Morgan (III-B,C,D)

Question 1

An estimate of value

Answer 1

Appraisal

Question 2

What determines value - appraisal or sales?

Answer 2

SALES (appraisals merely estimate property value)

Question 3

The method by which a licensee performs a close review of a property based on professional appraisal methods and principals

Answer 3

Competitive (or Comparative) Market Analysis (CMA)

Question 4

What is the purpose of an appraisal?

Answer 4

Provide an estimate of a property’s specific type of value as of a specified date

Question 5

What are the three approaches to value in an appraisal?

Answer 5

1. Direct sales comparison (market data) approach
2. Cost approach
3. Income approach

Question 6

What is the orderly, concise, and systematic procedure for reaching an estimate of value

Answer 6

Appraisal process

Question 7

List the sequence of procedures in the appraisal process.

Answer 7

1. Define/state the problem
2. Determine the data needed; collect it
3. Determine the highest and best use of the land and the improvements
4. Estimate the property value using the three approaches to value
5. Reconcile the data (analyze it) and settle on a final value estimate
6. Prepare the final report of the value estimate

Question 8

___ is the process of looking at the maximum amount it would cost to buy an alternate property that is the same as the subject property, either by a comparable replacement or an exact reproduction.

Answer 8

Substitution

Question 9

What process estimates value based on looking ahead at the value, positive or negative, on a property due to possibility of future changes to either the property or its surroundings?

Answer 9

Anticipation

Question 10

Which approach to value primarily uses anticipation?

Answer 10

Income approach

Question 11

Which approach to value commonly uses substitution?

Answer 11

Market and cost approaches

Question 12

Combining adjoining properties into a single property with a total value greater than the sum of their separate plot values

Answer 12

Plottage

Question 13

The process of assembling properties via plottage

Answer 13

Assemblage

Question 14

___ determines the use that will produce the greatest current value or the most profitable return on investment

Answer 14

Highest and best use

Question 15

The mix of land uses that maximizes value for all properties involved

Answer 15

Balance

Question 16

All properties in a given area are likely to benefit from being similar to the others

Answer 16

Conformity

Question 17

The benefit a smaller property receives from being among larger, more valuable ones

Answer 17

Progression

Question 18

The negative impact on the value of a large and/or expensive property when it is in an area of smaller, lower-pried, or run-down properties

Answer 18

Regression

Question 19

___ refers to the increasing and diminishing returns, which makes a cost/benefit analysis of the actual increase in property value based on the cost of an improvement

Answer 19

Contribution

Question 20

The loss of value resulting from any cause

Answer 20

Depreciation

Question 21

Physical factors, such as normal wear and tear as well as poor and/or deferred maintenance or prolonged neglect leading to depreciation

Answer 21

Deterioration

Question 22

Outdated functionality or non-property influences leading to depreciation

Answer 22

Obsolescence

Question 23

List the three types of depreciation used in valuations/appraisals

Answer 23

1. Physical deterioration
2. Functional obsolescence
3. External/economic/locational obsolescence

Question 24

What is the difference between curable and incurable depreciation?

Answer 24

Curable - can be remedied

Incurable - not cost-effective or feasible to fix

Question 25

Any downturn from the original condition fo the property

Answer 25

Physical deterioration

Question 26

Outdated design or safety standards

Answer 26

Functional obsolescence

Question 27

Surrounding influences on a subject property that decrease the value

Answer 27

External/economic/locational obsolescence

Question 28

True or false - only improvements can be depreciated. Land simply loses value.

Answer 28

True

Question 29

Which approach to value compares the subject property (the one being apparised) to similar properties (comparable properties/comparables/comps) that have recently sold in the local market?

Answer 29

Direct sales comparison (market data) approach

Question 30

Which approach to value estimates value based on what it would cost to buy the land and build comparable replacements for all of the property improvements?

Answer 30

Cost approach (also known as summation approach)

Question 31

The ___ approach is commonly used for commercial properties, as well as for special-use properties that do not have comparables, such as churches, schools, and municipal buildings.

Answer 31

Cost

Question 32

In the cost approach, in order to adjust for the difference between new construction and existing improvements, the current structures are evaluated for ___, which is then subtracted from the ___.

Answer 32

Depreciation; new construction cost

Question 33

List the 5 steps in the preparation of a cost approach analysis.

Answer 33

1. Estimate the value of the land only (as if vacant) 2. Estimate the new construction cost of all improvements 3. Determine the accrued (or combined) depreciation from all three types of depreciation as they affect the current improvements 4. Subtract the accrued depreciation of the improvement from the estimate of new construction to get the estimated value of the current improvements 5. Add the value of the land to the value of the improvements

Question 34

What are the two methods for determining the new construction costs of improvements?

Answer 34

1. Replacement cost | 2. Reproduction cost

Question 35

What determines the current cost of an exact copy of the improvements (flaws and all)?

Answer 35

Reproduction cost

Question 36

What determines the current cost of an acceptably similar copy (often somewhat more contemporary in functionality and construction)?

Answer 36

Replacement cost

Question 37

Which approach to value estimates the present value of future net income of income-producing properties through the process of capitalization, which converts future income projections into current value?

Answer 37

Income approach

Question 38

The income approach is based on the principle of ___.

Answer 38

Anticipation

Question 39

The principle of anticipation asserts that value is created by the expectation of benefits to be derived from ___ during ownership as well as any capital gain realized at resale.

Answer 39

Return on investment

Question 40

What is the term for the rate of return on the cost of the investment?

Answer 40

Capitalization rate (or cap rate)

Question 41

Compute the capitalization rate.

Answer 41

Divide the property's net operating income by its price

Question 42

What is the term for the maximum rental income at 100% occupancy?

Answer 42

Potential/projected/scheduled gross income

Question 43

What is the term for the actual income after subtracting vacancies and rent collection losses?

Answer 43

Effective gross income3

Question 44

What is the term for what's left of the effective gross income after subtracting all of the property's operating expenses?

Answer 44

Net operating income (NOI)

Question 45

How do you estimate a property value from a cap rate?

Answer 45

Divided the subject property NOI by the cap rate

Question 46

How is value estimated using the gross rent multiplier (GRM) or gross income multiplier (GIM)?

Answer 46

Multiply the subject property's income by the GRM GRM is calculated by dividing each comparable property's sales price by its gross income (monthly or annually)

Question 47

An appraiser's appraisal is a more extensive analysis than a CMA because it follows a set of comprehensive guidelines outlined in the ___ and results in one of several standard-format appraisal reports.

Answer 47

USPAP (Uniform Standards of Professional Appraisal Practice)

Question 48

What is a licensee's CMA typically used for?

Answer 48

To establish a reasonable listing price for sellers and a reasonable offering price for buyers

Question 49

Who is responsible to set a list price and determine an offering price?

Answer 49

Seller; buyer

Question 50

What are the two broad categories of appraisers?

Answer 50

1. Certified general appraisers (qualified to appraise all types of real estate) 2. Certified residential appraisers (qualified to appraise all residential real estate)