Property Valuation and Financial Analysis Questions and Answers

Property Valuation and Financial Analysis Questions and Answers ln the cost approach to appraisal, the phrase "reproduction cost" differs from "replacement cost." "Reproduction cost" measures the: present cost to build an exact replica of the property. Which of the following is not a part of the cost approach appraisal method? Capitalization. When a residence has a physical age of 20 years, but the appraiser notes the building has the appearance of being only 10 years old, the appraiser is referring to: effective age. The calendar date that is of most concern to an appraiser is the date: the purchase contract was signed. The economic life of a frame dwelling is most nearly: 27 1/2 years. When two properties are perceived as comparable, buyers tend to concentrate on price. This principle is called: substitution. Which of the following is an example of economic obsolescence? An oversupply of like-kind properties. An appraiser notices an abandoned auto salvage yard on the adjoining lot of a property they are appraising. The appraiser should recommend which of the following? A toxic waste study. Restoring a property to a satisfactory condition without changing the floor plan, form, or style of the building is known as: rehabilitation. A property's effective gross income is found by deducting which of the following from the scheduled gross income? Vacancies and credit losses. The capitalization method of the income approach determines: the value of a property based on its net operating income (NOI). If the eventual highest and best use of a parcel of real estate cannot be realized for a period of time, the current use is referred to as the: interim use. The appraisal process which allocates a percentage of a property's total value to the land and a percentage to the improvements is known as: the ratio of total value to site value. the allocation approach. The premise that no prudent person would pay more for a parcel of real property than the price of a reasonably close alternative which is available without undue delay refers to the principle of: substitution. The value of a residential property is best measured by which of the following groups of characteristics? Demand, utility, scarcity and transferability. Which of the following is not one of the four important elements of value: appreciation. The maximum potential income an income-producing property is capable of generating is known as: gross scheduled income. When comparing a small house with a large house of similar quality, which of the following it true? A small house costs more per square foot. The relationship between the thing desired and the potential purchaser could be described as: value. The gross rent multiplier (GRM) is calculated by dividing: sales price by gross monthly rents. When using the replacement cost method of appraisal, the appraiser calculates all of the following, except: the capitalization rate (cap rate). The appraisal method that estimates the cost of all labor and materials in construction is the: quantity survey method. The task of evaluating a property to qualify it as collateral for the repayment of a loan is completed by a(n): appraiser. Which of the following does not describe excess land? Land that is used to store unused property fixtures. While building a new home, a developer received several offers to purchase the property. Prior to completion, the city announced it was taking 15 feet from the front of the property for a new bicycle lane. Afterwards, all additional offers to purchase the property were for 20% less. Which of the following types of depreciation apply? Economic obsolescence. To arrive at a final estimate of value secured under each of the three appraisal approaches, an appraiser: explains why or why not the other approaches were not used, then chooses the approach the appraiser believes to be the most appropriate. The basis of the market data approach to appraisal is found in the: principle of substitution. To determine the accrued depreciation for a property, a buyer's best resource is a(n): appraiser. The unit of comparison when appraising land is: cost per square foot. cost per front foot. cost per acre. Which of the following will have the least degree of influence on real estate in the future? Weather. In estimating the value of Fran's single family residence (SFR), the appraiser uses the same gross rent multiplier (GRM) that has been computed for comparable properties in the same neighborhood. The comparable properties generate a rental amount of $3,000 per month and were recently sold for an average of $450,000. The owner's property currently generates $3,200 per month in rent. The estimated value of the subject property is: 480000 When an appraiser values a property under the cost approach, they add the value of the site to the depreciated cost new of improvements. If the value of a site is $150,000, the cost to build a new house is $300,000, the cost to build a new garage is$75,000, and the value of site improvements such as landscaping and the driveway are $75,000, what is the final value of the property under the cost approach when a 20% physical depreciation factor is applied? $525,000. Which of the following statements does not define value? The price an unreasonable, pressured buyer would offer for a property. A capitalization rate (cap rate) is least affected by: taxes. All of the following are examples of functional obsolescence, except: deferred maintenance. A(n)____________ is an individual's opinion or estimate of a property's value on a specific date. appraisal Return on investment (ROI) comes in the form of profit, while return of investment comes in the form of: depreciation. Which of the following does not contribute to obsolescence? Physical deterioration. As opposed to condominium ownership, cooperative ownership has the disadvantage that: owners could lose their equity if the other cooperative owners fail to make their tax and loan payments. Which of these factors does not contribute to obsolescence? Worn out carpeting. If homes in an area represent the highest and best use of the land and are similar in architectural design, which of the following principles of appraisal apply? Conformity. Which of the following is ethical for an appraiser to