Custom Quiz Valuation

Question 1

These paragraph headings, Introduction, Description of General Neighborhood, Market Value & Economic Factors, and Final Estimate of Value, would be present in which type of appraisal?
A) None of these
B) Narrative (self-contained or summary)
C) Letter (restricted)
D) Form (summary)

Answer 1

B) Narrative (self-contained or summary)
The letter and form types of appraisal reports are abbreviations or variations of the complete narrative form of report. The narrative appraisal report gives the appraiser the opportunity to support opinions and conclusions. Those paragraphs mentioned in this question are generally included in the narrative report.

Question 2

Of the four appraisal terms listed, which one has the LEAST relation to the others?
A) Comparative
B) Sales
C) Reconciliation
D) Comparable

Answer 2

C) Reconciliation
Reconciliation is the final step by the appraiser in any appraisal and is the act of bringing together conclusions in a short concise statement (it can also be called summation). The terms sales, comparative, and comparable are used in the sales comparison approach.

Question 3

What is improved value?
A) Market value of land and improvements
B) Market value divided by total rents
C) Cost of reproduction less depreciation
D) Difference between economic and contract rent

Answer 3

A) Market value of land and improvements

Improved value is the combined value of land and building as distinguished from their separate values.

Question 4

If there is a transition from a buyer’s market to a seller’s market, what would be the result?
A) Sales prices would increase because of an increase in demand and a lag in supply.
B) It would have no effect on the price.
C) Sales prices would decrease because of a decrease in demand and an increase in supply.
D) It would cause a decrease in land development and construction of new homes.

Answer 4

A) Sales prices would increase because of an increase in demand and a lag in supply.
A seller’s market is characterized by an increase in demand and a decrease in supply. In these circumstances, sales prices tend to increase.

Question 5

On hot days, customers prefer to walk in the shade. Certain locations, due to the sun's fading effect on display window clothing, are the least desirable. Which is the least desirable side of the street for a clothing retailer?
A) Northeast
B) Southeast
C) Southwest
D) Northwest

Answer 5

A) Northeast
Because of the action of the sun, the southwest sides of the street are best. Therefore the northeast sides of the street are the least desirable corner of the street.

Question 6

Smith owns an older apartment building and is considering the merits of an expensive remodeling plan. The deciding factor that would be instrumental on his final decision would be the
A) cost of the plan.
B) effect of the plan on the net income.
C) wishes of the tenants.
D) potential increases in the real property taxes.

Answer 6

B) effect of the plan on the net income.
The owner would apply the principle of contribution. He must be sure that the investment in the improvements will produce sufficient additional income to cover the expenditure. If the net income increases adequately, he should go ahead with the plan.

Question 7

To analyze a leased property, an appraiser would consider
A) covenants, right of assignment, option for renewal and provisions for disaster, condemnation, improvements, and repairs.
B) none of these.
C) rent and other charges, date, parties, security, and term.
D) both of these.

Answer 7

D) both of these.
The relationship of contract and economic rental levels is important because of the effect on the value of the fee estate. Contract rent is the rent stated in the contract and economic rent is what you could rent the property for today if it was available. When making a gross income estimate, the appraiser would secure copies of all existing leases for study and would consider all the data in both choices.

Question 8

An appraiser determines the accrual for depreciation in using
A) market data.
B) the income approach.
C) none of these.
D) cost.

Answer 8

B) the income approach.
The term accrual for depreciation means to provide for future depreciation. This is done by setting aside funds or charging off against the future income an amount to eventually replace or recapture the investment in the improvements. This is usually provided for in the capitalization rate in the income approach. Accrued depreciation (past) is used in the cost approach.

Question 9

The greatest cause of loss of value to real property and the improvements thereon is
A) wear and tear.
B) deterioration.
C) obsolescence.
D) lack of maintenance.

Answer 9

C) obsolescence.
Obsolescence, combining both functional or economic factors, is a much greater cause of depreciation than age and other factors of deterioration.

Question 10

An owner has a 100-unit apartment house. Which item would be deductible from the gross income in determining net operating income?
A) Income tax
B) Wages for part time gardeners and maintenance personnel
C) Depreciation
D) Mortgage payments of principal and interest

Answer 10

B) Wages for part time gardeners and maintenance personnel
For appraisal purposes, mortgage payments and income tax are not allowable deductions to arrive at net operating income. Depreciation adjusts the cost basis but is not an expense for appraisal purposes. Wages paid for gardeners and maintenance personnel are deductible from gross income as operating expenses.

