Chapter 21 Appraisal

Question 1

Which of the following statements are TRUE?

A. Real estate appraisers must be licensed in British Columbia.
B. Courts have recognized a margin of permissive error of 25% in assessing damages arising as a result of a negligent appraisal.
C. A licensed real estate representative can give an appraisal of real property.
D. The market value of real property as determined by an experienced appraiser may be greater than the ceiling price of the buyer.

(1) A and B only
(2) B and C only
(3) A and C only
(4) C and D only

Answer 1

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Question 2

Sally, an appraiser, has been asked to provide an estimate of the market value of a farmhouse and the surrounding property. Which one of the following would NOT affect her estimate of market value?

(1) One of the pastures on the property has been leased for two years to the owner of a racehorse.
(2) The owner of the farmhouse is anxious to move and would like to sell as soon as possible.
(3) The farmhouse and its surrounding property is located between the main road and the next door neighbour’s property. Therefore, the neighbour gets the benefit of access to his house by means of a road that runs through the farmhouse property.
(4) Homehold Finance Company recently loaned some money, at a below-market interest rate, to the owner of the farmhouse and secured the debt with a mortgage on the farmhouse. This mortgage is assumable.

Answer 2

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Question 3

Which of the following statements are FALSE?

A. Form reports often meet the needs of financial institutions, insurance companies and government agencies.
B. An appraiser is only responsible to the person who pays the appraiser’s fees.
C. An appraisal mistake of $3,000 on a $276,000 house is beyond the margin of allowable error.
D. The burden of proof is on the appraiser to explain an apparent over-valuation of a property.

(1) Only statements B and C are false.
(2) Only statements A and C are false.
(3) Only statements A, B, and D are false.
(4) None of the above statements are false.

Answer 3

1

Question 4

Which one of the following is NOT a method of appraisal?

(1) the residual method
(2) the cost method
(3) the income method
(4) the depreciation method

Answer 4

4

Question 5

In the context of appraisal, which one of the following properties is most likely to possess latent value?

(1) a 3-storey condominium development which has recently been completed, all units having been sold before completion of construction
(2) a single-family residence which is the only house on the block not yet converted to the commercial use which is permitted by zoning
(3) a large shopping mall/office tower complex which occupies a location at the intersection of two main streets in a B.C. municipality
(4) All of the above properties are equally likely to possess latent value.

Answer 5

2

Question 6

Which one of the following statements is TRUE?

(1) In order to appraise real property one needs a minimum of a real estate trading services licence.
(2) The complexity of real estate as a product requires the involvement of an expert appraiser.
(3) Real estate can be classified as a homogeneous commodity.
(4) Due to the low turnover of real estate it is easy to collect information regarding recent transactions.

Answer 6

2

Question 7

Of the following four statements, which are TRUE, and which are FALSE?

A. Appraisers must be licensed in British Columbia.
B. Courts have recognized an acceptable range of error in the determination of market value by appraisers.
C. A licensed trading services representative can give an appraisal of real property.
D. The market value of real property as determined by an experienced appraiser will always be greater than the floor price of the owner.

(1) A and B are true; C and D are false
(2) B and C are true; A and D are false
(3) A and C are true; B and D are false
(4) C and D are true; A and B are false

Answer 7

2

Question 8

The principle on which the comparative method of appraisal is based is:

(1) indefeasibility.
(2) substitution.
(3) capitalization.
(4) accessibility.

Answer 8

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Question 9

The “subject of an appraisal” is:

(1) the market value of the physical property.
(2) a fee simple estate on a cash or cash-to-first-mortgage basis.
(3) a subjective measure of value by an experienced appraiser.
(4) the value of the legal rights of ownership vested in a particular piece of real estate.

Answer 9

2

Question 10

There are many reasons why a property might sell for a price which is different from its current appraised value. Which of the following could be a reason?

(1) The property is in a state of long-term disrepair.
(2) The property is located beside a fertilizer plant.
(3) The appraisal was done by the cost method.
(4) All of the above

Answer 10

3

Question 11

For which one of the following properties would an appraiser be MOST justified in employing the cost method to determine market value?

(1) a 40-year old bungalow which represents the highest and best use
(2) a newly-constructed church of contemporary design
(3) a vacant lot which possesses latent value
(4) a high rise office tower located in an outer suburb

Answer 11

2

Question 12

Under which one of the following conditions is the comparative method of appraisal MOST applicable?

(1) where the volume of sales transactions is very low
(2) where buyers and sellers are well informed about current sales transactions
(3) where the property has redevelopment potential
(4) where the property is unique

Answer 12

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Question 13

A real estate appraiser would NOT value:

(1) an existing rental agreement of a warehouse.
(2) the right to use airspace at the top of a highrise office building.
(3) the legal interest in cattle on agricultural land.
(4) a fee simple interest in a two-bedroom apartment.

Answer 13

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Question 14

In conducting an appraisal, a background analysis is undertaken covering a range of market factors. Which of the following is a reason for including a background analysis in an appraisal report?

