Lesson 1 Flashcards
(27 cards)
Which of the following statements regarding the First Principle of Value is FALSE?
(1) An initial step in an appraisal involves identifying the purpose/objective of the assignment and the date when the value opinion is to be effective.
(2) Part of a comprehensive legal understanding of a property includes identifying the type of ownership.
(3) The definition of “value” being sought is the key consideration in the highest and best use analysis.
(4) Land use regulations are a key determinant of applicable property rights.
Answer: 3
Option (3) is false. Value is not the key consideration in the analysis of highest and best use rather it is “ that use which is most likely to produce the greatest return, in the money of amenities, over a given period of time.” The type or definition of value being sought is considered in the initial step of the assignment when you are identifying the problem or the issue being addressed. The other options are true.
Which of the following statements regarding appraisal reporting is FALSE?
(1) The different reporting formats are distinguished on the degree of analysis and level of detail reported.
(2) Oral reports may be acceptable in court testimonies.
(3) Reports must be done in writing
(4) The client’s purpose and intended use is one determinant of the format of the appraisal report.
Answer: 3
Option (3) is false as appraisal reports may be delivered orally.
Option (1) is true because reporting formats can be distinguished by the degree of analysis and level of detail reported.
Option (2) is true because oral or verbal reports are given in court testimony and in tribunals such as appraisals, as well as in other circumstances.
Option (4) is true because the purpose and intended use of the appraisal determines the reporting format.
Which of the following statements regarding Canadian Uniform Standards of Professional Appraisal Practice(CUSPAP) is FALSE?
(1) The Real Property Appraisal Standard deals with the procedures for the development and communication of a formal opinion of value for real property and incorporates the minimum content necessary to produce a credible report that will not be misleading.
(2) According to CUSPAP, appraisal practice includes but is not limited to Appraisal, Appraisal Review, and Consulting.
(3) CUSPAP dictates the form, format, and style of reporting.
(4) Adherence to CUPSPAP when preparing reports can help reduce an appraiser’s exposure to civil action.
Answer: 3
Option (3) is false. CUSPAP does not dictate the form, format or style of reporting. These are determined by the needs of the users and appraisers. Options (1), (2), and (4) are true.
In today’s society, there are sometimes conflicts over the use of some lands. Environmentalists often feel that some lands should be kept for the use by society as a whole, while the owner thinks that they have the right to develop it as they like, subject to zoning regulations. Which concept of value does this fall under?
(1) Geographic
(2) Government
(3) Social
(4) Economic
Answer: 3
There are four concepts that affect the value of land: government, economic, social, and geographic/environmental. The discussion of social forces in the text outlines different views on how land should be developed versus how it should be left in its natural state.
Which of the following statements regarding appraisal is FALSE?
(1) The sale price may indicate the buyer’s ceiling price and the seller’s floor price.
(2) A form report is most commonly used in mortgage financing for residential properties.
(3) An appraiser need not understand the type of interest to be determined, as long as he uses the correct appraisal method.
(4) Appraisals always estimate value as at a specified date, known as the date of valuation or effective date.
Answer: 3
Option (3) is false because an appraiser must clearly understand the type of interest that is required because it impacts the value estimate. The legal understanding guides the appraiser in their selection of comparables, analysis and approach method utilized.
Option (1) is true because if all that is known about a transaction is the sale price, it is not possible to accurately determine the value for either the buyer or seller, or ceiling and floor prices respectively. These prices are often not definite. They are affected by their respective negotiation skills and how anxious they are to complete the transaction.
Option (2) is true and this form meets the needs of financial users.
Option (4) is true.
Which of the following statements regarding “value” is FALSE?
(1) Fair value and market value both focus on willing buyers and sellers.
(2) Use value considers the property’s value in alternative uses.
(3) The intended use determines which definition of value is applicable to a particular assignment.
(4) Assessed value is established as a basis for levying property taxes.
Answer: 2
Option (2) is false because use value is the value of a property as it is currently used or for a specific use, not its value considering alternative uses, that is its highest and best use. The other options are true.
Valuation professionals may undertake assignments that extent beyond point-in-time valuation, as reflected in CUSPAP’s Consulting Standard Section 11. Which of the following assignments are MOST likely to be considering consulting?
A. Evaluating the probability of success for a real estate development project.
B. Providing advice to an owner on pricing her heritage home in a sale negotiation
C. Evaluating a specific property to determine if it meets a client’s investment criteria
D. Establishing the market value of a four-unit rental project upon completion, for insurance purposes.
(1) A and C only
(2) B and D only
(3) B and C only
(4) A and D only
Answer: 1
CUSPAP’s Consulting Standard Section 11 covers analysis of feasibility, investment, and marketability, offering conclusions about alternatives rather than market value. Hence, the Consulting Standard would be applied to Statements A and C only. The Appraisal Standard would apply to Statements B and D where a point-in-time appraisal is required to determine a purchase price or market value.