Question 11

The standards that a state-licensed or state-certified appraiser must follow are found in the
A) MAI.
B) USPAP.
C) NAR.
D) URAR.

Answer 11

B) USPAP.

USPAP stands for Uniform Standards of Professional Appraisal Practice.

Question 12

In order to arrive at an effective gross income for rental properties, an appraiser should deduct what from gross income?
A) Depreciation
B) Repairs
C) Real property taxes
D) Vacancies and collection losses

Answer 12

D) Vacancies and collection losses

Effective gross income is that income remaining after deducting vacancies and collection losses from gross income.

Question 13

In the appraisal of property, the principle of substitution would apply to
A) the income approach.
B) any of these.
C) the sales comparison approach.
D) the cost approach.

Answer 13

B) any of these.

Question 14

Which would LEAST likely protect a single-family residential neighborhood from losing value?
A) Introduction of average-priced homes in an area of better quality properties of the same type
B) Residents in the area have the same income
C) Most families are from the same religious and ethnic group
D) Minor change in zoning regulations

Answer 14

A) Introduction of average-priced homes in an area of better quality properties of the same type
The principle of regression maintains that as properties of dissimilar value are placed in a neighborhood of better properties, the worth of the better homes is adversely affected and they tend to lose value.

Question 15

In appraising a property using the market data approach, how would an appraiser treat a feature value found in the comparable property but not found in the subject property?
A) Treat the amenity as not included in the valuation
B) Disregard the feature value as no two properties are exactly alike
C) Subtract the value of the amenity from the sales price of the comparable property
D) Add the value of the amenity to the subject property

Answer 15

C) Subtract the value of the amenity from the sales price of the comparable property

Question 16

An appraiser would consider all of these as contributing to the stability of a neighborhood EXCEPT
A) residence in the path of urban directional growth.
B) increased density and rapid turnover of population.
C) homogeneity of buildings, people, and uses.
D) many families with children going to school.

Answer 16

B) increased density and rapid turnover of population.
An increase in density and rapid turnover may occur from undesirable causes. The principle of conformity holds that maximum value is realized when a reasonable degree of homogeneity is present in buildings, uses of property, and income levels of residents.

Question 17

The expansion and contraction of available space to meet demand is stimulated most by market fluctuations of
A) prices and rents.
B) financing terms.
C) permanence of residence.
D) elasticity of demand.

Answer 17

A) prices and rents.

If prices to build are relatively low and rents are high, builders will expand the available space to meet demand.

Question 18

Under the cost approach, the replacement cost is distinguished from the reproduction cost because replacement cost is defined as the cost of constructing an improvement with
A) substantially the same utility as the property being appraised.
B) neither of these.
C) either of these.
D) the same materials as were used in the original construction.

Answer 18

A) substantially the same utility as the property being appraised.
eplacement cost is defined as the cost of constructing an improvement with the same utility, but with today’s materials and costs. Reproduction cost is defined as the cost of constructing (reproducing a replica) an improvement with the material used in the original construction.

Question 19

The expenditure of dollars necessary for the creation of an improved residential property is called its
A) investment.
B) value.
C) cost.
D) price.

Answer 19

C) cost.
Cost, as it applies to real estate, means the amount expended (labor, material, and/or money) in acquiring or producing the commodity.

Question 20

In determining the value of income-producing property, an appraiser may use which appraisal technique?
A) All of these
B) Property residual technique
C) Land residual technique
D) Building residual technique

Answer 20

A) All of these

Question 21

An appraiser using the replacement cost approach on an older residential property would use all of these EXCEPT
A) cost of improvements new.
B) land value.
C) depreciation.
D) capitalization of income.

Answer 21

D) capitalization of income.

Capitalization of net income is unrelated to the cost approach to appraisal.

Question 22

The best definition of capitalization is
A) the relationship between value and net worth.
B) the minimum rate of return on an investment.
C) the result of dividing net income by a percentage rate of return to determine value.
D) the highest rate of return on an investment.

Answer 22

C) the result of dividing net income by a percentage rate of return to determine value.