(1) to indicate the current status of the subject property in relation to trends in property values
(2) to confirm that comparable properties have been selected from the same market as the subject property and are, hence, subject to the same market forces
(3) to provide the client with an appreciation of the socio-economic determinants of supply and demand
(4) All of the above are reasons for including a background analysis in an appraisal report

Answer 14

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Question 15

Before valuing a house, an appraiser should assume that:

(1) the registered owner is not the ultimate source of data on the property.
(2) the registered owner has a fee simple interest in the land.
(3) “value to owner” equals “market value”.
(4) the property is unencumbered.

Answer 15

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Question 16

The cost method of appraisal may NOT be used to value:

(1) airport hangars.
(2) vacant lots.
(3) condominiums.
(4) single-family residences.

Answer 16

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Question 17

Which of the following transactions could provide good evidence of market value to an appraiser?

(1) A custom designed home containing an elevator and several ramps is sold by Mr. Smith to his nephew, a paraplegic.
(2) A pre-fabricated home situated in a large subdivision of similar homes is sold after three months on the market.
(3) Miss Jones receives an urgent telegram stating that she has been accepted as a nursemaid to children in Nigeria. In the course of one week, she arranges the sale of her two bedroom condominium and leaves for Africa.
(4) All of the above could be good indications of market value.

Answer 17

2

Question 18

In which one of the following situations is the residual method of appraisal the MOST suitable method to use?

(1) where the market supply and demand forces are fairly constant
(2) where there is a large volume of available market data and the subject property represents the highest and best use of the site
(3) where the value to be measured is market value expressed as an income flow
(4) where the subject property possesses development potential

Answer 18

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Question 19

Of the following methods, which one must be used to determine the market value of an unused vacant site:

(1) the cost method of appraisal
(2) the comparative method of appraisal
(3) the income method of appraisal
(4) the depreciation method of appraisal

Answer 19

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Question 20

The market value of a vacant site can be determined by:
(1) the cost method of appraisal.
(2) the comparative method of appraisal.
(3) the accrual method of appraisal.
(4) any of the above three appraisal methods.

Answer 20

2

Question 21

The market value of a vacant site can be determined by:
(1) the cost method of appraisal.
(2) the comparative method of appraisal.
(3) the accrual method of appraisal.
(4) any of the above three appraisal methods.

Answer 21

2

Question 22

Which of the following people may require an appraisal of real property?

A. the executor of an estate
B. a property assessment appellant
C. a mortgagee
D. an expropriation authority

(1) C only
(2) A and C only
(3) A, B and D only
(4) A, B, C and D

Answer 22

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Question 23

When preparing a market value appraisal of a single family residence, an appraiser may:

(1) rely on the owner’s information as to the type of water supply piping in the property provided that he notes in his appraisal report the source of his information and the fact that it has not been verified.
(2) ignore above-average quality of construction if the buyers and sellers in the neighbourhood do not consider high quality materials important.
(3) disregard the recent sale of a house with same floor plan which is within the same subdivision as the subject property.
(4) do all of the above, depending on the circumstances.

Answer 23

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Question 24

A property which is not employed in its highest and best use:
(1) should be renovated.
(2) possesses latent value.
(3) should be rezoned.
(4) should be appraised by the cost method.

Answer 24

2

Question 25

An acquaintance of yours has approached you and wants to know why the bank which may finance his purchase of a house requires an appraisal. He claims that since an appraisal is not required for an investment in stocks, an appraisal should not be required for an investment in real property.

Which one of the following statements provides the BEST reasoning for your support of the bank’s requirement?

(1) The high turnover of real estate relative to stocks means that only an expert can keep up with changing values.
(2) The local nature of the real estate market implies that the flow of information will be unlimited and easy to assemble.
(3) It is difficult to find real properties that are very much alike.
(4) All of the above statements are true.

Answer 25

3

Question 26

In the context of appraisal, which one of the following properties is likely to possess latent value?

(1) a thirty-acre dairy farm in the Agricultural Land Reserve
(2) a recently constructed duplex unit in a single-family residential area of the city
(3) a bicycle store which is built on land zoned for commercial use
(4) none of the above

Answer 26

4

Question 27

An appraiser is looking for comparables to use in valuing a single family residence. Which of the following sales could provide good evidence of market value to the appraiser?

(1) An identical house in the same neighbourhood as the subject property is listed at $210,000 but has not yet sold.
(2) A similar house in the neighbourhood sold last month, after having been listed for two months.
(3) A similar house in a similar neighbourhood was purchased by a developer who was assembling land to build a neighbourhood plaza.
(4) Three weeks ago the owner of the house next to the subject property was notified that she had been transferred to Winnipeg and was to start this week. She has now sold her home and left for Winnipeg.

Answer 27

2

Question 28

Which of the following statements is/are TRUE?

A. The presence of a special buyer in a sales transaction will greatly extend the range of possible bids.
B. Real property markets are local by nature, due to the immobility of real property.
C. The neighbourhood an appraiser should consider when doing an appraisal may not be limited to the subdivision in which the property is located.
D. In British Columbia, anyone may undertake appraisal work and charge a fee for the appraisal services.

