Sales Comparison Approach Flashcards by Veronika Dvorak

Example: The average per capita income is $11,855, while the average household income is $23,776. This information estimates that there are two income-generating persons in each household, and one child.

Question: Why is the average household income important?

Question: Why is the monthly household allowance important?

Answer: The household income predicts the amount of typical monthly household allowance

Answer: The monthly household allowance helps determine if there is a need for the subject property.

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Which is a fact?
- Cost
- Price
- Value

Cost and price are facts (or estimates of fact)

Value is a complex concept. It is not a fact to be found. Value is an amorphous concept, created in the mind of an individual or market participant. For instance, the value of a particular item is created based on the item’s use (utility) and whether it can be exchanged for something of worth such as money or compensation. For the valuation of real property, the market participants include sellers who would like to transfer their property in exchange for compensation, and buyers who wish to acquire the property. By analyzing and interpreting the actions of actual buyers and sellers of similar properties, an appraiser may be able to develop an opinion of what he or she believes the value of an identified piece of real property to be.

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What is the focal point of a real estate appraisal?

The value of real property rights is the focal point of a real estate appraisal. After all, real property value is created when certain economic and legal characteristics coexist, including utility, scarcity, desire, and transferability (purchasing power).

real estate = the land and everything permanently attached thereto

real property = rights and benefits inherent in the ownership of real estate.

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Office buildings range in size from under 10,000 to over a million square feet. These office buildings are placed into three categories: low-rise (XXX to XXX stories), mid-rise (XXX to XXX stories), and high-rise (XXX stories or more).

low-rise -1 to 3 stories
mid-rise - 4 to 15 stories),
high-rise - 16 stories or more).

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The average per capita income is $11,855, while the average household income is $23,776. This information estimates that there is/are ___ income-generating person(s) in each household, and one child.

Why is the average household income important? The household income predicts the amount of typical monthly household

Why is the monthly household allowance important? The monthly household allowance helps determine if there is a need for the ___________________.

two income-generating persons

need for the subject property

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4 Steps of Scientific Method

Observation -Define the problem and research objectives
Formulation - Develop research plan
Prediction - Implement plan (collect and analyze data)
Analysis - Interpret & report results

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1st Step of Scientific Method:

Observation: This is a description of a group of phenomena. In appraisal____________

This step defines a problem to be solved and the research objectives. For example, the growth of the condominium housing market next to a college campus might be observed for a market analysis within an appraisal.

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2nd Step of Scientific Method:

Formulation: This theory explains the formulation of a hypothesis. In appraisal______________

The hypothesis within an appraisal is the purpose of the appraisal such as to estimate market value. To estimate value, a research plan is implemented to test supply and demand factors, which are characteristics of a real estate market. For example, a developer may believe converting an apartment building into condominiums is feasible. A plan is then created to verify feasibility.

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3rd Step of Scientific Method:

Prediction: The use of the theory predicts the existence of other phenomena, or to predict quantitatively the results of new observations. In appraisal____________

In an appraisal, this step is the implementation of a plan to collect and analyze data, which determines the approaches necessary. For example, a developer contracts an appraiser to perform an appraisal detailing the feasibility of the condominium conversion. This example, Step 3, executes the plan developed in Step 2.

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4th Step of Scientific Method:

Analysis: Experimental tests of the theories by several independent parties are conducted to ensure validity of the first three steps. In appraisal____________

Interpretation and reporting the results occur in an appraisal after testing various analyses (statistical, analogy, observation, etc). For example, the cash flows of the condominium conversion project might include a variety of parameters resulting in different analyses such as different development times, build-out, sales price per unit, unit sizes, or amenities. As a result, the appraiser and developer can project the feasibility based on the most likely circumstances.

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Real Estate Cycle - 4 stages

Expansion
Contraction
Recession
Recovery

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Real Estate Cycle - 1 stage explanation

Expansion is the preliminary stage in a life cycle that refers to increased development of an area. During this time, costs are stable, or they may be reduced due to economies of scale achieved by volume increases. As the pool of buyers increases, profits also increase. This stage is characterized by rising occupancy, absorption rates, and increasing prices. An example would be a mixed-use development where financing is available for construction. As a result, many homes are constructed, along with shopping facilities and restaurants. This stage is rapid compared to the other stages since profit is higher and money is typically more readily available.

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Real Estate Cycle - 2nd stage explanation

Contraction follows the growth stage, especially when an area grows at a slower rate. In other words, absorption rates, construction, and rental rates begin to decline. At the beginning of this stage, competition among sellers increases causing decreases in profits. At this stage, eventually it becomes less profitable to build, as inventory increases.

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Real Estate Cycle - 3rd stage explanation

Recession occurs when an economy or area can no longer compete at a profitable level due to decreases in sales, occupancy, absorption rates, and construction. Other economic factors take place such as increases in unemployment and lack of disposable income. If the recession is national (as opposed to local or regional) in its scope, the government typically responds with lower interest rates to maintain construction, and to promote refinancing of mortgages, which increases disposable income. During this time, however, older improvements may become functionally inadequate due to age and lack of funds for renovation. As a result, maintenance levels decrease causing a loss of market appeal and declining values.

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A knowledgeable person would not pay more for a used property than a new property.

Cost and value may be equal under the following circumstances:

The property is new or proposed
The improvement represents the highest and best use of the property
Supply and demand are in balance

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Adjustments in the sales comparison approach should be made in this order:

property rights
financing terms
conditions of sale
market conditions
location
physical characteristics
economic characteristics

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Appraisers can employ several techniques for extracting adjustments. Some of these include:

Paired sales technique
Rent analysis
Market survey
Cost analysis
Regression analysis

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Extracting adjustments - Paired sales technique

Locate sales of similar properties that can be paired
Isolate a single factor that influenced value
Subtract the price of each sale to extract the value of a single factor
Apply the adjustment in the Sales Comparison Approach

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Extracting adjustments - Rent Analysis

Rent Analysis
The Rent Analysis method of extracting adjustments is based on analysis of the additional rent that a feature would command in the market. This type of analysis can be applied to all types of properties, but it is most applicable to income-producing properties.

Simply put, the amount of rent that is attributable to a particular feature or attribute is isolated. These rental amounts can be compared and a percentage adjustment extracted, or the additional rent may be multiplied by a GIM or divided by a capitalization rate to extract a contributory value for that feature. This analysis also can be applied in reverse; the rent loss due to a property’s lack of a particular feature can also be multiplied or capitalized to arrive at an adjustment amount.

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Extracting adjustments - Market Survey Method

This method is sometimes also called the contingent valuation method (CVM), or stated preference method.

The market survey method is just what it says: an appraiser will survey market participants, including buyers, sellers, renters, brokers, salespersons, property managers, other appraisers - anyone with market knowledge that could possibly be in a position to help the appraiser come up with an adjustment. After the appraiser surveys a sufficient number of individuals, a pattern should develop, which the appraiser can use as the basis for an adjustment. This type of technique is particularly useful when appraising stigmatized properties, properties that are subject to construction defects, or properties with structural stability issues.

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Extracting adjustments - Cost Analysis

Cost Analysis
In a previous chapter, we covered the principle of contribution, which states that the value of a particular feature or attribute of a property is based upon its contribution to the property. We are also aware that cost does not necessarily equal value. However, if an appraiser is somehow able to establish a link between cost and value, this link can sometimes be used to estimate adjustment amounts.

Example: An appraiser is trying to estimate an adjustment for an outdoor all-weather sports court which is part of an agricultural-residential property. This court is new, and was installed at a cost of $80,000. The appraiser has no sales of properties with sports courts in order to extract an adjustment. The appraiser is able to analyze sales of properties with in-ground swimming pools; this analysis indicates that pools contribute 40% of their cost in value to the property. Because both pools and sports courts are recreational amenities with similar seasonal capabilities for use, the appraiser estimates that this 40% ratio of cost to value would likely be applicable. The appraiser applies this 40% factor to the cost of the subject’s sports court (i.e., its contribution to value is 40% of its cost) and makes an adjustment of $32,000 to each of the comparable sales for this amenity.

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Extracting adjustments - Linear Regression

Linear Regression
Regression analysis is somewhat similar to paired sales analysis, in that actual sales of properties are analyzed, and adjustments extracted based on the comparisons. What distinguishes regression analysis from paired sales analysis is that regression analysis usually depends on computer-based applications or programs, and requires larger sample sizes. Of course, regression analysis can be accomplished with smaller sample sizes, but like any other statistical application, it becomes more reliable as the sample sizes become larger.

Simple regression utilizes only one independent variable. For example, we can analyze sale prices of commercial lots, using the size as the independent variable and the sale price as the dependent variable. After all, the sale price is dependent upon the lot size. This can easily be done by an appraiser, even without the help of a computer, with just a piece of graph paper.

Multiple regression is more complex, and can be used to estimate adjustment amounts for several variables at once. In order for this analysis to be credible, it requires a computer program and a large amount of reliable data.

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In the Sales Comparison Approach, elements of comparison can be placed into two categories: intangible and tangible. Intangible are also sometimes called _____________ and are _______________

transactional adjustments

Property rights conveyed
Financing
Conditions of sale
Market conditions (time)

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In the Sales Comparison Approach, elements of comparison can be placed into two categories: intangible and tangible.

Tanglible are also sometimes called ____________ and are _____________

property adjustments

Tangible or property differences between the comparable sales and the subject include:
Location, visibility, traffic patterns, market appeal, size, zoning, age, view, quality, and condition of improvements, or other factors.