Question 23

The recognized definition of highest and best use includes the term
A) effective gross income.
B) net return.
C) income production.
D) multiple units.

Answer 23

B) net return.
The BRE defines highest and best use as “that use which at the time of an appraisal is most likely to produce the greatest net return to the land and/or buildings over a given period of time.”

Question 24

When applied as a deduction from gross income, the vacancy factor is known to
A) vary both in locality and from time to time.
B) generally discourage prospective purchasers.
C) be constant.
D) be impossible for the appraiser to estimate with any accuracy.

Answer 24

A) vary both in locality and from time to time.

Question 25

The easiest way for an appraiser to calculate the present value of a building would be by
A) a quantity survey.
B) a review of the building permit records.
C) a unit-in-place cost method.
D) market data.

Answer 25

D) market data.
The comparative analysis or market data approach to appraisal is a quick method and easy to apply. The usual problem occurs where there are no comparable properties. The quantity survey and unit- in-place cost methods are very detailed.

Question 26

The basic economic characteristic that best expresses real estate value is
A) proximity to high rentals.
B) the prospect of speculative gain.
C) maximum utility of available resources.
D) high replacement cost.

Answer 26

C) maximum utility of available resources.
The four elements of value are demand, utility, scarcity, and transferability. Nothing can have value, including real estate, unless it possesses some degree of utility and scarcity. A parcel of real estate will not have value primarily because it has high replacement cost; proximity to high rentals; or has the prospect of speculative gain, even though these circumstances can influence value.

Question 27

Silverman is going to make extensive improvements on an old apartment building. Which is MOST important for Silverman to take into account?
A) Area
B) Net income
C) Land value
D) Cost

Answer 27

B) Net income
The principle of contribution affirms that after a certain point of development is reached, additional expenditures do not produce an appropriate return on the added investment (that is, the return is less than the existing or desired overall investment). Therefore, the owner should base the decision to make extensive improvements on their proper contribution to the net income.

Question 28

The fluctuations (activities) of the money market are extremely important to the real estate business. When interest rates go up and the income of a property is fixed, the capitalized value of the property will
A) decrease.
B) be unaffected in a short term.
C) tend to stabilize.
D) increase.

Answer 28

A) decrease.
When interest rates increase, it indicates that investors are asking for a higher rate of return on their investment. This results in higher cap rates. If the cap rate increases and the income stays the same, the value of the property decreases.

Question 29

Which would LEAST likely affect the stabilization of value on a single-family residence in a residential neighborhood?
A) Private restrictions
B) Zoning
C) Availability of public transportation
D) Newness

Answer 29

D) Newness
Newness in itself would not be a stabilizing influence. Zoning regulations and private restrictions generally have as their primary function the protection and stabilization of property values. Availability of public transportation has always been a significant factor influencing property values in most residential areas.

Question 30

It is known that a prudent buyer will not pay more for a property than the price of another suitable property if there is no undue delay in acquiring the other property. This is considered the principle of
A) contribution.
B) anticipation.
C) substitution.
D) competition.

Answer 30

C) substitution.

This is one expression of the principle of substitution.

Question 31

An increase in value, resulting from improved usability where one or more contiguous lots are joined together under single ownership, would be a definition most appropriately applied to
A) plottage.
B) appurtenance.
C) severalty ownership.
D) assemblage.

Answer 31

A) plottage.
Plottage increment is the increase in value after combining lots. Assemblage is the act of combining one or more contiguous lots under single ownership.

Question 32

An apartment house under construction has many prospective renters. The city now wants to widen the street. This change results in a 10% loss of renters. This loss would be an example of
A) physical obsolescence.
B) economic obsolescence.
C) functional obsolescence.
D) physical deterioration.

Answer 32

B) economic obsolescence.

Question 33

Appraisers have the most difficulty in determining the value of
A) capitalized income.
B) basic cost data.
C) accrued depreciation.
D) replacement cost new.

Answer 33

C) accrued depreciation.
Depreciation is the difference between the replacement cost new of the improvements and their present value measured at the same date. The older the building, the more difficult it is to estimate replacement cost and depreciation accurately.

Question 34

In determining the market value of a property, the appraiser considers
A) the bundle of rights.
B) utility.
C) the physical land and improvements thereon.
D) all of these.