(1) Only statement C is true.
(2) Only statements A and B are true.
(3) Only statements A, B and D are true.
(4) All of the above statements are true.

Answer 28

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Question 29

An acquaintance of yours is about to purchase an income-producing property and asks your opinion of the property value. You wisely recommend that she have an appraisal done, but she counters by saying: “since appraisers in BC are not required to be licensed, it must be a straight-forward process that could be done by anyone. Why should I pay someone for an appraisal?”

Which of the following could you give as a reason for hiring a professional appraiser?

(1) Income-producing properties have low turnover rates.
(2) The heterogeneity of property means that knowledge concerning one property cannot necessarily be applied to another property.
(3) Real property markets are local.
(4) All of the above provide good reasons for hiring an appraiser.

Answer 29

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Question 30

Which of the following properties would be most suitable for an appraisal by the comparative method?

(1) A penitentiary located just outside the municipal boundary of a town inhabited by a population of 83,000.
(2) A 2-bedroom unit in a 4 year old condominium. The building is a concrete hi-rise and is in an area where an abundance of similar units are marketed.
(3) A 30 year old house designed by the famous architect, Earl Wright, to the owner’s specifications. The house is situated in an exclusive area in West Vancouver.
(4) A large office building in downtown Vancouver, owned by a forestry company which has been placed on the market because the first mortgage holder has commenced foreclosure action.

Answer 30

2

Question 31

The residual method of appraisal is the most suitable method for use where the subject property:

(1) is an apartment block in an area currently zoned for residential duplexes only.
(2) is vacant land.
(3) represents the highest and best use of the site and there is a large volume of market data available.
(4) has latent value.

Answer 31

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Question 32

Joan was considering putting in an offer on a farm in Peachland, BC for $130,000, subject to arranging suitable financing. She approached Peachy Credit Union for pre-approval of a mortgage loan, and Peachy hired A & A Appraisers to determine the value of the farm for mortgage purposes. A & A appraised the property at $135,000 and Peachy Credit Union approved a mortgage loan of $101,250 to Joan, who then went ahead with the purchase. Eleven months later the bank was forced to foreclose on the property and upon obtaining another appraisal, found that the market value of the property was only $70,000. It is found that A & A was negligent in its appraisal report.
What remedies, if any, are available to a) Joan, and b) Peachy Credit Union?
(1) Peachy Credit Union can sue A & A for breach of contract, but Joan has no case against A & A.
(2) Peachy Credit Union can sue Joan for their loss under her personal covenant but cannot sue A & A Appraisers.
(3) Peachy Credit Union can sue A & A for breach of contract, and Joan can sue A & A under tort law.
(4) No remedies are available to either Joan or Peachy Credit Union.

Answer 32

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Question 33

Which of the following results from the immobility of land?

(1) A large older home is divided into four separate suites, and each is sold as a unit.
(2) A piece of land is zoned as parkland, thereby increasing the value of nearby homes.
(3) There is no licensing requirement for appraisers.

Answer 33

2

Question 34

whic of the following might be the subject of a real property appraisal

1 air space rights
2 a life insurance policy
3 a diamond
4 a homeowners insurance policy

Answer 34

1

Question 35

which of the following statements is FALSE

1. an appraisal mistake of $3000 on a $276,000 house is beyond the margin of allowable error
2. form reports often meet the needs of financial institutions, insurance companies, and government agencies
3. the burden of proof is on the appraiser to explain an apparent over valuation of a property
4. an appraiser may be responsible to any party who reasonably relies on the appraisal report for the purpose it was conducted

Answer 35

1

Question 36

which of the following is not an appraisal approach method

1. the residual method
2. the cost approach
3. the income approach
4. the depreciation approach

Answer 36

4

Question 37

which appraisal approach method would be most suitable to appraise a new pulp mill in squamish

1. market comparison
2. residual
3. income
4. cost

Answer 37

4

Question 38

which one of the following statements regarding appraisal is true?

1. in order to appraise real property one needs a minimum of real estate trading services license
2. the complexity of real estate as a product requires the involvment of an expert appraiser
3. real estate can be classified as a homogeneous commodity
4. due to low turnover of real estate, it is easy to collect information regarding recent transactions

Answer 38

2

Question 39

the”subject of an appraisal” is

1. the market value of the physical property
2. the fee simple estate on cash or cash to first mortgage basis
3. a subjective measure of value by an experienced appraiser
4. the value of legal rights of ownership vested in a particular piece of real estate

Answer 39

4

Question 40

an acquaintance of yours is about to purchase an income-producing property and asks your opinion of the property value. you wisely recommend that she have an appraisal done, but she counters by saying: that since appraisers in British Columbia are not required to be licensed, it must be a straightforward process that could be done by anyone. why should I pay someone for an appraisal?

which of the following is NOT a reason for hiring a professional appraiser?

1. income-producing properties have low turnover rates
2. the heterogeneity of property means that knowledge concerning one property can necessarily be applied to another property
3. real property markets are local
4. real property is short-lived, it is easy to account for changes over time

Answer 40

4