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Formulas for Capitalization Rate (CR) Gross Rent Multiplier (GRM) Expense and Vacancy Rate (EVR)

*Capitalization Rate* CR = **NET** Operating Income / Value *Gross Rent Multiplier / Gross Income Multiplier* GRM = Value / **GROSS** Income *Expense and Vacancy Rate* EVR = 1 - GRM x CR

What is forced sale/partition?

Forced sales generally occur because owners of property are unable to agree upon certain aspects of the ownership. The owners may disagree on how to use the property, the amount of money to invest into the property, on their right to occupy and use the whole of the property. If the parties cannot come to an agreement, the case moves to court through a petition to partition action. Property may be owned by more than one person either as joint tenants, tenants in common, and in some states tenants by the entirety three kinds of partition which can be awarded by court: partition in kind, partition by allotment, and partition by sale.[3][4] 1. A partition in kind is a division of the property itself among the co-owners. 2. In a partition by allotment, which is not available in all jurisdictions, the court awards full ownership of the land to a single owner or subset of owners, and orders them to pay the person or persons divested of ownership for the interest awarded. 3. Partition by sale constitutes a forced sale of the land, followed by division of the profits thus realized among the tenants. Generally, the court is supposed to order a partition sale only if the land cannot be physically divided, although this determination often rests on whether the economic value of the divided pieces is less in the aggregate than the value of the parcel as a single piece.

What happens in a contract for deed when the seller retains the legal title to the property?

The purchaser is permitted to take possession of the real estate for most purposes other than legal ownership.

Question: What type of sampling technique does the Bureau of the Census perform for the Department of Housing and Urban Development?

Stratified sampling To ensure quality, the survey questions are programmed into the field representatives' computers for completion by either telephone or personal visits.

standard deviation is also known as _________________

standard deviation is also known as the standard error of the mean.

the empirical rule states ____________________________

the empirical rule states that 68% of the observations will fall within one standard deviation from the mean.

What are two other names for the empirical rule?

Answer: 68-95-99.7 the three-sigma rule.

Question: What are the factors that an appraiser must identify and analyze when researching the effect on use and value of real estate?

Answer: Standards Rule 1-3 (a & b) states, "when necessary for credible assignment results in developing a market value opinion, an appraiser must identify and analyze the effect on use and value of existing land use regulations, reasonably probable modifications of such regulations, economic supply and demand, and the physical adaptability of the real estate, market area trends, and develop an opinion of the highest and best use of the real estate." Standards Rule 1-4 (a-g) states, "in developing a real property appraisal, an appraiser must collect, verify, and analyze all information necessary for credible assignment results ... in the sales comparison, cost, and income approach."17 In conclusion, an essential step in developing an opinion of market value is the development of a highest and best use opinion of the subject property, which, in turn, determines which valuation approaches will be developed, which comparable sales are to be utilized, and ultimately what approach or approaches are given the most weight in final reconciliation. The end result is that the public is protected when an appraiser provides appraisal services in an independent, impartial, objective, and unbiased manner.

An arm's length transaction:

An arm's length transaction is a real estate contract where the purchaser and sellers of a real estate property are acting independently, without coercion, of their own self-interest, and are not related to one another.

Before-tax cash flow (equity dividend):

Before-tax cash flow (equity dividend): Cash flow often used to evaluate the cash flow from an income-producing property by subtracting the debt service from the net operating income.

Bottom-up approach:

Bottom-up approach: In business development, a bottom-up approach means that the adviser takes the needs and wishes of the would-be entrepreneur as the starting point, rather than a market opportunity (which would be a "top-down" approach).

Break-even ratio (also known as default ratios):

Break-even ratio (also known as default ratios): A ratio that indicates the property's ability to generate sufficient income to pay for debt services.

Debt coverage ratio (DCR):

Debt coverage ratio (DCR): The ratio that indicates the property is producing adequate income to cover the loan payment. This ratio assists investors and lenders with their investment decisions. A DCR less than "one" means a property does not produce adequate income to make the loan payment.

Effective gross income multiplier:

Effective gross income multiplier: The EGIM is the sales price divided by the effective gross income at stabilized occupancy. This calculation is utilized for investment properties.

Which of the following is another name for the market survey method of extracting adjustments? - Contingent valuation method - Simple linear regression - Paired sales technique - Grouped data analysis

Contingent valuation method (sometimes also called stated preference method)

An appraiser has developed all three approaches to value in an appraisal assignment. When might the value indication of the Cost Approach NOT be reflective of market value? - When the property’s use is the highest and best use - When insufficient market data is available - When entrepreneurial profit plays a significant role in the market - When the property is currently leased or has the potential to produce income

- When entrepreneurial profit plays a significant role in the market

A property recently sold for $185,000, with the seller agreeing to carry the financing for the buyer, at a below-market rate. An appraiser is considering the use of this property as a comparable sale. There are very few other sales in this market. What should the appraiser do? - Use the $185,000 sale price and make no adjustment - Adjust the sale price upward to cash equivalency - Adjust the sale price downward to cash equivalency - Do not use the sale

Adjust the sale price downward to cash equivalency

Upon which valuation principle is the concept of adjustments in the Sales Comparison Approach primarily based? -Change -Contribution -Externalities -Substitution

Contribution

Which of these is the most appropriately rounded value conclusion for a property that is 2,711 square feet and is valued at $184 per square foot? -$498,824 -$498,825 -$498,800 -$500,000

$500,000 This single-value estimate should be appropriately rounded, so as not to be misleading. This property is 2,711 square feet, multiplied by $184 indicates $498,824. This could be rounded to the nearest $1,000 or $5,000. In this case, rounding to the nearest $5,000 would probably be most appropriate. Rounding to the nearest $25 or $100 would likely be inappropriate. (Chapter 4, Single-point Value)

Unverified sales data gathered from a local multiple listing service would be considered ________ data. - Primary - Secondary - Public - Tertiary

Secondary

What type of appraisal data pertains only to the subject property and comparables? - General data - Specific data - Primary data - Secondary data

Specific data

From whose viewpoint is the cash equivalency of a comparable sale determined? -Buyer -Seller -IRS -Local tax assessment office

Seller

When valuing an improved retail commercial property, what would be the most common unit of comparison used by an appraiser? - Price per square foot of land - Price per square foot of building area - Price per room - Price per front foot

Price per square foot of building area

An appraiser is writing up the results of his reconciliation in a real property appraisal report. How much information about an appraiser's reconciliation does USPAP require? - At least one paragraph - It varies according to the SCOPE OF WORK RULE - Sufficient information so that it can be understood - None; reconciliation is optional

Sufficient information so that it can be understood

It is likely that in the Sales Comparison Approach, each comparable sale used ___________. - Is equally relevant - Must be placed on a sales grid and adjusted - Will produce its own indicated value - All of these answers

- Will produce its own indicated value

If the appraiser selected a GIM of 5.8, what would be the indicated value of the subject property, based on a gross income of $43,200, an effective gross of $41,040, and a net income of $28,363? - $250,560 - $238,032 - $164,505 - Cannot tell from the information provided

$250,560

If the appraiser selected an 9.9% Overall Rate (OAR), what would be the indicated value of the subject property, based on a gross income of $43,200, an effective gross of $41,040, and a net income of $28,363? - Cannot tell from the information provided - $286,495 - $313,288 - $342,444

$286,495

**Which of these is the most appropriately rounded value conclusion for a property that is 2,711 square feet and is valued at $184 per square foot?** - 498824 - 498825 - 498800 - 500000

**500000**

**A comparable property sold for $400,000. In the sales comparison grid, it is adjusted downward 5% for property rights, downward 10% for financing terms, and upward 15% for market conditions. What is the net adjusted sale price?** - 384000 - 393300 - 400000 - 402600

**393300**

**An appraiser is valuing a vacant land parcel which can legally be used for residential, commercial, or industrial use. What is the highest and best use of the property?** - Residential - Commercial - Industrial - Cannot determine from the information provided

**Cannot determine from the information provided**

**An appraiser is valuing an operating bar/restaurant property, and includes the booths, stools, signs, and kitchen equipment in the appraisal. These items would be considered ____________.** - Functional obsolescence - Intangible items - Trade fixtures - Deferred maintenance

**Trade fixtures**

**Another term for a variable is:** - Viable - Variate - Convention - Predictor

**Variate**

**An appraiser makes a field inspection of a subject property, which is an office condominium unit. The appraiser?s measurements and field notes from the inspection would be considered what type of data?** - General data - Secondary data - Specific data - Public record data

**Specific data**

**Property A sold for $305,000. It is a four-unit apartment building with a four-car garage. Property B sold for $294,000. It is a similar four-unit apartment building with no garage. What is the indicated adjustment for a four-car garage?** - 7000 - 9000 - 11000 - 13000

**11000**

**By definition, what type of data is measured?** - Quantitative data - Class data - Qualitative data - Division data

**Quantitative data**

**There are four characteristics of value - utility, scarcity, desire, and purchasing power. What happens when one or more of these value characteristics changes in relation to a specific property?** - The property's value changes - The property's value stays the same - The property's value is increased based on a standard formula (i.e., inflation) - The property's value decreases (i.e., depreciation)

**The property's value changes**

**An appraiser concludes that an industrial building with an inadequate loading dock has an annual rent of $0.20 less per square foot than a property with an adequate loading dock. If the gross income multiplier is 8, what would be the dollar adjustment on a 30,000 square foot warehouse with an inadequate loading dock?** - 24000 - 36000 - 60000 - 48000

