Chapter 3 Flashcards
1
Q
In law, the solid surface on the earth, as distinguished from water.
A
Land
2
Q
Four agents of production
A
land, labor, capital, entrepreneurial coordination
3
Q
Improved land or a lot in a finished state so that it is ready to be used for a specific purpose.
A
Site
4
Q
The difference between land and site
A
Land is raw- site is improved land
5
Q
If we are estimating land value, in most cases, we would compare it with sales of similar parcels on vacant ______. If we are estimating site value we try to compare it to other similar, recently _____ sites.
A
Land; sold
6
Q
In appraising, there are occasions in which it is necessary or desirable to estimate the value of the site _______ from the total value of the property.
A
seperately
7
Q
In most residential appraising, we are valuing _____ rather than ____. Land is improved into a site, creating the necessary support for the improvements.
A
site; land
8
Q
The Cost Approach is sometimes referred to as the _______ ______, although this term is generally considered somewhat outdated.
A
summation approach
9
Q
The _______ _______ deals with two components, site and improvements, which are added together (i.e., summed) to produce a value indication.
A
cost approach
10
Q
In developing the Cost Approach we start with the ______ value.
A
site
11
Q
Second step in the cost approach is to ____ to the site value, the present _______ value of any building improvements and site improvements.
A
add; depreciated
12
Q
To ascertain the depreciated value of the building improvements, we start with the _____ to build them new and subtract depreciation.
A
cost
13
Q
The point is, you can’t do a Cost Approach without having a ____ _____. It is an integral part of the approach.
A
site value
14
Q
The basis for real estate taxation is an ________ value that is placed on the tax roll for each property in the taxing jurisdiction. That _______ value bears a relationship to the value of that parcel of real property.
A
assessed; assessed
15
Q
In some jurisdictions the assessed value is purported to represent the _____ market value of the real property. In other taxing jurisdictions, the assessed value is applied as a ____ of full market value.
A
full; ratio
16
Q
The bottom line amount of real estate taxes should be _____ in either situation. The total taxes are the product of ______value multiplied by a _____rate.
A
equal; assessed; tax
17
Q
Let’s assume that a property is worth $100,000. If it is assessed at $100,000 and the rate per thousand is $5, the taxes would be
A
$500
18
Q
The process of determining these assessed values varies tremendously from ________ to ________
A
jurisdiction to jurisdiction
19
Q
At any rate, most states mandate that the total assessed value for each property be broken into two components. What are those components?
A
land and total values
20
Q
________ appraisals are required when a municipality exercises power of eminent domain.
A
Condemnation
21
Q
Under eminent domain, any level of government can take a property for the public good, provided there is _____ ________paid to the property owner
A
just compensation
22
Q
A state department of transportation plans to widen an existing highway for the purpose of straightening a curve. Then, just a portion of a homeowner’s property along the front averaging 35 feet in depth will be taken. What is this an example of?
A
Eminent domain
23
Q
Several ______ __________techniques require that the value of a site be determined separately from the value of the total property.
A
income capitalization
24
Q
In the______ _________technique, the starting point is the value of the land. Then, the portion of the net income that is attributable to the land is subtracted and the remaining net income is attributable to the building improvements.
A
building residual
25
A site has 4.6 acres. You analyze the market and determine it could have four possible uses that would be legally permissible, physically possible and financially feasible. Which one would be the highest and best use of the site?
A. Used as a site for a large single-unit house it would be worth $175,000.
B. Used as a site for two duplexes, it would be worth $45,000 per unit.
C. Used as a site for a small medical center, it would be worth $40,000 per acre.
D. Used as a site for an office complex, it would be worth $25 per SF of rentable space. It could support two buildings that each measure 45' x 85'.
A. One unit = $175,000
B. 4 units X $45,000 = $180,000
C. 4.6 acres x $40,000 = $184,000
D. 45 x 85 x 2 buildings =
7,650 SF x $25 = $191,250
Answer: D
26
A site has 4.6 acres. You analyze the market and determine it could have four possible uses that would be legally permissible, physically possible and financially feasible. Which one would be the highest and best use of the site?
A. Used as a site for a large single-unit house it would be worth $175,000.
B. Used as a site for two duplexes, it would be worth $45,000 per unit.
C. Used as a site for a small medical center, it would be worth $40,000 per acre.
D. Used as a site for an office complex, it would be worth $25 per SF of rentable space. It could support two buildings that each measure 45' x 85'.