Which of the following statements regarding intended use of an appraisal is FALSE?
(1) The intended use of the report is determined by the client’s problem and/or decision to be made.
(2) The client’s intended use of the report may affect the fee to be charged.
(3) The client’s intended use may inform the type of report required to be completed.
(4) Intended use is a part of CUSPAP, but not the First Principles of Value.
Answer: 4
Intended use is an important concept considered both in CUSPAP and First Principles of Value. All the other options are true.
The tenant of a small, freestanding retail building is a baker who has installed ovens for baking bread. The ovens are large and heavy, and the back wall of the building had to be removed for the ovens to be installed. The appraiser is performing a refinancing appraisal of the real estate only. How should the appraiser treat the ovens?
(1) The appraiser should include the ovens in the appraisal as part of the real estate, since it would be difficult to remove them.
(2) The appraiser should include the ovens in the appraisal because they are worth a lot of money and will add significantly to the property value.
(3) The appraiser should not include the ovens because they are trade fixtures.
(4) The appraiser should not include the ovens because they add no value in most markets.
Answer: 3 T
he appraiser should not include the ovens because they are trade fixtures and unlike fixtures, which are regarded in law as part of the real estate, trade fixtures are not real estate endowed with the rights of real property ownership. A trade fixture is to be removed by the tenant when the lease expires unless this right has been surrendered in the lease.
Which criterion is NOT considered when distinguishing between personal property and fixtures?
(1) The manner in which the item is attached
(2) A lease term specifying the intention of the parties to the contract
(3) The nature of the item and whether its use has been specifically adapted for use in a particular building
(4) The length of time that the item has been on the property
Answer: 4
The criteria for distinguishing between personal property and fixtures are the manner in which the item is affixed, the character of the item and its adaptation to the real estate, and the intention of the party who attached the item. Option (4), the length of time that the item has been on the property is not a criterion for distinguishing between personal property and fixtures.
Based on the definitions of “real estate” and “real property” in this lesson, which of the following is an example of real estate?
(1) Wes has granted an easement on his property so that Carl can get to the beach.
(2) Shelley leases her horse ranch to William for summer grazing.
(3) Alex has bought a house and his extended family.
(4) Samantha, owner of a single-storey care facility has sold the air rights to the owner of the adjacent property to allow a for a higher density redevelopment foe an office building.
Answer: 3
The term “real estate” refers to a physical entity that is immobile and tangible, such as land or improvements. Examples of natural improvements found on a property include trees and minerals. Improvements made by humans include buildings and landscaping, things we can see and touch.
The term “real property” refers to the rights attached to real estate which are intangible and which we cannot see or touch. However, they are present and they can affect value, particularly if they affect the use of the land or real estate. For example, leases or easements are real property, even though they are not tangible they are commodities which can be bought and sold. Options (1), (2), and (4) are examples of real property, whereas Option (3) is an example of real estate.
Which of the following statements regarding justified price is TRUE?
(1) Justified price always equals market value.
(2) A justified price is another term for synergistic value.
(3) Ceiling price is irrelevant in determining a justified price.
(4) An assignment to determine a justified price falls in the area of investment counseling.
Answer: 4
Option (4) is true. Options (1) and (2) are false because justified price is not equivalent to market value nor synergistic value. Option (3) is false because both ceiling price and floor price are considered in determining a justified price.
Market value is :
(1) a fact that can be reported by the appraiser.
(2) always equal to sale price.
(3) the amount of money a property should sell for on the open market.
(4) relevant only when a property has been exposed to the market for three weeks or more.
Answer: 3
It is generally agreed that market value results from the collective value judgments of market participants, that is, the amount of money a property sells for on the open market. Option (1) is false because market value is an estimate and not a fact. Option (2) is false because while market value may equal sale price, that is not always the situation. Option (4) is false because the adequate amount of time is not a definitive number, but can vary from situation to situation.
Which of the following BEST describes who an appraiser may owe obligations to?
(1) The appraisal profession
(2) Clients and institutions such as lending institutions and government agencies
(3) Society in general
(4) An appraiser may owe obligations to all of the above groups
Answer: 4
The appraiser has obligations to four groups:
Clients: to provide an unbiased, objective analysis to help in decision-making and to reduce risk.
Third parties: such as lending institutions, investors in lending institutions, government agencies that underwrite lending institution losses, and other unidentified parties that are removed from the initial transaction.
Society in general: by use of the valuation process, appraisers can help to promote the wise and efficient use of a scarce and limited resource, that is, land and land-related resources. Appraisers can be important in guiding sound real estate decisions, thereby helping society to avoid wasting resources that can cause urban problems.