Answer 34

D) all of these.

Question 35

Price is the amount
A) that a property actually does bring in the open market.
B) an informed seller asks for a property.
C) that a property might bring on the open market.
D) an informed buyer offers for a property.

Answer 35

A) that a property actually does bring in the open market.
Price is the amount actually paid for the property. It is distinct from market value, which is the most probable amount a property would likely bring under normal conditions.

Question 36

A salesperson obtained a listing and the salesperson stated that his broker will later appraise the property to verify the listing price. Which statement is correct?
A) The broker can make the appraisal but must charge a separate fee for this activity.
B) The broker can make the appraisal if he prepares a narrative report that sets forth his extensive qualifications.
C) The broker may make an appraisal only if the broker is also a state-licensed or state-certified appraiser.
D) The broker cannot legally appraise the property.

Answer 36

C) The broker may make an appraisal only if the broker is also a state-licensed or state-certified appraiser.
Under the California Appraiser Licensing and Certification Law, an appraiser must be licensed or certified for a “federally related real estate appraisal activity.” The term appraisal does not include an opinion given by a real estate licensee in the ordinary course of business, and such an opinion shall not be referred to as an appraisal. A broker or salesperson may do a “competitive market analysis,” for example, but may not term it an appraisal.

Question 37

The capitalization rate in the valuation of income property would least likely provide for
A) return of investment.
B) return on investment.
C) depreciation.
D) taxes.

Answer 37

D) taxes.
Taxes are more directly related to net income than to the capitalization rate. (Property tax is a legitimate expense to be deducted from the gross income when appraising.) Furthermore, overall capitalization rates provide for a return on (profit) and a return of (or depreciation of) the investment.

Question 38

In doing a feasibility study for residential development, taking into consideration local economic conditions, all of these items would be necessary EXCEPT
A) local zoning codes.
B) specific data related to the proposed project.
C) target markers.
D) analysis of economic basis.

Answer 38

B) specific data related to the proposed project.
A feasibility study for residential development must identify all economic factors that should be considered in developing detailed for a proposed project. The specific data should be established after the feasibility study.

Question 39

The process of determining market value, investment value, or insurance value as of a specific date would be
A) highest and best use.
B) evaluation.
C) depreciation.
D) valuation.

Answer 39

D) valuation.
Valuation is the process of estimating market value, investment value, insurable value, or other properly defined value of an identified interest(s) in a specific parcel(s) of real estate as of a given date. Valuation seeks an answer in dollars.

Question 40

In appraisal, all of these are recognized methods for the valuation of land EXCEPT the
A) abstraction method.
B) development method.
C) comparative method.
D) economic method.

Answer 40

D) economic method.
There are four basic procedures for the valuation of land: comparative, abstraction, development, and land residual. The term economic is not used in designating a recognized method.

Question 41

The value measures applied by an appraiser to establish value of industrial land are
A) acre and square foot.
B) square foot and front foot.
C) acre and front foot.
D) none of these.

Answer 41

A) acre and square foot.

Industrial land is valued in terms of dollars per square foot or per acre.

Question 42

In appraisal, all of these are recognized methods for the valuation of land EXCEPT
A) the comparative method.
B) economic method.
C) development method.
D) abstract method.

Answer 42

B) economic method.
There are four basic procedures for the valuation of land: 1) comparative, 2) abstraction, 3) development, and 4) land residual. Economic is not a method.

Question 43

A prudent buyer would not pay more for a parcel of real estate than he would have to pay for another similar parcel based on the principle of
A) balance.
B) substitution.
C) supply and demand.
D) highest and best use.

Answer 43

B) substitution.
The principle of substitution holds that when two or more substantially similar properties are available, the one with the lower price receives the greatest demand.

Question 44

If an appraiser does not adhere to appraisal standards (USPAP) for the purpose of defrauding an FDIC insured lender, the appraiser could be guilty of
A) a misdemeanor.
B) an ethics violation.
C) violating Bureau of Real Estate rules and regulations.
D) a felony.

Answer 44

D) a felony.
Submitting false information to a lender for the purpose of inducing the lender to make a loan is a felony. OREA could also remove the appraiser’s license.

