. - Correct Answers General The Principle of Substitution holds that an ___________ buyer will not spend more for a property than the cost of acquiring a suitable substitute property. Principle of Substitution. - Correct Answers Informed The development of a vacant land area is _____________ the highest and best use of the land. - Correct Answers Not always A property suffers from functional obsolescence because it has an outdated kitchen. Installation of a modern kitchen would cost $20,000 and would increase the value of the property by $15,000. This functional obsolescence is ______________________. - Correct Answers Incurable Some of the more prominent economic principles and theories are __________________________________. - Correct Answers Related to and overlap each other Because of the Principle of _______________ the appraiser's opinion of value is always "as of" a specific date or time. - Correct Answers Change Investment Value is based on an investor's expected _______________ . - Correct Answers Rate of return Inflationary conditions and the cost of money would be considered to be ________________ forces. - Correct Answers Economic In Fannie Mae's definition of value is says that it assumes "buyer and seller are ________________ motivated." - Correct Answers Typically An opinion of value can be directly related to the ________________ of the rights of ownership for the individual property. - Correct Answers Presence or absence Appraisers must develop an opinion of the property's highest and best use, first as though the land ___________, and then as the land is _____________improved. - Correct Answers Were vacant, actually If there is an oversupply of homes available in a market to satisfy demand, this is known as _________________. - Correct Answers A buyer's market. A single family residence is situated on a 1 acre site, in an area where ½ acre sites are common. The home is in the center of the property, and it is not possible to subdivide