**48000**

**A comparable sale property sold for $1,100,000. It required a positive $100,000 adjustment for location, a negative $80,000 adjustment for site, and a negative $60,000 adjustment for square footage. What is the gross adjustment to this comparable sale?** - -40000 - 240000 - 40000 - 1060000

**240000**

**An appraiser is valuing an agricultural property and decides to appraise it based on value per acre. This is an example of ____________.** - External obsolescence - Items of comparison - Units of comparison - Unacceptable appraisal practice

**Units of comparison**

**Unverified sales data gathered from a local multiple listing service would be considered ________ data.** - Primary - Secondary - Public - Tertiary

**Secondary**

**An appraiser is valuing a property that is owned in fee simple. One of the comparables sold as a leased fee interest, and the appraiser makes an adjustment in the Sales Comparison Approach for this difference. What would this adjustment be considered?** - Conditions of sale - Property rights conveyed - Market conditions - Financing terms

**Property rights conveyed**

**An appraiser is performing market segmentation. In doing this, the appraiser defines and subdivides a large homogeneous market into segments based on which criteria?** - Location - Demographics - Consumer behavior - All of these

**All of these**

**You are using gross income multiplier to value an industrial property. What two factors do you need for the comparable sales in order to extract a GIM from the market?** - Price and overall rates - Income and rental rates - List price and sale price - Income and price

**Income and price**

**Market conditions adjustments are _________ .** - Always upward - Always downward - Not required if the sales sold within the prior 90 days - Not be necessary in all markets and in all appraisals

**Not be necessary in all markets and in all appraisals**

**Intangible adjustments are also known as:** - Rule of thumb adjustments - Unsupportable adjustments - Transactional adjustments - Property adjustments

**Transactional adjustments**

**An appraiser obtains data on a sold property from the local MLS. The appraiser personally verifies elements of the transaction and the physical characteristics of the property with the seller. After verification, this sale would now be considered what type of data?** - Primary data - General data - Demographic data - Secondary data

**Primary data**

**In a bell-shaped curve with a normal distribution, what percentage of observations will fall within two standard deviations of the mean?** - 50 - 63.5 - 68 - 95

**95**

**An appraiser makes a field inspection of a subject property, which is an 8-unit apartment building. The appraiser?s measurements and field notes from the inspection would be considered what type of data?** - General data - Secondary data - Primary data - Non-verified data

**Primary data**

**An appraiser is analyzing sales of office buildings, and finds a 10,000 square foot office building which sold for $50 per square foot. Considering the economies of scale principle, which of these would be the MOST likely unit sale price for a 5,000 square foot office building?** - $60 per square foot - $50 per square foot - $40 per square foot - $30 per square foot

**$60 per square foot**

**When using a sale that was the result of the execution of a contract for deed, what is usually the most significant problem for an appraiser?** - Determining how much was paid in transfer taxes - Developing an opinion of the property?s highest and best use - Determining the date when the actual meeting of the minds took place between the buyer and seller - Finding the sale documentation in poorly-organized municipal records

**Determining the date when the actual meeting of the minds took place between the buyer and seller**

**An appraiser is valuing a property as of a date in the past. Which statement is TRUE regarding this situation?** - This is a retrospective value opinion - This appraisal involves the use of a hypothetical condition - This is a prospective value opinion - The appraiser has violated USPAP

**This is a retrospective value opinion**

**A comparable sale property sold for $1,100,000. It required a positive $100,000 adjustment for location, a negative $80,000 adjustment for site, and a negative $60,000 adjustment for square footage. What is the net adjustment to this comparable sale?** - -40000 - 240000 - 40000 - -60000

**-40000**

**Which of these BEST expresses the formula for the Cost Approach?** - Value = Cost ? Depreciation + Site Value - Value = Cost + Depreciation + Site Value - Value = Income x Rate - Value = Cost

**Value = Cost ? Depreciation + Site Value**

**When performing the Sales Comparison Approach, what is the final step?** - Reconciliation of the indicators - Making adjustments - Verification of the sales data - Application of units of comparison

**Reconciliation of the indicators**

**A dilapidated commercial building is situated in an economically depressed section of the city. No local market participants have the financial capability to renovate and use such a large building, so it sits vacant. This is an example of what force?** - Government - Economic - Environmental - Social

**Economic**

**When applying the paired sales technique to extract adjustments, which of these would result in a more reliable analysis?** - Use a larger set of data where the appraiser can support each adjustment with more than one pair of sales - Use only sales that are identical to the subject - Use a smaller set of data where the appraiser can support each adjustment with one carefully selected pair of sales - Use one pair of sales with a significant number of dissimilarities, which would enable the appraiser to extract several adjustments at once

**Use a larger set of data where the appraiser can support each adjustment with more than one pair of sales**

**A vacant land property sold for $408,000. Nine months later, it re-sold for $371,000. No changes or improvements were made to the property during this time. What is the monthly adjustment for market conditions indicated by this sale and re-sale?** - Downward 9% - Upward 9% - Downward 1% - Upward 1%

**Downward 1%**

**What type of appraisal data pertains only to the subject property and comparables?** - General data - Specific data - Primary data - Secondary data

**Specific data**

**A comparable property sold for $800,000. In the sales comparison grid, it is adjusted downward 5% for financing terms, and upward 10% for conditions of sale. What is the dollar adjustment for conditions of sale?** - 72000 - 74000 - 76000 - 80000

**76000**

**When should an appraiser simply average the results of the value range indicated by the comparable sales to reach a value indication?** - Never - Always - Only if the result would be acceptable to the client - Only when performing a non-mortgage-lending appraisal

**Never**

**Factors that have an effect on the sale prices or value of comparable properties, for which adjustments are made in the Sales Comparison Approach, are known as _________.** - Meaningful numbers - Elements of comparison - Units of comparison - Identifiers

**Elements of comparison**

**It is important for appraisers to consider ________ that is appropriate for the appraisal assignment being undertaken.** - the definition of value - the client's desired outcome - building cost and depreciation - the borrower's estimate of value

**the definition of value**

**When an appraiser is reconciling within the Sales Comparison Approach, what might the appraiser consider?** - The total demand for the type of real estate offered in the open market by all economic agents within a defined market area - The loss of income due to vacancy and bad debts that must be subtracted from potential gross income - The time value of money, which indicates that a dollar today is worth more than a dollar in the future - The validity of each element for each sale compared to the subject property

**The validity of each element for each sale compared to the subject property**

**In a prospective appraisal, how is the subject property being valued?** - As of a current date based on proposed improvements - As of a prior date - As of a future date - Contrary to the requirements of USPAP

**As of a future date**

**An apartment building is worth less than other buildings in its market because it has fewer bathrooms than what is expected by market participants. This is an example of ___________.** - Functional obsolescence - External obsolescence - Gentrification - Decline or recession

**Functional obsolescence**

**Which of the following methods and concepts are most appropriate to the Sales Comparison Approach?** - Economics and money matters - Economics and statistics - Economics and financial - Figures and financial

**Economics and statistics**

**What is name of the principle which state that in a normal bell-shaped curve, 68% of the observations will fall within one standard deviation of the mean?** - Monte Carlo rule - Rule of sevens - Empirical rule - Rule of threes

**Empirical rule**

**A comparable property sold for $400,000. In the sales comparison grid, it is adjusted downward 5% for property rights, downward 10% for financing terms, and upward 15% for market conditions. What is the dollar adjustment for financing terms?** - 40000 - 38000 - 36000 - 48000

**38000**

**While researching a potential comparable sale, an appraiser realizes that he had previously appraised the property. He goes into his prior workfile and is able to retrieve the measurements and field notes from his property inspection three years prior. This is an example of what type of data?** - Secondary data - Primary data - Demographic data - Principal data

**Primary data**

**If the subject of an appraisal is a commercial building (as opposed to a residential dwelling), an appraiser is __________ to use a report form with a pre-printed adjustment grid.** - Less likely - More likely - Not permitted - Required by USPAP

**Less likely**

**Which economic principle states that a prudent purchaser will pay no more for a property than he or she would pay for a similar or comparable property?** - Substitution - Externalities - Change - Conformity

**Substitution**

**When applying the Sales Comparison Approach to a particular property, an appraiser is making adjustments for conditions of sale, financing terms, and market conditions. What is the proper order of these adjustments?** - The order of these adjustments does not matter - Financing terms, conditions of sale, market conditions - Conditions of sale, market conditions, financing terms - Conditions of sale, financing terms, market conditions

**Financing terms, conditions of sale, market conditions**

**An appraiser is analyzing three comparable sales in the sales comparison approach, but is not making numeric adjustments. Sale 1 sold for $125,000 and is rated overall superior to the subject. Sale 2 sold for $108,000 and is rated overall inferior to the subject. Sale 3 sold for $115,000 and is rated overall inferior to the subject. The appraiser reconciles the indicated value of the subject at $120,000. This is an example of what type of analysis?** - Regression - Improper - Quantitative - Qualitative

**Qualitative**

**When using gross income multiplier (GIM) to appraise income-producing non-residential properties, what type of rental rate is used?** - Annual - Monthly - Weekly - Daily

**Annual**

**A(n) __________ can be used to demonstrate any variable that clusters around the mean.** - Normal distribution curve - Abnormal allocation wave - Allocation wave - Normal allocation curve

