Residential Market Analysis and Highest and Best Use

Residential Market Analysis and Highest and Best Use market analysis Correct Answer: is a study of the market, as a whole, as well as the investigation of conditions of a component of that market, as reflected for a specific type of property. "The separation and identification of the parts of the whole" is part of the process of: Correct Answer: analysis When an appraiser is analyzing the subject property's market area, which question is LEAST likely to be asked? Where is the property located? What defines the boundaries of the property's neighborhood? Who owns the property? What are the trends for this neighborhood? Correct Answer: Who owns the property? USPAP states that credible assignment results require _________. Correct Answer: Support A study of the market as a whole, as well as the investigation of conditions of a component of that market, for a particular type of property, is the definition of: Correct Answer: market analysis "A place where goods and services are exchanged" is the definition of a: Correct Answer: Market Some of the other perceived benefits derived from income producing properties may include: Correct Answer: Projected income to be received; Using the property as a tax shelter; Probable appreciation of the asset; and Use of the property for a personal business. The principle of anticipation is very often associated with Correct Answer: The income approach The principle of anticipation is also related to the principles of: Correct Answer: Supply and demand Competition Change The principle of balance is closely related to the following principles: Correct Answer: Four agents of production Conformity Contribution Surplus productivity The principle of competition relates to the following principles: Correct Answer: Anticipation Supply and demand Opportunity cost The principle of conformity is related to the following principles: Correct Answer: Balance Progression and regression The principle of externalities is related to the following principles: Correct Answer: Inclining and declining periods Progression and regression Supply and demand Real Property contains a mix of the four agents of production: Correct Answer: Capital (buildings and equipment); Coordination (management); Labor (wages); and Land. The principle of the Four Agents of Production is related to the following principles: Correct Answer: Balance Contribution Opportunity Cost Surplus Productivity Which of these can increase conformity in a neighborhood? Covenants, Conditions and Restrictions zoning ordinances ordinances specifying minimum site sizes and setbacks all of these Correct Answer: All of these Perceived benefits from the ownership of income-producing property would include all of the following EXCEPT: income to be received appreciation physical depreciation tax shelter Correct Answer: physical depreciation The principle of contribution is most closely associated with: Correct Answer: the Sales Comparison Approach Appraiser Anne wants to convert a property's anticipated income into an indication of value. Which approach to value is best suited for this purpose? Correct Answer: Income Approach 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 Answer: Contribution If a property is over-improved, or under-improved: it should be torn down the four agents of production are out of balance an appraiser should not mention this in an appraisal report for mortgage lending all of these Correct Answer: the four agents of production are out of balance What are the four agents of production? Correct Answer: land, labor, capital, coordination Which of these would be an external factor that could affect the value of a single-family home? an award-winning community library a highly-rated school system an auto wrecking yard located across the street all of these Correct Answer: All of these When supply is higher than demand, the value of a product: Correct Answer: declines A person purchases a four-plex because it has a strong income stream. This is an example of the principle of: Correct Answer: anticipation When supply and demand are in balance in a market, this produces: Correct Answer: Equlibrium The value of a fireplace in a single-family home is determined by: Correct Answer: what a buyer perceives as its worth, and how much he will pay for it Finish the sentence: Profit encourages ___________. Correct Answer: competition The four stages of the life cycle are: Correct Answer: Growth (inclining - demand) Stability (stable) Decline (loses desirability) Revitalization (restoration of deteriorated properties) Substitution is often associated with the Correct Answer: Cost Approach Highest and best use involves the appraiser's consideration of several factors: Correct Answer: What are the legally permissible uses to which the subject can be put? What are the physically possible uses to which the subject can be put? Of these uses, which are financially feasible? Of these, which is maximally productive? The principle of substitution is associated with which approach(es) to value? Correct Answer: Both the Sales Comparison and Cost approaches An investor is looking at two properties, but will only purchase one of them. Each is similar in utility and location, and has an annual net operating income of $20,000. One has a listing price of $220,000, while the other is listed at $200,000. The investor purchases the $200,000 property. Which economic principle is demonstrated in this example? Correct Answer: Substitution When analyzing the life cycle for a neighborhood, which stage is characterized by equilibrium of supply and demand? Correct