A. One unit = $175,000
B. 4 units X $45,000 = $180,000
C. 4.6 acres x $40,000 = $184,000
D. 45 x 85 x 2 buildings =
7,650 SF x $25 = $191,250
Answer: D. Produces the highest return to the site
27
A parcel is valued at $160,000 as a large single-family homesite with no further development costs required. Zoning allows it to be subdivided into four lots, and it is estimated that each lot could sell for $50,000. Site development costs (sewer, grading, road, etc.) would cost $60,000. What is the highest and best use?
Leave it alone!
$50,000 x 4 = $200,000
$200,000 - $60,000 = $140,000 value of property as subdivided into 4 lots
$160,000 = value as single parcel
28
A 2.3 acre parcel that can be developed into four smaller lots or two larger lots.
Legal considerations: Zoning will allow two lots per gross acre. The subject parcel is 2.3 acres.
Physical considerations: The town allows septic systems if at least one acre - smaller lots require sewer. The sewer line is 800 feet away. You could develop four smaller lots on sewer or two larger lots on septic systems.
Financial feasibility: Comparable one-half acre lots with sewer sell for $65,000. Comparable one-acre lots without sewer sell for $90,000. The sewer extension will cost $75,000 and a typical septic system costs $7,500.
Which yields the maximum profitability? (Spend some time working this out. Use scratch paper if you have to. Hint: consider the total lot values for each of the two alternatives and then subtract the development costs.)
```
Answer: Smaller Lots
Small lots:
4 x $65,000 = $260,000
Development costs - 75,000
Value $185,000
```
Larger lots:
2 x $90,000 = $180,000
Development costs - 15,000
Value $165,000
29
True or False: Condemnation appraisals often require an appraiser to develop a separate opinion of site value.
True
30
Improvements that could be made to raw land in order to make a site would include
permits
grading
fill
any of these
any of these
31
True or False: The difference between land and site is that land is improved, while site is not.
False
32
Most MLS listings today employ ___ ________ in the property description. That makes it a snap for an appraiser to quickly and definitively locate comparable sales when making an inspection.
GPS Coordinates
33
Real property for which the expansion, redevelopment, or reuse of the real estate may be complicated by the presence of environmental contamination that needs to be remediated to appropriate regulatory standards.
Brownfield
34
The EPA estimates there are about ________ brownfields nationwide. __________ is the most common contaminant
500,000; Petroleum
35
George W. Bush signed H.R. 2869, which provides ______ ______ for those who buy brownfield sites. States will handle most lower-level _______, but the Environmental Protection Agency (EPA) will control sites that _____ state lines or that pose an imminent threat to public health or the environment.
liability insurance; clean ups; cross
36
Six ways to develop an opinion of land or site
```
Sales comparison
Extraction
Allocation
Subdivision development
Land Residual
Ground rent capitalization
```
37
The most commonly-used approach for valuing sites is the sales comparison method.
Sales comparison method
38
Assuming there is adequate data available, this is the preferred method for valuing sites because it is the most accurate and most understandable, and should be utilized whenever possible. The only limitation to this approach is that you must have adequate market data.
Sales comparison method
39
In contrast to improved property, in using the Sales Comparison Approach for vacant land, the appraiser will typically need to use more sales, probably ___ or more comparable sales instead of the minimum of three sales.
6
40
Two similar sites sell within a few months along the same road. One site has many trees, whereas the other has been stripped of trees. The treed site (Sale #1) sells for $55,000, and the bare site (Sale #2) sells for $50,000.
The subject property has plenty of trees, and it is very similar to Sale #3 except that Sale #3 has no trees. Sale #3 sold for $40,000. In comparison, the subject property is worth how much?
The sale is inferior to the subject, so the subject should be worth more. First, we use our paired sales (Sales #1 and #2) to extract the adjustment. $5,000/$50,000 = 10%. That is the percentage adjustment factor we will use. We then apply a positive 10% adjustment to Sale #3. $40,000 X 1.10 = $44,000.
41
When utilizing sales comparison, adjustments to the comparable sales may be made either on a _______ or _______ basis.
quantitative; qualitative
42
These adjustments are usually made on a percentage or dollar basis.