**Normal distribution curve**

**There are two kinds of adjustments may be made for elements of comparison. What are they?** - Complete and limited - Supported and unsupported - Qualitative and quantitative - Development and reporting

**Qualitative and quantitative**

**In an appraisal in which three approaches to value are developed, and multiple comparable sales are used:** - Reconciliation is not important if the appraisal is prepared for a use other than mortgage lending - There will typical be multiple indications of value - A value range must be provided instead of a single-point value - There may be only one indication of value

**There will typical be multiple indications of value**

**The Sales Comparison Approach would likely be the primary method of valuing which property?** - 10 acres of undeveloped land - A 100-unit apartment building that is fully occupied - A 10-unit retail strip center that is fully occupied - The sales comparison approach would not be useful for any of these properties

**10 acres of undeveloped land**

**An appraiser is analyzing a newer, high-tech steel producing facility. In delineating the market for this property, which of these should the appraiser most likely consider?** - Properties within one mile of the subject - Properties within the state only - Properties within a region or even the entire country - Market delineation is not necessary in industrial appraisals

**Properties within a region or even the entire country**

**The appraisal or valuation process is BEST described as:** - A sequence of steps used by the appraiser to develop a value conclusion - A computer-generated program that utilizes real estate information obtained from real estate agents, appraisers, public records, and other sources - The total demand for a type of real estate offered on the open market by all economic agents in an economy that may be leased or sold during a certain period - The method used to allow for loss of compound interest which money would typically earn if not invested in real estate

**A sequence of steps used by the appraiser to develop a value conclusion**

**Which term refers to the loss of income as the result of not choosing an alternative?** - Externality - Contribution to value - Economies of scale - Opportunity Cost

**Opportunity Cost**

**In reconciling the data in the Sales Comparison Approach, the appraiser should:** - Ensure that the most reliable data is given the most weight - Make as few adjustments as possible in order to make the analysis appear more credible - Reconcile to the high end of the range to help the client achieve his/her goals - Reconcile to the center of the range so as not to be accused of bias

**Ensure that the most reliable data is given the most weight**

**Which of the following is an example of secondary data that might be used by an appraiser?** - National surveys by valuation companies - Government information compiled by the Census Bureau - All of these are secondary data - Research statistics from a chamber of commerce

**All of these are secondary data**

**An appraiser contacts the buyer of a comparable property and verifies that the property was purchased on the open market, between a typically-motivated seller and buyer who were not related to each other. What type of sale is this?** - Non-market transaction - Forced sale - Arm?s length transfer - Short sale

**Arm?s length transfer**

**In which approach is there a process to itemize and adjust for the differences between the subject and the comparable sales?** - Cost Approach - Sales Comparison Approach. - Income Capitalization Approach. - Discounted Cash Flow Analysis

**Sales Comparison Approach.**

**Why is it not advisable for an appraiser to use a standard pre-printed residential sales comparison grid in his/her commercial appraisal report?** - Pre-printed residential sales comparison grids are prohibited by USPAP - Most commercial appraisers do not understand the techniques used in residential appraising - By using a residential sales comparison grid, the appraiser is stating that the property?s highest and best use is residential - Many of the elements of comparison on residential grids are not typical value-related elements of comparison for commercial properties

**Many of the elements of comparison on residential grids are not typical value-related elements of comparison for commercial properties**

**According to the Concentric Zone Model, Zone 1 is the CBD, which contains:** - Most of the tertiary employment - Primarily high quality housing - Residential zones for working-class residents - Very little public transportation infrastructure

**Most of the tertiary employment**

**Which term is defined as the land, and everything permanently attached thereto?** - Fee simple absolute - Physical plant - Real property - Real estate

**Real estate**

**An appraiser loans $1,000 to her friend for a one-year period, after which the friend promises to pay her back $1,100. What principle does this demonstrate?** - Contribution - Market value - Time value of money - Highest and best use

**Time value of money**

**What is the primary use and purpose of the Sales Comparison Approach?** - Subtract depreciation from cost new to indicate depreciated cost - Establish the client?s preferred value so the subject property will close - Decide the listing price of the subject property - Provide a value indication for the subject property

**Provide a value indication for the subject property**

**From whose viewpoint is the cash equivalency of a comparable sale determined?** - Buyer - Seller - IRS - Local tax assessment office

**Seller**

**What is the term describing a variable that falls outside the parameters of what can be expected?** - Sample - Variable - Outlier - Uptick

**Outlier**

**An appraiser is applying statistical analysis in the study of vacant land values. What might the appraiser use to explain the extent to which individual data values have departed from the mean?** - Measures of central tendency - Median - Mode - Measures of dispersion

**Measures of dispersion**

**A comparable property sold for $160,000. In the sales comparison grid, it is adjusted downward 10% for financing terms, and 10% for market conditions. What is the dollar adjustment for financing terms?** - 16000 - 14800 - 14400 - 18000

**16000**

**The reconciliation process is based on the __________ of the data, and the __________ of the appraisal methods and techniques used in the appraisal.** - Quality and quantity, appropriateness - Age and use, reliability - Type and veracity, error rate - Reliability and type, quality

**Quality and quantity, appropriateness**

**Which of the following is considered the foundation of statistical analysis?** - Accurate data - A credible hypothesis - Unverified information - Mode

**Accurate data**

**The real estate market is best described as:** - Equivalent to the stock market - Inefficient - Worldwide in scope - Non-complex

**Inefficient**

**When valuing an improved retail commercial property, what would be the most common unit of comparison used by an appraiser?** - Price per square foot of land - Price per square foot of building area - Price per room - Price per front foot

**Price per square foot of building area**

**The test criteria used in highest and best use analysis include all of the following EXCEPT:** - Socially acceptable - Financially feasible - Legally permissible - Maximally productive

**Socially acceptable**

**Which situation will result in the most value to land and the improvements?** - When the property is used for its highest and best use - When the most expensive land is combined with the most expensive improvement - When the most expensive materials are used in construction - When the government exercises its power of eminent domain to take a property

**When the property is used for its highest and best use**

**An appraiser is reviewing his data before drawing a conclusion. When reviewing, he finds an outlier. What should she do?** - Change sampling methods and take a new sample - Include the outlier in the analysis without further consideration - Re-examine the population of data - Nothing, because outliers are good

**Re-examine the population of data**

**An appraiser is writing up the results of his reconciliation in a real property appraisal report. How much information about an appraiser's reconciliation does USPAP require?** - At least one paragraph - It varies according to the SCOPE OF WORK RULE - Sufficient information so that it can be understood - None; reconciliation is optional

**Sufficient information so that it can be understood**

**Why is it important for an appraiser to verify data that is used in the appraisal process?** - It allows the appraiser to use information without checking its accuracy - It makes the value conclusion accurate to the nearest $1 - It increases the length of the appraisal report - It increases the credibility of the value conclusion

**It increases the credibility of the value conclusion**

**When reconciling the indicators within the Sales Comparison Approach, factors that an appraiser must consider might include:** - The intended use of the appraisal - The strengths and weaknesses of each sale - The importance of each element of comparison - All of these factors should be considered

**All of these factors should be considered**

**A two-unit property sold for $60,000. Nine months later, it re-sold for $69,000. No modifications or improvements were made to the property during this period. What is the indicated annual adjustment for market conditions?** - 15% - 20% - 1.7% - -15%

**20%**

**What is the mode of this set of gross rent multipliers: 77, 88, 72, 69, 87, 88?** - 88 - 77 - 72 - There is no mode

**88**

**An appraiser is completing an assessment appeal appraisal on a property located in a rapidly declining market. There is limited data from which to extract a market conditions adjustment. Which sales are the appraiser most likely to give primary consideration to when reconciling?** - The most recent ones - The oldest ones - The ones that are most similar in assessed values - The ones that produce the lowest indicated values

**The most recent ones**

**When using a gross rent multiplier (GRM) to value a two-unit residential property, what type of rental rate is used?** - Annual - Monthly - Weekly - Average daily

**Monthly**

**Is reconciliation necessary within the Income Approach?** - Yes, items such as market rent and capitalization rate need to be reconciled - No, the appraiser's judgment should not enter into the income approach - Yes, but the client performs this reconciliation, not the appraiser - No, the income approach is purely mechanical and requires no reconciliation

**Yes, items such as market rent and capitalization rate need to be reconciled**

**Sale X is a half-acre commercial lot with a 1,400 square foot building located on a side street. It recently sold for $210,000. Sale Y is a half-acre commercial lot with a 1,500 square foot building located on a side street. It recently sold for $220,000. Based on this information, what is the adjustment for a difference of 100 square feet of building size?** - 25000 - 15000 - 10000 - 135000

**10000**

**Which of the following statement about the appraisal development process is TRUE?** - The first step in the process is communication of the assignment results to the client. - USPAP does not establish any requirements or standards for appraisal development. - Development and reporting are two separate and distinct functions. - All real property appraisals are developed using the same scope of work.