Answer: Stability If two substantially similar homes are offered for sale in a neighborhood at the same time, which one will sell first? Correct Answer: the one with the lower price Which stage of the life cycle does not happen in every neighborhood or property? Correct Answer: Renewal When analyzing the life cycle for a neighborhood, what problem is often faced by appraisers? Correct Answer: the growth cycle may have passed before they realize it When analyzing the life cycle for a neighborhood, which stage is characterized by a strong demand and rising values? Correct Answer: Growth The value of a fair quality home will be enhanced if it is located in a neighborhood of all good quality homes. What economic principle does this demonstrate? Correct Answer: Progression Which economic principle relates to the advantages of an alternate investment? Correct Answer: Opportunity Cost Which of these is an example of the principle of progression? Correct Answer: Fair quality home in a neighborhood of good quality homes Substitution Correct Answer: The principle of substitution holds that an informed buyer will not spend more for a property, or an amenity in a property, if he or she could buy it elsewhere at a more reasonable cost. Progression and Regression Correct Answer: The principle of progression states that when a property is inferior to those surrounding it, its value will be enhanced by the presence of the superior properties. If there are not enough homes available in a market to satisfy demand, what will happen to home prices? Correct Answer: they will increase What is another name for the principle of inclining and declining periods? Correct Answer: Integration and Disintegration The principle of surplus productivity is associated with which approach to value? Correct Answer: Income Approach An informed buyer is considering two properties, but will only purchase one of them. They are substantially equivalent, and each has an annual net operating income of $18,000. Property A has a listing price of $199,000, while Property B is listed at $189,000. Which property is the investor MOST likely to purchase? Correct Answer: B When appraising a property for market value, an appraiser must determine: Correct Answer: the highest and best use Market Value Correct Answer: means the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specific date and the passing of title from seller to buyer under conditions whereby: buyer and seller are typically motivated; both parties are well informed or well advised and acting in what they consider their own best interests; a reasonable time is allowed for exposure in the open market; payment is made in terms of cash in U. S. dollars or in terms of financial arrangements comparable thereto; and the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale INVESTMENT VALUE Correct Answer: This is the value of a particular property to a specific investor. Investors look at a variety of data in making the decision of whether to invest in a property. This decision is based more on the income or potential income-earning capability of the investment opportunity. VALUE IN USE Correct Answer: Value in use is the value of the property as it is presently being used. This value does not consider the highest and best use of the property or the market value as of the effective date of the assignment. INSURANCE VALUE Correct Answer: This type of value recognizes the cost to replace the improvements and generally does not consider the value of the site. Insurance value normally covers only the cost to replace the improvements that could be destroyed by some sort of phenomenon which can be observed (fire, storm, flood, etc.). VALUE IN EXCHANGE Correct Answer: Value in exchange equates to market value. This type of value signifies the property's worth in an open and competitive market, either in exchange for money or other goods. Value in exchange is an objective value and depends upon the marketplace to identify its worth, usually in terms of the most common medium of exchange. BOOK VALUE Correct Answer: the cost of the improvements, plus the cost of any additions or further improvements, minus the depreciation of the structure to date. The rate of depreciation is structured by the accountant and will coincide with the improvements' remaining economic life. GOING CONCERN VALUE Correct Answer: an operating business with an indefinite future life. For some established businesses, the real estate assets are an essential part of the business. The going concern includes both the tangible and intangible business assets. LEASEHOLD VALUE Correct Answer: This type of value identifies a tenant's interest in a lease. When the tenant's right to use the property is greater than the rent being paid for the actual use of the property, there is a leasehold value. If the right to use is equal to the rent being paid for that use, there is no leasehold interest and no leasehold value for the tenant. The leasehold value is determined by calculating the rent savings over the term of the lease (the difference between the contract rent and the market rent) and discounting the difference into a present value. What type of value is generally considered equivalent to market value? Correct Answer: value in exchange What type of value includes an operating business with both tangible and intangible assets? Correct Answer: going concern value What type of value is based on a specific investor's needs and desires? Correct Answer: investment value The amount of money that a financial institution is willing to lend the borrower on a particular property is the: Correct Answer: loan value