Quantitative
43
As a potential solution to a shortage of land or site sales, it may be possible to study trends among groups of ______ ______ (group data analysis) instead of finding and comparing two individual sales that are similar except for one significant difference (paired sales analysis).
property sales
44
If we look closely enough at two different sites, we could probably distinguish 20 or 30 very minor differences between the two. It is not necessary or appropriate to make that many adjustments. We only need to adjust for items that are _______.
significant
45
Possible reasons for adjustments
```
Size
shape
traffic
topography
unusable area
zoning
restricitons
```
46
If your comparable sales are not sufficiently similar so as to allow for direct comparison, then we can resort to breaking the available sales into common ___ __ ________
units of comparison
47
When appraising land or sites, the most common units of comparison are...
```
Price per sq foot
Price per acre
Price per front foot
Price per lot
Price per buildable unit
Price per animal unit
```
48
Dividing the sales price of each comparable land sale by the amount of square feet in each.
Price per square foot
49
Dividing the sales price of each comparable sale by the number of acres. Best used for larger parcels.
Price per square acre
50
A primary measure of value for waterfront properties and for commercial properties along a major roadway.
Price per Front Foot
51
In some cases the market may not recognize size differences between lots. As an example, Don Developer may carve up a parcel of 80 acres into 40 lots. Don may simply choose to price all the lots at $60,000 at the beginning, regardless of their individual size, and then increase the per unit price as time goes on. Therefore, if you were using lots in that subdivision for comparable sales, it would make sense to just see what they sold for per lot. Don is using which unit of comparison?
Price per lot
52
This unit of measurement is usually employed with a parcel that is capable of a small subdivision. Most often, it is used with multi-unit properties.
Price per Buildable Unit
53
You will encounter this unit of measurement in ranch or farm land.
Price per Animal Unit
54
When using the sales comparison method in valuing a site, adjustments should be made for differences that are __________.
more than $1
significant
more than $100
noticeable when driving by the property
Significant
55
The most commonly-used land appraisal report form
- was created by Fannie Mae
- is a generic form
- was created jointly by Fannie Mae and Ginnie Mac
- is not recognized by the major appraisal software companies
Is a generic form
56
A rectangular parcel of land has 114 feet of frontage and is 222 feet deep. It sold for $280,000. What did it sell for per square foot?
$12.54
$10.88
$11.06
$24.56
$11.06
222x114= 25,308
280,000 / 25,308 = 11.06
57
True or False: A postal mailing address is equivalent to a legal description.
False
58
A method of estimating land value in which the depreciated cost of the improvements on an improved property is calculated and deducted from the total sale price to arrive at an estimated sale price for the land
Extraction Method
59
Improved sales in rural areas are frequently valued using this site valuation method because the building improvements may have a minimum contributory value in comparison to the underlying land value.
extraction method
60
A run-down neighborhood grocery store on a good corner location in a desirable older neighborhood recently sold for $400,000.
The reproduction cost of the improvements today would be $250,000 and the total depreciation is estimated to be 80%.
By extraction, what is the land value?
$250,000 x .80 = $200,000. That amount is lost and gone forever. $250,000 - $200,000 = $50,000. Therefore, the present value of the improvements is only $50,000.
61
After diligent research, you're unable to come up with vacant land sales in the vicinity of an assignment you have in Old Town. You do uncover a sale of a dilapidated storefront with two apartments upstairs. The sale price was $250,000. Your investigation of the building department's records allows you to calculate that the reproduction cost of the improvements would currently be $280,000. After an analysis of the property, you conclude that the total accrued depreciation is 60%. On that basis, what would be your conclusion as to the value of the land?
$80,000
$112,000
$138,000
$250,000
$280,000 x .60 (depreciation) = $168,000
$280,000 - $168,000 = $112,000 (value of improvements)
$250,000 (sale price) - $112,000 (value of improvements) =
$138,000 (value of land)
62
A method of estimating land value in which sales of improved properties are analyzed to establish a typical ratio of land value to total property value and this ratio is applied to the property being appraised or the comparable sale being analyzed
Allocation Method
63
The basic assumption in this method is that there is a normal or typical ratio between the land value and total value. So we quantify the value of the land as a percentage of the total value.
Allocation method
64
You are having a hard time finding recent sales of vacant land in an established built-up residential area. You have found several older sales where you have applied the extraction method to their sale prices and determined that the typical land to improvement ratio was 30% land and 70% improvements. The site sizes are similar to your subject property site.
