Principles of real estate II (Champions)
Exam with complete solutions
Functional obsolescence - Answer- Refers to the loss in desirability of the style, layout
or function of an element of a property over time
Sales comparison - Answer- best indicator of value for existing properties
highest and best use - Answer- the legal use for property that gives the greatest return
in money and/or amenities
external obsolescence - Answer- the loss in value of a property caused by factors
outside the property itself
principle of contribution - Answer- suggests the value of a property is equal to the sum
of the contributory value of each of its components. most important aspect is that cost
does not equal value
most important aspect of principle of contribution - Answer- cost does not equal value
(for example...swimming pool)
principle of change - Answer- forces acting on a parcel of land are always affecting the
value of the land
principle of anticipation - Answer- the purchase price is affected by the expectation of
future appeal and benefits
principle of substitution - Answer- the value of a commodity if influenced by the cost of
acquiring a substitute or comparable item.
principle of conformity - Answer- value is maximized when there is a reasonable degree
of homogeneity in a neighborhood
principle of increasing and decreasing returns - Answer- when the value added by an
improvement exceeds the cost...do not over improve.
principle of supply and demand - Answer- when demand is high and supply is short,
prices go up - and vice versa
principle of regression - Answer- presence of lower-priced properties in the area will
cause a decline in the value of the subject property
, principle of progression - Answer- presence of higher-priced properties in the area will
cause an increase in the value of the subject property
principle of competition - Answer- the absence of competition will cause prices to
increase in the marketplace. Increased competition will bring prices down.
characteristics of value - Answer- DUST; demand, utility, scarcity, transferability
market value - Answer- the most probable pice a property should bring in a competitive
and open market under all conditions requisite to a fair sale.
types of appraisal reviews - Answer- desk review and field review`
desk review - Answer- a type of appraisal review. reviews cover a checklist of items as
they analyze the appraisal report
field review - Answer- a type of appraisal review. many lenders, especially high LTV
loans, will order a field review of the appraisal. Independent third-party appraiser will
review the report, then verify the information.
limited appraisal - Answer- a type of appraisal review. some lenders accept this drive-by
type of review for low LTV or low risk loans.
ad valorem taxes - Answer- based on the assessed value of the property and the
existing tax rate.
assessed value - Answer- value set on the property for tax purposes. never a reliable
estimate of market value
USPAP - Answer- standards that have been established by the Appraisal Standards
Board of the Appraisal Founation
appraisal - Answer- an appraiser's opinion of value
URAR - Answer- Universal Residential Appraisal Report; Fannie Mae 1004
three approaches to value - Answer- sales comparison approach, cost approach,
income approach
chronological age - Answer- the actual age of the property in years
effective age - Answer- estimate of age based on the condition of the property
Gross Rent Multiplier - Answer- part of income approach, used if there are a lot of rental
properties in the area.
Exam with complete solutions
Functional obsolescence - Answer- Refers to the loss in desirability of the style, layout
or function of an element of a property over time
Sales comparison - Answer- best indicator of value for existing properties
highest and best use - Answer- the legal use for property that gives the greatest return
in money and/or amenities
external obsolescence - Answer- the loss in value of a property caused by factors
outside the property itself
principle of contribution - Answer- suggests the value of a property is equal to the sum
of the contributory value of each of its components. most important aspect is that cost
does not equal value
most important aspect of principle of contribution - Answer- cost does not equal value
(for example...swimming pool)
principle of change - Answer- forces acting on a parcel of land are always affecting the
value of the land
principle of anticipation - Answer- the purchase price is affected by the expectation of
future appeal and benefits
principle of substitution - Answer- the value of a commodity if influenced by the cost of
acquiring a substitute or comparable item.
principle of conformity - Answer- value is maximized when there is a reasonable degree
of homogeneity in a neighborhood
principle of increasing and decreasing returns - Answer- when the value added by an
improvement exceeds the cost...do not over improve.
principle of supply and demand - Answer- when demand is high and supply is short,
prices go up - and vice versa
principle of regression - Answer- presence of lower-priced properties in the area will
cause a decline in the value of the subject property
, principle of progression - Answer- presence of higher-priced properties in the area will
cause an increase in the value of the subject property
principle of competition - Answer- the absence of competition will cause prices to
increase in the marketplace. Increased competition will bring prices down.
characteristics of value - Answer- DUST; demand, utility, scarcity, transferability
market value - Answer- the most probable pice a property should bring in a competitive
and open market under all conditions requisite to a fair sale.
types of appraisal reviews - Answer- desk review and field review`
desk review - Answer- a type of appraisal review. reviews cover a checklist of items as
they analyze the appraisal report
field review - Answer- a type of appraisal review. many lenders, especially high LTV
loans, will order a field review of the appraisal. Independent third-party appraiser will
review the report, then verify the information.
limited appraisal - Answer- a type of appraisal review. some lenders accept this drive-by
type of review for low LTV or low risk loans.
ad valorem taxes - Answer- based on the assessed value of the property and the
existing tax rate.
assessed value - Answer- value set on the property for tax purposes. never a reliable
estimate of market value
USPAP - Answer- standards that have been established by the Appraisal Standards
Board of the Appraisal Founation
appraisal - Answer- an appraiser's opinion of value
URAR - Answer- Universal Residential Appraisal Report; Fannie Mae 1004
three approaches to value - Answer- sales comparison approach, cost approach,
income approach
chronological age - Answer- the actual age of the property in years
effective age - Answer- estimate of age based on the condition of the property
Gross Rent Multiplier - Answer- part of income approach, used if there are a lot of rental
properties in the area.