Question 45

An appraiser determines the accrual for depreciation in the use of
A) the income approach.
B) the sales comparison approach.
C) none of these.
D) the cost approach.

Answer 45

A) the income approach.
An accrual for depreciation is a part of the income approach in appraisal. Appraisers describe remaining economic life as the period over which an investor would expect to recapture an investment in a property. An accrual for depreciation is a plan for recapture during this remaining economic life.

Question 46

The approach in which income is projected to a future date and discounted to today's rates to attract investors relates to a technique known as
A) capitalization of income.
B) unearned increment.
C) equity formulation.
D) income projection.

Answer 46

A) capitalization of income.
Capitalization of (net) income is an appraisal approach in which net income is projected to a future date and discounted to today's rates to attract investors.

Question 47

The terms quantity survey, unit-in-place, and square foot and cubic foot are all methods of arriving at a value estimate that are used in the
A) sinking fund approach.
B) income approach.
C) cost approach.
D) market data approach.

Answer 47

C) cost approach.

Question 48

To an investor in real property, cash flow means
A) income left after deducting taxes from net income.
B) gross income less an allowance for vacancies.
C) net income used for capitalization purposes.
D) monies left after deducting operating expenses, interest, and principal payments from gross income.

Answer 48

D) monies left after deducting operating expenses, interest, and principal payments from gross income.
Cash flow refers to the money the investor has at the end of the year after deducting operating expenses and debt service (principal and interest payments) from the net operating income.

Question 49

A nice yard, beautiful trees, and good neighbors usually increase the value of residential property. These things are known as
A) coordinates.
B) amenities.
C) tangibles.
D) bilaterals.

Answer 49

B) amenities.

Question 50

The prudent buyer, in purchasing a new home in a new subdivision tract, would most likely choose a home located
A) across from the shopping center.
B) near a bus stop.
C) in the center of the tract.
D) on a key lot.

Answer 50

C) in the center of the tract.
To avoid the main artery along which the bus runs and to avoid the lights, noise, and congestion of the shopping center, the prudent buyer will look to the center of the tract. The surrounding homes create a buffer from these other influences. A key lot tends to be less valuable than lots that are otherwise comparable.

Question 51

In arriving at an estimate of value based on selling prices, the appraiser is most interested in the date the
A) sale went into escrow.
B) deed was signed.
C) buyer and seller agreed on the price.
D) deed was recorded.

Answer 51

C) buyer and seller agreed on the price.
The buyer and seller agree on a price, and the contract is signed. This would indicate the market value of property on that date. Values taken at any later date would defeat the willing seller-willing buyer concept.

Question 52

A comprehensive method of estimating a building cost including labor, material, overhead, and profit is considered in which method?
A) Comparative cubic or square foot measurements
B) Quantity survey
C) All of these
D) Unit-in-place

Answer 52

B) Quantity survey
All building cost estimates should include both direct construction costs and indirect costs. Direct costs are those for material and labor, generally including the contractor’s overhead and profit. However, the most comprehensive method of cost estimating is the quantity survey method.

Question 53

In which appraisal approach may an appraiser be asked to predict the future value of a property?
A) Market
B) Cost
C) Summation
D) Capitalization

Answer 53

D) Capitalization
In the income approach (capitalization) an appraiser may be asked to project a series of possible developments on a site in order to establish the highest and best use of the land. In that sense the appraiser would be predicting values of certain hypothetical future developments. Generally, the value conclusion in an appraisal report can be made for any date in the past, but not for any date in the future. Capitalization is based on the principle of anticipation.

Question 54

Productivity is a direct function of
A) value.
B) use.
C) demand.
D) supply.

Answer 54

A) value.
The productivity of real estate is the income it produces. Income and value will vary directly and proportionately. Thus, each is a function of the other.

Question 55

The gross multiplier is LEAST likely to be used in the appraisal of
A) apartment buildings.
B) a residence.
C) vacant land.
D) commercial property.

Answer 55

C) vacant land.

Question 56

Which is the most expensive and difficult type of appraisal?
A) Unit-in-place cost
B) Quantity survey
C) Square-foot cost
D) Development

Answer 56

D) Development
In the quantity survey method, an estimate of the quantity and grade of each type of material, labor hours required, overhead, insurance, and contractor’s profit must be considered. It is a very detailed and expensive appraisal to perform.