do? Appraise a property in which the appraiser has an interest, provided they first disclose their interest in the property. The stability of a residential neighborhood is maintained by all of these, except: a high home sale turnover rate and increasing population density. Which of these most nearly refers to a loss in value due to economic obsolescence: a zoning change. Which of the following is of least interest to an appraiser? The original cost of the property. Under the replacement cost approach of appraisal, an appraiser is least interested in: the original cost to build. Which of the following appraisal reports is the most detailed? Narrative report. Which of the following is a cost associated with home ownership: loss of interest on owner's equity. Which of the following statement regarding capitalization rates is least correct? Decreasing the risk of loss increases the cap rate. Rental income minus operating expenses, debt service and income tax payments equals: net spendable income. Which of the following real estate types cannot be depreciated? Land used to raise crops. Marta's city built a new park in her neighborhood. This may result in a(n): special assessment. To calculate a capitalization rate (cap rate), the appraiser uses which of the following methods: market comparison. band of investment. summation. The period of time a structure continues to earn sufficient income to continue operations is referred to as the structure's: economic life. The value of the nicest home on the block will be reduced by the existence of inferior properties on the same block. This is known as the principle of: regression. In appraising a property with two bathrooms, the appraiser used a comparable property with 2 1/2 baths. The appraiser should: deduct the cost of the half bath from the sale price of the comparable property. The cost of a capital improvement and its effect on market value are: rarely the same. The period for which a property can show a return attributable to the improvements is known as the property's: economic life. Which of the following basic real estate economic principles is the best expression of how the value of real estate is maximized? Highest and best use. State licensing of contractors protects the public against: incompetence. The principle that housing passes down to lower economic groups would be: filtering down. Rental schedules for apartments are realistically established on what basis? A market comparison of similar apartments If an appraiser uses improper valuation methods or is negligent in completing a government loan assignment, they may be guilty of: violating appraisal ethics. committing a felony. When changes are made in a residence to correct functional obsolescence, this activity is termed: remodeling. The method of appraisal which emphasizes the present worth of future benefits to be received by the owner is the: income approach. A walk-up refers to: an apartment building with no elevator. Randy recently bought a 12-unit apartment building. What is the minimum number of years in which he may depreciate the building for federal income tax purposes? 27.5 A capital improvement to real property will always: increase the book value of the property by the cost of the improvement. Loss of value of an expensive home due to the close proximity of lower-priced homes in a neighborhood is known as: regression. When an appraiser relies on the principle of substitution, they assume that one property may be substituted for another in terms of all of the below, except: nostalgic significance. An appraiser was hired by Whitney to appraise DuPont's property. With whom does the appraiser discuss their findings? Whitney. The final step in the appraisal process is to: reconcile the different approaches and arrive at a conclusion. The ultimate test to determine the functional utility of a property is the: property's marketability. Which of the following statements is least applicable to depreciation? Depreciation is always concerned with the intrinsic factors of property, never with the extraneous factors. John is considering an extensive modernization program for an older apartment building he owns. His decision should give most emphasis to: effect on the net income The most common appraisal approach used by an appraiser in the appraisal of a single family residence (SFR) is: market comparison. Economic rent is rent: received for similar space in an open market free of duress or otherwise affected by external conditions. To depreciate real estate, it needs to be: improved. All of the following are essential elements of value, except: anticipation. An appraisal is made as of a given date to indicate: the market condition at the time the appraisal was completed. The correct sequential steps of the appraisal process are: define the problem, gather the data, analyze the data, reconcile the results, reach a conclusion. When comparable sales are unavailable or inadequate and a property generates no income, an appraiser would likely use the: cost approach. Which of these is most likely to require an appraisal? . A U.S. Department of Veterans Affairs (VA)-guaranteed loan. Which of the following appraisal reports provide the greatest degree of detail about a property? Narrative appraisal report. What type of depreciation is the most challenging to correct? Economic obsolescence. The loan-to-value ratio (LTV) is best described as: the ratio of the loan to the appraised value of the property. The gross rent multiplier (GRM) is calculated by dividing the: sales price by the gross monthly income. When the market turns from a seller's market to a buyer's market, which of the following is true? Prices fall. Which of the following is the best example of functional obsolescence? No air conditioning in a building located in an arid, desert environment. The income approach of appraisal is inappropriate when appraising: residences in an owner-occupied subdivision To estimate the value of rental property using the gross rent multiplier (GRM) method, an investor first determined that the monthly gross income generated by a property is $7,500. They then applied a GRM of 15. The estimated value of the property is most nearly: 1350000 Which of these is considered least important when appraising old residences? The original cost of the residence.