**Development and reporting are two separate and distinct functions.**

**The Cost Approach is sometimes referred to by another name. What is it?** - The quantity survey approach - The reproduction approach - The depreciation approach - The summation approach

**The summation approach**

**A comparable property sold for $800,000. In the sales comparison grid, it is adjusted downward 5% for financing terms, and upward 10% for conditions of sale. What is the net adjusted sale price?** - 818000 - 820000 - 836000 - 840000

**836000**

**It is likely that in the Sales Comparison Approach, each comparable sale used ___________.** - Is equally relevant - Must be placed on a sales grid and adjusted - Will produce its own indicated value - All of these answers

**Will produce its own indicated value**

**An individual uses coercion and blackmail to convince the owner of a property to sell it to him. The sale appears in the local MLS and is reported in the local assessment office as a valid sale. Is this an arm?s length transfer?** - Yes, because it appears in the local MLS - No, this sale was made under duress - Yes, because the local assessor has validated it as a sale - No, and USPAP requires the appraiser to contact federal authorities to report this crime

**No, this sale was made under duress**

**A property recently sold for $185,000, with the seller agreeing to carry the financing for the buyer, at a below-market rate. An appraiser is considering the use of this property as a comparable sale. There are very few other sales in this market. What should the appraiser do?** - Use the $185,000 sale price and make no adjustment - Adjust the sale price upward to cash equivalency - Adjust the sale price downward to cash equivalency - Do not use the sale

**Adjust the sale price downward to cash equivalency**

**In analyzing the local market, an appraiser uses data that was gathered and published by the local chamber of commerce. This data would be considered _________.** - Primary data - Secondary data - Plagiarism - An appraisal review assignment

**Secondary data**

**Which of the following is another name for the market survey method of extracting adjustments?** - Contingent valuation method - Simple linear regression - Paired sales technique - Grouped data analysis

**Contingent valuation method**

**An appraiser is preparing a real property appraisal report for a client. Which USPAP Standard must the appraiser follow when preparing this report?** - STANDARD 1 - STANDARD 2 - STANDARD 10 - There is no specific standard, but the appraiser must be sure to comply with the ETHICS RULE

**STANDARD 2**

**In the overall appraisal or valuation process, which of these is the final step?** - Reconciliation - Creation of the workfile - Communicating assignment results - Receipt of payment for appraisal services rendered

**Communicating assignment results**

**Which of these is NOT a measure of central tendency?** - Median - Standard deviation - Mode - Mean

**Standard deviation**

**In a real property appraisal, an appraiser's point of focus should be:** - The value of ownership rights - The client?s desired value - The owner?s desired value - Age and size of improvements

**The value of ownership rights**

**There are four steps in the scientific method which an appraiser might employ to solve problems. Which of these is the first step?** - Analysis - Prediction - Observation - Formulation

**Observation**

**An appraiser develops the Income Approach as the only valuation approach in an appraisal. The indication of the Income Approach is $1,422,550. Why is it important that an appraiser round this number when expressed as a final value conclusion?** - To give the appraiser some ?wiggle room? in case of errors - To give the appraisal report a neater look - To reflect the fact that properties typically sell at even numbers - To avoid misleading the client and intended users

**To avoid misleading the client and intended users**

**An appraiser is determining how to express her opinion of value in the appraisal report, and is considering whether or not a value range might be appropriate. What is the most important factor for the appraiser to consider?** - The type of property being appraised - The intended use of the appraisal - The time allotted to do the appraisal - The amount of the appraisal fee

**The intended use of the appraisal**

**A buyer of a property was unable to obtain typical market financing and so the seller agreed to carry the financing for the buyer, with a below-market rate and loan terms. If used as a comparable, this sale is likely to require an adjustment for:** - Expenditures made immediately after purchase - Conditions of sale - Financing terms - Property rights conveyed

**Financing terms**

**The subject property apartment complex has a swimming pool, which is considered a valuable amenity in this area of the country. One of the comparable sales used in the Sales Comparison Approach does not have a pool. What type of adjustment should be made in the sales comparison approach?** - The subject should be adjusted up to the comparable - The subject should be adjusted down to the comparable - The comparable should be adjusted up to the subject - The comparable should be adjusted down to the subject

**The comparable should be adjusted up to the subject**

**An appraiser has developed all three approaches to value in an appraisal assignment. When might the value indication of the Cost Approach NOT be reflective of market value?** - When the property?s use is the highest and best use - When insufficient market data is available - When entrepreneurial profit plays a significant role in the market - When the property is currently leased or has the potential to produce income

**When entrepreneurial profit plays a significant role in the market**

**What type of data is personally compiled by an appraiser?** - Secondary data - Primary data - Percentage data - Principal data

**Primary data**

**40000**

**When an appraiser is ___________, the appraiser places appropriate emphasis on the most reliable approach or approaches.** - Reporting - Proofreading - Reconciling - Analyzing the market

**Reconciling**

**Which term describes the most profitable use to which a property can be put?** - Commercial use - End use - Highest and best use - Interim use

**Highest and best use**

**When verifying a sale of a vacant land property, an appraiser discovers that the seller was having significant financial difficulties and agreed to sell the property quickly at a below-market price. If the appraiser is able to extract and support an adjustment, can this sale be used as a comparable in an appraisal?** - No, this sale must be discarded according to appraisal theory - Yes, this adjustment would be for conditions of sale - Yes, this adjustment would be for market conditions - No, because USPAP would prohibit the use of such a sale

**Yes, this adjustment would be for conditions of sale**

**When reconciling to an indicated value in the Sales Comparison Approach, who is responsible for determining which sales provide the best indication of value for the subject property?** - The client and/or intended users - The appraiser - The mortgage underwriter - The county assessor

**The appraiser**

**The property rights conveyed of a comparable sale are different from those of the subject, and the appraiser is unable to extract a reliable adjustment from the market. What is the appraiser's best course of action at this point?** - Discard the sale and do not use it in the analysis - Use the sale and apply a "rule of thumb" adjustment - Use the sale and make no adjustment for property rights - Seek client approval to use the sale

**Discard the sale and do not use it in the analysis**

**An appraiser is developing a real property appraisal, and believes it is necessary to modify the planned scope of work. When should the appraiser make modifications to the scope of work for the assignment?** - Never - As soon as such modifications are deemed necessary - As soon as client permission for modifications is obtained - When the appraised value is not high enough to support the loan amount

**As soon as such modifications are deemed necessary**

**14400**

**When reconciling, which of these is NOT an important consideration for the appraiser?** - The amount of time the appraiser was given to complete the appraisal - Strengths and weaknesses of each adjusted sale - Intended use of the appraisal - Reliability and appropriateness of the market data

**The amount of time the appraiser was given to complete the appraisal**

**Based on the market analysis that an appraiser performed earlier in the assignment, the appraiser may:** - Invoke the JURISDICTIONAL EXCEPTION RULE of USPAP - Decide to reconcile the subject?s value above the indicated price range - Decide what approaches to value to consider or develop - Decide not to complete the appraisal

**Decide what approaches to value to consider or develop**

**A capitalization rate indicates the relationship between a property's ________ income and its sales price.** - Potential gross - Effective gross - Net operating - Miscellaneous

**Net operating**

**An appraisal organization performed a study which concluded that that spending more hours working on an appraisal assignment results in higher client satisfaction. In this situation, client satisfaction is the _________ variable.** - Immaterial - Independent - Dependent - Variable

**Dependent**

**Adjust the sale price upward to cash equivalencyAdjust the sale price downward to cash equivalency**

**A building owner installs a new high-efficiency roof on a building at a cost of $200,000. However, the value of the building only increases by $150,000 as a result of the new roof. This demonstrates which economic principle?** - Opportunity cost - Externalities - Contribution - Substitution

**Contribution**

**In the process of appraisal development, what is the final step?** - Proofreading - Highest and best use analysis - Problem identification - Reconciliation

**Reconciliation**

**When estimating site value within the Cost Approach, an appraiser might reconcile:** - Indications of market rent - The indicated values of the land sales - Adjustments for gross building area - Gross rent multiplier indications from improved sales

**The indicated values of the land sales**

**Which valuation principle applies to both residential and commercial properties?** - Exchange - Replacement - Substitution - Swap

**Substitution**

**An appraiser who is using non-numeric techniques to reconcile comparable sales into an indication of value is performing what type of analysis?** - Paired data - Quantitative - Qualitative - Mass appraisal

**Qualitative**

**An appraiser uses only one valuation approach in developing an appraisal. Which statement is TRUE regarding this situation?** - The appraiser should develop the other two approaches and keep them in the workfile in case the client wants to see them later. - This assignment is essentially an automated valuation model (AVM). - The conclusion of that approach becomes the final value by default. - This is a violation of USPAP because a minimum of two approaches to value is required in every appraisal.