You have several recent good comparable sales of improved sales and need to determine the land value of your subject so you apply that established 30% ratio of land value to the comparable sales then reconcile those land values to determine the land value of the subject of your appraisal. Below are the improved sales.
Sale 1 - Site size: 12,000 sf. $230,000 X 30% = $69,000 = $5.75 sf
Sale 2 - Site size: 11,500 sf. $218,000 X 30% = $65,400 = $5.69 sf
Sale 3 - Site size: 12,500 sf. $242,000 X 30% = $72,600 = $5.81 sf
Sale 4 - Site size: 9,000 sf. $187,000 X 30% = $56,100 = $6.23 sf
Your subject property site size is 12,000 sf. By the allocation method, what is your opinion of the value of the subject site?
Depending of the variables you consider in your reconciliation process, the site value would be somewhere around $5.80 to $5.90 per square foot, or $69,600 to $70,800. In the real world, the hard part is obtaining that 30% ratio.
65
How do we know what percentage to choose for our ratio of land value to total value? Support for an allocation ratio may be derived from:
```
Mass appraisals
Observed patterns
Consultations with developers on their costs
An appraiser's files
Published studies
```
66
The application of computer technology and statistical techniques to the solution of appraisal problems; used in assessment administration to derive value indications in the cost and sales comparison approaches and to perform other functions, e.g., assessment ratio analysis.
Mass Appraisals
67
In almost all jurisdictions, assessors are required to place a separate _________ on the land value of each property on the tax roll.
Assessment
68
Real property value is created and sustained when contrasting, opposing, or interacting elements are in a state of equilibrium.
Principle of Balance
69
Real property value is created and sustained when the characteristics of a property conform to the demands of its market.
Principle of Conformity
70
The subject has a total value of $300,000 by the sales comparison approach.
One neighborhood across town has home sales from $260,000 to $270,000, and recent lot sales average $63,000.
Another nearby neighborhood has $340,000 home sales, and recent lot sales of $70,000.
A builder in the area says his lots typically run about 25% of total value on new construction.
What is the subject land worth, based on allocation?
In the first neighborhood, let's choose an average of $265,000 for improved property sales. $63,000 divided by $265,000 = .24 or 24%
In the second neighborhood let's divide $70,000 by $340,000 = .21 or 21%
The indication from the builder is 25%. Let's convert those percentages to dollars. The subject total value is $300,000.
$300,000 x .21 = $63,000
$300,000 x .24 = $72,000
$300,000 x .25 = $75,000
Therefore, the indicated value of the subject lot ranges from $63,000 to $75,000.
71
A method of estimating land value in which the net operating income attributable to the land is isolated and capitalized to produce an indication of the land's contribution to the total property.
Land Residual Method
72
In the _____ _______ method, the basis is that part of the income from real property comes from the land and that part of the income stream is attributable to the improvements. If we can isolate the portion of the income stream that is attributable to the land, then we can capitalize that into a value for the land.
land residual
73
basic income capitalization formula
Income/Rate= value
```
Value = Market value
Income = Net operating income
Rate = Capitalization rate
```
74
A method of estimating land value; applied by capitalizing ground rent at a market-derived rate. This method is useful when comparable rents, rates, and factors can be developed from an analysis of sales of leased land or other market sources.
Ground Rent Capitalization Method
75
Ground Rent Capitalization method:
| We have a ground rent of $135,000 and a market derived rate of 9%. What is the value of the land?
$135,000 divided by .09 = $1,500,000. That's all there is to it at this point but again it's not that easy to find the appropriate rate. We also need to investigate the terms of the ground lease to see if the contract rent represents market.
76
Which two methods should only be utilized when the subject property is income producing by nature?
Land Residual and Ground Rent Capitalization
77
Relative comparison analysis and ranking analysis are quantitative or qualitative methods?
Qualitative
78
This method analyzes the comparables to determine whether each one is, overall, superior, equal to, or inferior in comparison to the subject.
Relative comparison analysis
79
This method is a variant of relative comparison analysis, in which the comparable sales are ranked in ascending or descending order. Then the relative position of the subject is determined within the array.
Ranking Analysis
80
True or False: The extraction method of site valuation typically has good applicability in older urban areas.
True
81
Relative comparison analysis and ranking analysis are __________ methods.
qualitative
quantitative
non-recognized
precise numeric
Qualitative
82
The subdivision development method of land valuation is a variation of
the sales comparison method
discounted cash flow analysis
allocation
residual
Discounted cash flow analysis.