The appraisal profession: by providing valuable analysis, the appraisers reinforce the value of the profession to clients, third parties, and society.
The mayor of a small town recently hired you to estimate the value of a new, one-storey, three-bay fire station. The fire station was built last year at a cost of $2.5 million(land and building). Similar-sized, one-year-old commercial buildings in comparable locations are selling for $2 million. If you appraise this building for approximately $2.5 million, you probably have conveyed an opinion of:
(1) market value
(2) use value
(3) investment value
(4) value in transition
Answer: 2
Use value is the value a specific property has for a specific use. In estimating use value, the appraiser focuses on the value the real estate contributes to the enterprise of which it is a part, without regard to the highest and best use of the property or the monetary amount that might be realized from its sale. The fire station represents a very specialized property in that the layout restricts the functional utility of the property for which it was originally built, therefore, a use value appraisal is appropriate.
Which of the following is a characteristic of real property?
(1) Mobility of land
(2) Durability of improved land
(3) Divisibility of the services it provides
(4) Indivisibility of ownership
Answer: 2
The general principles of economics apply to the real estate market. However, the unique characteristics of improved land must be taken into consideration to understand how the market operates. The significant characteristics of improved land are its immobility, the durability of its improvements, the indivisibility of the services it provides, and the divisibility of ownership it allows. Option (2) is the only correct characteristic listed.
The city planning department has indicated that a vacant residential lot located in a flood zone cannot be given a building permit. This site:
(1) has lost nearly all utility
(2) has become scarce
(3) has lost all desirability
(4) has lost any effective purchasing power
Answer: 1
Utility is the ability of a product to satisfy a human want, need, or desire. Since the vacant residential lot cannot be built upon it has lost almost all of its utility as it will not satisfy the human want, need, or desire for housing
In estimating the market value of a property, which of the following is an appraiser LEAST likely to consider relevant?
(1) If the transaction was made in cash, terms equivalent to cash, or other precisely revealed terms
(2) If the property had reasonable exposure in a competitive market
(3) If a fair sale was transacted with neither the seller nor the buyer acting under duress
(4) If the normal or intrinsic value of the property corresponds to its market value
Answer: 4
Market value is the most probable price, as of a specified date, in cash, or in terms equivalent to cash, or in other precisely revealed terms, for which the specified property rights should sell after reasonable exposure in a competitive market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably and for self-interest, and assuming that neither is under undue duress. An appraiser must consider all the aforementioned subjects [Options (1) to (3)], the intrinsic value of the property should not be considered [Option (4)].
Which of the following types of value reflects a subjective relationship between a particular investor and a given investment?
(1) Special
(2) Lending
(3) Market
(4) Going-concern
Answer: 1
Option (1), special value, represents an amount that reflects the particular attributes of a real property asset that are only of value to a special purchase. Use, market and going-concern values are examples of objective values in appraisal.
No matter where you reside, your property’s assessed value will always be based on:
(1) current market value
(2) current costs of construction
(3) current legislation governing assessments
(4) market value plus accrued depreciation
Answer: 3
Assessed values may not conform to the definition of market value or, on the other hand, could be calculated in relation to market value. Always read the provincial or federal statutes regarding the definitions used in that particular statute. Remember the definitions of assessed value can and do change from statute to statute.
- Appraisers do not value chattels, but only fixtures. Which of the following is NOT considered a fixture?
(1) Air conditioning units
(2) A mirror glued to the wall
(3) Plumbing equipment
(4) Refrigerator
- Answer: 4
A refrigerator is classified as a chattel because it is moveable and is not permanently affixed like the
other items.
- Which of the following statements is TRUE?
(1) Appraisal reports must be done in writing.
(2) Appraisal reports can be done orally.
(3) Appraisal reports are always done in narrative format.
(4) Appraisal reports on a house are always done as form reports.
- Answer: 2
Appraisal reports may be delivered orally. Oral or verbal reports are given in court testimony and in
tribunals such as appraisals, as well as in other circumstances.
- Price is defined as:
(1) the amount of dollars exchanged between the two parties.
(2) what it cost to construct a property.
(3) what a property should sell for in the market.
(4) current market value of the property.
- Answer: 1
Price is referred to as the amount a particular purchaser agrees to pay and a particular seller agrees to
accept for that transaction. Once finalized, it refers to a sale or transaction price and implies an
exchange. It is an accomplished fact.
- In most appraisal assignments, the purpose is to find:
(1) market value.
(2) a reasonable selling price.
(3) a lending value for the client.
(4) value to the owner.
- Answer: 1
In most appraisal situations, clients wish to know the current market value of a property. If an appraiser
is going to find a value different than market value, they should state such in the report and also indicate
how that value differs from market value.