**The conclusion of that approach becomes the final value by default.**

**An appraiser locates a comparable sale in the local MLS. During the verification process, the appraiser discovers that the buyer of the property was the granddaughter of the seller, although the parties have different last names. What should the appraiser do with this sale?** - Use it as a good indicator of market value, because it was an MLS sale - Disregard it or set it aside - Use it in the appraisal, but give it little weight - Use it because the buyer and seller have different last names, and therefore the relationship is not readily apparent

**Disregard it or set it aside**

**Simple linear regression uses how many independent variables?** - One - Two - Three - An unlimited number

**One**

**An appraiser is asked by a client to appraise a proposed new office building which has not yet been built. The client asks the appraiser to use an effective date of 18 months from now, which is the building?s expected completion date. What type of assignment is this?** - Retrospective appraisal - Pro bono appraisal - Prospective appraisal - Hypothetical appraisal

**Prospective appraisal**

**When reconciling within the Sales Comparison Approach, the best comparable sales are _______ the ones that require the fewest or smallest adjustments.** - Always - Often - Never - Rarely

**Often**

**The appraisal development process and appraisal reporting process are:** - Synonymous - Two separate and distinct functions - Not addressed in USPAP - No longer relevant with the advent of artificial intelligence

**Two separate and distinct functions**

**Which of the following terms is NOT another name for the paired sales technique?** - Regression pairs analysis - Paired data analysis - Matched pairs analysis - Paired sales analysis

**Regression pairs analysis**

**A single characteristic from a group is called a:** - Convention - Prediction - Bundle - Variable

**Variable**

**How does an appraiser preserve evidence that she complied with USPAP in developing an appraisal?** - By asking the client to retain a copy of the report for future reference - By referencing USPAP in the letter of transmittal - By maintaining a workfile - By creating a lengthy appraisal report

**By maintaining a workfile**

**An appraiser is valuing a property as of a specified future date. What type of appraisal is this?** - This is a retrospective appraisal - This is a hypothetical appraisal - This is a prospective appraisal - This is a non-USPAP-compliant appraisal

**This is a prospective appraisal**

**Upon which valuation principle is the concept of adjustments in the Sales Comparison Approach primarily based?** - Change - Contribution - Externalities - Substitution

**Contribution**

**After significant analysis and research, an appraiser discovers that one of the comparable sales she was planning to use was an outlier. What should the appraiser do?** - Give it more weight in final reconciliation - Check it for skewness and kurtosis - Confer with the client to see what should be done with it - Remove it from the analysis

**Remove it from the analysis**

**When appraisal principles are followed and due diligence is properly implemented, what is the resulting benefit to the appraiser?** - The appraiser?s liability is completely eliminated - Most appraisal errors can be eliminated - The reconciliation process becomes unnecessary - The appraisal report becomes more lengthy and the appraiser can charge a higher fee

**Most appraisal errors can be eliminated**

**With regard to highest and best use analysis, which statement is FALSE?** - It helps determine which approaches will be developed. - It is an essential step in developing a market value opinion. - It does not help in selecting comparable sales. - It is useful in final reconciliation.

**It does not help in selecting comparable sales.**

**A property with 1 acre and an older building is valued at $525,000. It would cost $50,000 to raze and remove the building, and the value of the vacant 1-acre site would be $600,000. Under this scenario, razing and removing the building would be considered ____________.** - Environmentally expedient - Legally permissible - Financially feasible - Fiscally irresponsible

**Financially feasible**

**Calculate the mean of this set of gross rent multipliers: 87, 88, 72, 69, 67, 85.** - 77 - 78 - 79 - 468

**78**

**In the Sales Comparison Approach on a non-residential property, an appraiser may use ________ sales data.** - Local - Regional - National - Any or all of these types of

**Any or all of these types of**

**When reconciling to an indicated value of the Sales Comparison Approach, an appraiser should not:** - Average the indicated values of the comparables and use that as the indicated value for the subject - Consider the quality of the data - Consider the quantity of the data - Use judgment to give more weight to the most physically similar comparables

**Average the indicated values of the comparables and use that as the indicated value for the subject**

**The principle of substitution applies to:** - residential properties only - commercial properties only - owner-occupied properties only - residential and commercial properties, regardless of whether they are owner-occupied or tenant-occupied

**residential and commercial properties, regardless of whether they are owner-occupied or tenant-occupied**

**Sometimes errors can occur when extracting adjustments using the paired sales technique. What is the best way for an appraiser to avoid such errors?** - Use sales that are exactly identical to the subject; that way, adjustments will not be necessary - Subscribe to a national database which provides adjustment data for each state and region - Examine several pairs of sales - Use "rules of thumb" that have been passed down through generations of appraisers

**Examine several pairs of sales**

**___________ adjustments may be based on either percentages or specific dollar amounts.** - Qualitative - Quantitative - Basic - Simple

**Quantitative**

**An appraiser is researching data for an appraisal of an apartment complex. On the internet, she finds useful information on employment statistics, housing trends, and transportation studies. This data would be classified as:** - General data - Specific data - Primary data - Confidential data

**General data**

**When analyzing a vacant industrial land parcel, an appraiser notes that it has 40,000 square feet. This is an example of _______ data.** - Qualitative - Quantitative - Unverified - Communicative

**Quantitative**

**Which of these answers reflects a difficulty associated with the paired sales technique?** - It is not recognized by courts as an acceptable technique - The more paired sales you use, the less reliable the technique becomes - When applying this technique, it is difficult to account for every single difference between properties - All of these are difficulties with the paired sales technique

**When applying this technique, it is difficult to account for every single difference between properties**

**Sale C is a half-acre commercial lot with a 1,500 square foot building, located on a corner. It recently sold for $335,000. Sale D is a half-acre commercial lot with a 1,500 square foot building located on a side street. It recently sold for $320,000. Based on this information, what is the adjustment for a corner location versus a side street?** - 25000 - 15000 - 10000 - 335000

**15000**

**An industrial property sold for $256,000, and its gross annual rental income is $8,000. What is the indicated GIM?** - 20 - 24 - 32 - 45

**32**

**The Sales Comparison Approach is most effective when the subject and comparable sales:** - all have the same highest and best use - are located within the same central business district (CBD) - all sold within the prior 30 days - are income-producing

**all have the same highest and best use**

**Which statement regarding the Sales Comparison Approach is FALSE?** - It indicates value directly based on actual sales negotiated between buyers and sellers. - The approach is localized, i.e., regional and national data is not used. - When the appraiser has an understanding of value influences in the market, the approach is more reliable. - The approach works best when the subject and comparable sales all have the same potential highest and best use.

**The approach is localized, i.e., regional and national data is not used.**

**In what way(s) does sales verification assist in reconciliation within the Sales Comparison Approach?** - It helps determine the quality of the data - It can help the appraiser determine which sales are arm?s-length - Additional information may become available during the verification process - All of these

**All of these**

**How should an appraiser select the unit of comparison to be used in the Sales Comparison Approach?** - By considering the actions of buyers and sellers in the local market - By reading nationally-recognized real estate trade publications - By contacting the real estate agent who listed the property for sale - By surveying individuals who have never purchased real estate before

**By considering the actions of buyers and sellers in the local market**

**Which of the following statements is TRUE regarding appraisers and market value?** - All appraisals are made for the purpose of estimating market value. - Market value is synonymous with investment value, assessed value, and liquidation value. - Market value is only one type of value; appraisers estimate other types of value as well. - USPAP requires appraisers to use the definition of market value that appears in USPAP.

**Market value is only one type of value; appraisers estimate other types of value as well.**

**When reconciling to an indicated value for the subject, an appraiser may use:** - A single-point value - Any of these - A relationship to a numerical benchmark - A value range

**Any of these**

**You are trying to extract an adjustment for energy-efficient windows in an apartment building. You find two similar sales which differ from each other in two respects. Property A is a building with an energy-efficient windows and a good location, and it sold for $375,000. Property B has standard windows and an inferior location, and it sold for $335,000. Analysis of other paired sales indicates that apartment properties in good locations sell for $30,000 more than properties in lesser locations. Using this data, what is the indicated adjustment for the energy-efficient windows which are present in your subject property but are absent on a sales comparable?** - A negative $10,000 adjustment - A positive $10,000 adjustment - The adjustment for energy-efficient items should be based on their cost - Paired sales technique does not work if the sales have more than one item of dissimilarity

**A positive $10,000 adjustment**

**An appraiser is reconciling the data in the Sales Comparison Approach in order to reach a value conclusion. In doing so, the appraiser should ensure that:** - The most reliable data is presented first in the appraisal report - The sales with the fewest adjustments are verified in greater detail - The most reliable data is given the most weight - The value is reconciled to the low end of the range if the intended use is for ad valorem assessment appeal

**The most reliable data is given the most weight**

**In which of the following appraisal situations would a value opinion expressed as a relationship to a point of reference be MOST appropriate?** - In a ?phased? appraisal assignment - In any non-residential appraisal assignment - In an assignment for secondary market mortgage lending - In an assignment prepared for a federal government agency, such as the IRS

**In a ?phased? appraisal assignment**

**In a market value appraisal, an appraiser is making adjustments for property rights conveyed, financing terms, and expenditures made immediately after purchase. Which of these adjustments should be made first?** - Property rights - Financing terms - Expenditures made immediately after purchase - The order of these adjustments does not matter

**Property rights**

**In a bell-shaped curve with a normal distribution, what percentage of observations will fall within one standard deviation of the mean?** - 95 - 68 - 63.5 - 50

**68**

**Which term is defined as the present worth of revenue or other benefits that are expected in the future?** - Balance - Change - Competition - Anticipation

**Anticipation**

**In the valuation of a multi-tenant office building, which approach to value should be given the most weight?** - Sales Comparison - Income - The approach that is the best supported - The approach that the client considers the most meaningful

**The approach that is the best supported**

**Upon which valuation principle is the Sales Comparison Approach primarily based?** - Balance - Opportunity cost - Substitution - Diminishing marginal returns

**Substitution**

**An appraiser is analyzing a small apartment building, and notes that it is located in a busy suburban location, very close to a commuter rail line. This is an example of _______ data.** - Meaningless - Quantitative - Qualitative - Confirmed

**Qualitative**

**The sum of the observations in a traditional pie chart should add up to _______.** - 3.6 - 1 - 0.68 - 0.95

**1**

**The growth rate is higher in Community A than Community B, because Community A has better weather. As a result, property values are higher in Community A. This is an example of what force affecting the market?** - Governmental - Environmental - Economic - Social

**Environmental**

**A computer-generated model that provides value estimates for properties based on information gathered from agents, brokers, appraisers, public records, and other sources is an:** - Appraisal consulting - Economic base analysis - Economies of scale - Automated valuation model