The subdivision development method is a variation of a discounted cash flow analysis. It involves complex calculations over a future time frame and then discounts projected income and expenses back to present worth estimates.
83
Another name for the extraction method of site valuation is
ground rent capitalization
abstraction
absorption
regression analysis
abstraction
84
The summation approach is another name for the _________ approach.
cost
market
income capitalization
None of the above
Cost
85
Property in built-up urban residential areas is usually valued on the basis of price per
square foot
acre
front foot
lot
Square foot
86
“A method of estimating land value in which sales of improved properties are analyzed to establish a typical ratio of land value to total property value…” is the definition of the __________ method.
extraction
subdivision development
allocation
sales comparison
allocation
87
“Improved land or a lot in a finished state so that it is ready to be used for a specific purpose” is the definition of
improved land
situs
site improvements
site
site
88
Which of these is NOT a technique used for site valuation?
Sales comparison
Breakdown method
Ground rent capitalization
Extraction
Breakdown method
89
A property with an old house sold for $220,000. The cost new of the house was $280,000 and it was 75% depreciated. What is the site value of the property by extraction?
150,000
280,000 x .75 = 210,000
280,000 - 210,000 = 70,000
220,000 - 70,000 = 150,000
90
A site is currently rented for $600 per month and the ground rent capitalization rate is 7.5%. What is the indicated value of the site?
$20,000
$80,000
$96,000
$115,000
96,000
Ground Rent Capitalization Method. $600 month X 12 months = $7,200 per year. $7,200 ÷ .075 = $96,000.
91
The ___________method has good application in valuing land in rural areas and in older, urban areas.
extraction
subdivision development
land residual
ground rent capitalization
extraction
92
The tax rate per thousand in a municipality is $12.80. If the property taxes are $1,984 for a particular property, what is the property's assessed value?
$125,000
$155,000
$195,000
$310,000
$155,000***
93
The ground rent capitalization method is most applicable when appraising a _______ interest.
leased fee
leasehold
fee simple
land residual
leased fee
94
Which would NOT be considered to be a site improvement?
grading
sub-soil composition
fill
permits
sub-soil composition
The composition of the sub-soil would be a factor of the site itself – not improvements to the site.
95
What is another name for the cost approach?
Market approach
Reproduction approach
Summation approach
Qualitative approach
summation approach
96
A property sold for $50,000. The reproduction cost of the building was $80,000 and it was 60% depreciated. By extraction, what is the value of the land?
$12,000
$18,000
$22,000
$32,000
$18,000
Extraction Method. $80,000 X 60% (0.60) = $48,000. $80,000 - $48,000 = $32,000 (which represents the current depreciated value of the improvements). Total sale price of $50,000 - $32,000 depreciated value of improvements = $18,000 land value.
97
What is the name of the process that the government uses when it takes private property for public good?
Condemnation
Adverse possession
Escheat
Seizure
condemnation
98
Which of the following is a technique for site valuation?
Subdivision development
Sales comparison
Allocation
All of the above
all of the above
99
Property that fronts on a lake is often valued using what unit of comparison?
Price per acre
Price per front foot
Price per fish or animal unit
Price per buildable unit
price per front
100
A parcel is valued at $450,000 as a single entity. Zoning allows it to be subdivided into 8 lots and it is estimated that each lot could sell for $60,000. Site development costs (sewer, grading, road, etc.) would cost $50,000. What is the highest and best use?
Leave it as one parcel
Subdivide it
There is not enough information
Both are highest and best use – both are equally profitable
Leave it as one parcel
101
If a property is assessed at $222,000 and the rate per thousand is $6.20, how much are total property taxes?
$1376.40
Assessments and Taxation. 222 (thousands) X $6.20 = $1,376.40.
102
A commercial site currently rents for $4,000 per month. The applicable land capitalization rate is 6%. What is the value of the site by the ground rent capitalization method?
$800,000
4,000 x 12 =48,000
48,000 / .06 = 800,000
103
The ground rent capitalization method is most applicable when appraising which of the following __________.
vacant land
subdivision land
a residential building
land under a McDonalds restaurant where McDonalds owns the building
land under a McDonalds restaurant where McDonalds owns the building
104
GPS stands for
Geographic Positioning Satellite
Geological Positioning Society
Global Positioning System
Geographic Positioning Service
Global Positioning System