**Automated valuation model**

**Which of these is the most appropriately rounded value conclusion for a property that is 6,887 square feet and is valued at $135 per square foot?** - 929750 - 929800 - 930000 - 1000000

**930000**

**Which of the following answers is indicative of economic equilibrium?** - The existing market is termed a "seller's market" because of high demand - There is an oversupply of properties that is slowly being corrected - The quantity demanded is equal to the quantity supplied - Property values have peaked and have now begun to decline

**The quantity demanded is equal to the quantity supplied**

**An appraiser develops all three approaches to value in an appraisal assignment, but finds significant differences between the conclusions each approach. What should he or she NOT do?** - Address the differences in his or her final reconciliation - Modify his or her analyses and conclusions in order to tighten up the range - Consider the applicability and suitability of the approaches - Check all three approaches for errors and inconsistencies

**Modify his or her analyses and conclusions in order to tighten up the range**

**Which of these terms refers to a type of sampling technique?** - Random - Cluster - Stratified - All of these are sampling techniques

**All of these are sampling techniques**

**Within the Income Approach, what might an appraiser need to reconcile?** - Market rent - Accrued depreciation - Adjustments for market conditions (time) - All of these require reconciliation within the income approach

**Market rent**

**_______ is created in the mind of an individual or market participant.** - Purchasing power - Balance - Value - Scarcity

**Value**

**The subject property is an older warehouse building has a structural deficiency, which detracts from its value. The comparable sales are also older warehouse buildings, but do not have structural deficiencies. What type of adjustments should be made in the Sales Comparison Approach?** - The subject should be adjusted down to the comparables - The subject should be adjusted up to the comparables - The comparables should be adjusted down to the subject - The comparables should be adjusted up to the subject

**The comparables should be adjusted down to the subject**

**There are four steps in the scientific method, which an appraiser might use as a systematic approach to solving problems. What is the final step this method?** - Analysis - Observation - Formulation - Prediction

**Analysis**

**When purchasing real property, an individual is purchasing:** - The government's right of eminent domain - The property, which is physically mobile - Control and possession of the rights of ownership - A property that is unencumbered by prior limitations on ownership

**Control and possession of the rights of ownership**

**When reconciling, an appraiser should reconsider the intended use of the appraisal and the type of value being sought. Why is this?** - The appraiser might decide to withdraw from the assignment - The appraiser should not use the cost approach if the property is not new construction - The appraiser might realize one of the valuation approaches is inappropriate - The appraiser might be able to change the value opinion to meet the client's needs before transmitting the report to the client

**The appraiser might realize one of the valuation approaches is inappropriate**

**Supply and demand analysis along with the collection of market data, analyses, and recommendations would be found in a __________.** - Economic principles analysis - Consumer survey - Market analysis - Compound interest analysis

**Market analysis**

**A property sold for $200,000, with the seller agreeing to carry the financing for the buyer at a below-market rate. How is an appraiser MOST likely to get information regarding the details of the financing and its effect on the sale price?** - Verification with a party to the transaction - Review of public records - Contacting local lenders - Investor surveys

**Verification with a party to the transaction**

**The gross income multiplier (GIM) reflects:** - The most prevalent recognized unit of comparison for non-income producing properties - The last procedure in the sales comparison approach - All the factors that market participants consider when pricing properties - All of these are reflected in GIM

**All the factors that market participants consider when pricing properties**

**An appraiser finds a sale and re-sale of a property which sold 24 months apart, indicating a 1% monthly decrease in value. What might be a problem with an appraiser using this 1% monthly market conditions adjustment in the Sales Comparison Approach?** - Real property values do not decline - Mortgage underwriters will not accept negative adjustments for market conditions - This adjustment might not be consistent with national trends - This adjustment assumes a steady decline over the entire period, which may or may not be accurate

**This adjustment assumes a steady decline over the entire period, which may or may not be accurate**

**Intangible (or transactional) adjustments made to comparable sales in the Sales Comparison Approach might include all of the following EXCEPT:** - Financing terms - Quality of construction - Property rights conveyed - Expenditures made immediately after purchase

**Quality of construction**

**An appraiser has reconciled to a final value opinion. How might this value opinion be stated in an appraisal report?** - As a value range - As a single-point value - As a relationship to a point of reference - As any of these

**As any of these**

**In an appraisal, an appraiser is making adjustments for location, financing terms, and market conditions. What is the proper sequence of these adjustments?** - Location, financing terms, market conditions - Financing terms, market conditions, location - Financing terms, location, market conditions - The order of these adjustments does not matter

**Financing terms, market conditions, location**

**An appraiser determines that a subject property has a debt coverage ratio of 1.1. What does this indicate?** - The property generates enough income to make the mortgage payment. - The property does not generate enough income to make the mortgage payment. - The capitalization rate for the property is 11%. - The property?s value is based on its monthly debt service multiplied by 1.1.

**The property generates enough income to make the mortgage payment.**

**The Sales Comparison Approach is best described as an ________ investigation.** - Empirical - Investigational - Observational - Experimental

**Empirical**

**What term describes data that is observed, but not measured?** - Quantitative data - Secondary data - Qualitative data - Systematic data

**Qualitative data**

**Within the Sales Comparison Approach, how is each comparable sale typically weighted?** - Based on its proximity to the subject - On the basis of its strengths and weaknesses - Based on whether it supports the pending sale price of the subject property - Giving special consideration to its market rent and depreciation estimates

**On the basis of its strengths and weaknesses**

**When developing _________, the appraiser must reconcile.** - The sales comparison approach - The cost approach - The income approach - All of the approaches

**All of the approaches**

**The subject property is a retail building with ample parking. One of the comparable sales used in valuing this property suffers from a shortage of parking which affected its sale price. In the Sales Comparison Approach, what type of adjustment should be made?** - The comparable should be adjusted up to the subject - The comparable should be adjusted down to the subject - The subject should be adjusted up to the comparable - The subject should be adjusted down to the comparable

**The comparable should be adjusted up to the subject**

**An appraiser has been engaged to complete an appraisal on a commercial property and to provide a range of value. What should the appraiser consider when determining how wide the reported range should be?** - The rule of thumb which states the range should be 5% or less - The intended use of the appraisal - The USPAP requirement of no more than a 10% variance - The number of intended users

**The intended use of the appraisal**

**Which statement about the Concentric Zone Model is FALSE?** - It has been criticized by some for its inability to fully explain contemporary city growth. - It focuses primarily on weather patterns that affect values in a region. - It is considered somewhat simplistic but still can be useful to appraisers. - Its theory assists appraisers with a method for analyzing growth patterns surrounding a city.

**It focuses primarily on weather patterns that affect values in a region.**

**An industrial building sold for $400,000. Six months later, it sold again for $440,000. No physical changes were made to the property over this time. What is the annual adjustment for market conditions indicated by this sale?** - Upward 10% - Downward 10% - Upward 20% - Downward 20%

**Upward 20%**

**An appraiser is valuing a new one-unit retail building, which is under construction. The appraiser has ample market-derived evidence that owner-occupied buildings of this type typically sell for significantly more than their cost to construct. Which approach is likely to be given greater weight in final reconciliation?** - Cost Approach - Sales Comparison Approach - Income Approach - She should average all three approaches

**Sales Comparison Approach**

**An appraisal organization performed a study which concluded that that spending more hours working on an appraisal assignment results in higher client satisfaction. In this situation, the number of hours spent is the _________ variable.** - Independent - Dependent - Reasonable - Less important

**Independent**

**Which of these answers best describes the paired sales technique?** - An appraiser locates one sale and determines the value of the subject - An appraiser locates several pairs of sales that are similar except for one feature and extracts an adjustment - The appraiser uses active listings and adjusts/deducts the amount they might sell for - The appraiser knows the area and only needs to analyze two sales

**An appraiser locates several pairs of sales that are similar except for one feature and extracts an adjustment**

**How should an appraiser verify comparable sales used in the Sales Comparison Approach?** - Any of these is an acceptable way to verify - By phone call - By communication by email or text message - By personal visit

**Any of these is an acceptable way to verify**

**The definition of "value" specifies that it is:** - a fact - an economic concept - irrelevant in most appraisal assignments - an estimate of fact

**an economic concept**

**Which of these items would be a tangible difference between the subject and a comparable sale that might require adjustment in the Sales Comparison Approach?** - Location - Market conditions - Financing terms - All of these

**Location**

**What are property rights conveyed, financing, conditions of sale, and market conditions?** - Unimportant factors in real property appraisals - Tangible differences considered in the sales comparison approach - Transactional differences considered in the sales comparison approach - Considerations in the cost approach

**Transactional differences considered in the sales comparison approach**

**In a competitive market what will function to equalize the quantity demanded by consumers and the quantity supplied by producers?** - Supply - Price - The principle of anticipation - Economies of scale

**Price**

**You are appraising in a non-disclosure state. What is the best way for you to determine the actual sale price of a comparable property?** - Find the mortgage loan amount and divide by 0.8 - If the property did not sell through the MLS, do not use it as a comparable sale - Verify the sale with a party or parties to the transaction - Multiply the transfer stamps by 1.25 to allow for under-reporting

**Verify the sale with a party or parties to the transaction**

**The subject property is an industrial warehouse building with low ceilings. This factor limits the building's functional utility. One of the comparable sales has much higher ceilings, and therefore is more useable. What type of adjustment should be made in the Sales Comparison Approach?** - The subject should be adjusted up to the comparable - The comparable should be adjusted down to the subject - The comparable should be adjusted up to the subject - The subject should be adjusted down to the comparable

**The comparable should be adjusted down to the subject**

**An appraiser is valuing a proposed new building with a prospective effective date. In this assignment, the appraiser is utilizing a(n):** - Reconciled net adjustment - Hypothetical condition - Extraordinary assumption - Appraiser’s prerogative

**Extraordinary assumption - Proposed improvements can be valued in one of two ways. As completed with a current effective date, utilizing the hypothetical condition that the proposed improvements exist as of the effective date of the valuation. As completed as of a specified future date, utilizing the extraordinary assumption that the improvements will be completed as of the effective date **

**An appraiser discovers that one of the comparable sales he is using in an appraisal had an addition put on after it was purchased. What should the appraiser do?** - Use the square footage at the time the property was sold - Use the square footage that is currently indicated in county or municipal records - Give the sale no weight in final reconciliation - Remove it from the analysis

**Use the square footage at the time the property was sold**

**Instead of a single-point value conclusion, a client requests that an appraiser simply state whether a property?s value is more or less than a previous appraisal completed one year ago. Is this an acceptable opinion of value?** - Yes, this is a relationship to a benchmark - No, an appraiser must provide a single-point value opinion - Yes, but the appraiser would need to provide this value opinion outside of USPAP - No, because even though USPAP would permit this, state laws would prohibit it

**Yes, this is a relationship to a benchmark**

**A comparable property sold for $400,000. In the sales comparison grid, it is adjusted downward 5% for property rights, downward 10% for financing terms, and upward 15% for market conditions. What is the dollar adjustment for property rights conveyed?** - 20000 - 36000 - 18000 - 38000

**20000**

**A comparable property sold for $160,000. In the sales comparison grid, it is adjusted downward 10% for financing terms, and 10% for market conditions. What is the net adjusted sale price?** - 128000 - 129600 - 130000 - 132000

**129600**

**What should an appraiser do when reconciling the indicated values in the Sales Comparison Approach?** - Reconcile to the center of the indicated range - Consider the quality and quantity of data - Average the indicated values - Select the value that favors the cause of the client

**Consider the quality and quantity of data**

**A comparable property sold for $400,000. In the sales comparison grid, it is adjusted downward 5% for property rights, downward 10% for financing terms, and upward 15% for market conditions. What is the dollar adjustment for market conditions?** - 54600 - 48000 - 60000 - 51300

**51300**

**A vacant land property sold for $180,000. Six months later, it re-sold for $169,000. No improvements were made to the property during this period. What is the indicated monthly adjustment for market conditions?** - 0.06 - -0.06 - 0.01 - -0.01

**-0.01**

**Regarding the role of USPAP in appraisal development and reporting, which of the following statements is TRUE?** - USPAP STANDARD 2 governs development, while STANDARD 1 governs reporting. - USPAP combines real property appraisal development and reporting into one Standard. - USPAP states that appraisal reporting precedes appraisal development. - USPAP STANDARD 1 governs development, while STANDARD 2 governs reporting.

**USPAP STANDARD 1 governs development, while STANDARD 2 governs reporting.**

**Which valuation method or technique is used to estimate the value of a subject property based on the sales prices of similar properties within the subject?s market area?** - Sales Comparison Approach - Sales Approach - Income Approach. - Cost Approach

**Sales Comparison Approach**

**Which of these would NOT be a tangible difference between the subject and comparable sales that might require an adjustment in the Sales Comparison Approach?** - Location - Traffic patterns - Zoning - Market conditions

**Market conditions**

**An appraiser is completing a market value appraisal for an ad valorem assessment appeal. The subject property is a medical office building situated on a 2-acre site. Which statement will most likely be TRUE regarding the appraiser's highest and best use analysis?** - The highest and best use of the property is always the present use. - The appraiser will need to develop two highest and best use opinions. - Highest and best use is only necessary in mortgage lending appraisals. - USPAP requires a highest and best use analysis in all appraisals, regardless of intended use.

**The appraiser will need to develop two highest and best use opinions.**

**When performing market segmentation on a non-residential property, the appraiser would separate and consider the markets for different types of properties such as:** - Lodging - Residential or multi-family - Commercial or office - Any or all of these

**Any or all of these**

**Which appraisal term refers specifically to the number of goods and services that can be purchased with a unit of currency?** - Transferability - Utility - Anticipation - Conformity

**Transferability**

**An appraiser is valuing a four-acre vacant parcel of land in an area where there is no zoning. As a residential home site, the property is worth $185,000. For commercial purposes, it is worth $1.20 per square foot. For industrial purposes, it is worth $50,000 per acre. What is the highest and best use of the property?** - Residential - Commercial - Industrial - Cannot determine from the information provided

**Commercial**

**An appraiser is performing a highest and best use analysis. When considering legal permissibility and current land use regulations, what must the appraiser also consider?** - Uses that are socially acceptable - Laws and regulations in adjoining states - Reasonably probable modifications of land use regulations - Only those uses that are specifically permitted under the zoning as of the effective date

**Reasonably probable modifications of land use regulations**

**Which of the following is the MOST most common method of extracting and supporting adjustments in the Sales Comparison Approach?** - Paired sales technique - Linear regression - Rent loss analysis - Quantity survey method

**Paired sales technique**

**Which statement is TRUE regarding USPAP and the definition of market value?** - USPAP does not address the concept of market value, because this term is rarely used in non-residential appraisals. - USPAP requires appraisers to use the definition of market value that appears in the DEFINITIONS section of USPAP. - USPAP establishes that there is only one definition of market value that should be used. - USPAP cautions appraisers to identify the exact definition of value used in every market value appraisal.

**USPAP cautions appraisers to identify the exact definition of value used in every market value appraisal.**

**What are the most common units of comparison used in valuing income-producing non-residential properties?** - GIM and GRM - GRM and RCN - GIM and NIR - NOI and ABS

**GIM and GRM gross income multiplier (GIM) gross rent multiplier (GRM)**

**Communication of the results of a real property appraisal assignment is governed by which part of USPAP?** - STANDARD 1 - STANDARD 2 - SCOPE OF WORK RULE - All Standards in USPAP govern reporting

**STANDARD 2**

**As it relates to appraisal, how is the term "reconciliation" defined?** - The process in which the appraiser considers various indications of value - The process in which the appraiser interviews consumers regarding their opinions or attitudes - The principle that states that site and improvements must be valued on the basis of the same or similar use - The process in which the appraiser values the property contrary to what actually exists

**The process in which the appraiser considers various indications of value**

**An appraiser is sampling gross rent multipliers for small residential income properties. She finds the following GRMs: 98, 88, 85, 99, 91, 51, and 52. What would the indicated GRM of 52 be called?** - Mean - Mathematical error - Outlier - Standard error

**Outlier**

**Prior to an appraiser reconciling the indications of the three approaches to reach a final value conclusion, he or she must first:** - Inform the client of the scope of work - Sign the certification statement in the report - Receive payment for the appraisal - Reconcile within the approaches

**Reconcile within the approaches**

**An appraiser who is making numeric dollar adjustments to the sales prices of comparable properties is performing what type of analysis?** - Qualitative - Quantitative - Paired data - Cost and benefit

**Quantitative**

**Appraisers use __________ to understand and apply accurate analysis in the evaluation of real estate.** - Government information - Statistical techniques - Old reports of the same subject property - MLS data only

**Statistical techniques**

**When reconciling multiple approaches into a single opinion of value, the importance of each approach will vary based on the type of property and:** - The client's target value - The intended use of the appraisal - The amount of time the appraiser is given to perform the assignment - The appraiser's attempts to limit his or her liability

**The intended use of the appraisal**

**Which of these statements explains why the real estate market is considered inefficient?** - As a general rule, real estate is affordable to anyone who wants to participate in the market. - There is a lack of readily available information during many of the various levels of a real estate transaction. - Borrowed funds are rarely used to purchase real estate and therefore the market only involves buyers and sellers. - The supply of real estate can be changed very easily and therefore supply and demand imbalances are corrected quickly.

**There is a lack of readily available information during many of the various levels of a real estate transaction.**

**When analyzing office buildings, an appraiser often categorizes them into specific classes (e.g., Class A, Class B, Class C). This is an example of _______ measurement.** - Quantitative - Interval - Ratio - Ordinal

**Ordinal**

**In the Sales Comparison Approach, what are tangible differences between the subject and comparable sales?** - The only items that require adjustment - Property differences - Property rights, financing terms, conditions of sale, expenditures made immediately after purchase, and market conditions - All of the above

**Property differences**

**Which of the following items is not considered when estimating net operating income (NOI) for a property?** - Mortgage payment - Vacancy - Collection loss - Operating expenses

**Mortgage payment**

**The four great forces that influence real estate markets are:** - Econometric, environmental, financial, and social - Governmental, environmental, economic, and social - Governmental, ecological, economic, and social - Governmental, ecological, economic, and communal

**Governmental, environmental, economic, and social**

**Another source compiles data and makes it available for appraisers. What type of data is this?** - Secondary data - Primary data - Purchased data - Principal data

**Secondary data**

**Which of the following statements about the market survey technique (stated preference method) of estimating adjustments is INCORRECT?** - Its use is somewhat controversial in appraisal circles. - It is highly scientific and relies heavily on statistics. - It is possible that the appraiser can skew the results to reach a pre-ordained conclusion. - It is based on hypothetical situations, so it is not as reliable as actual listing and sales data.

**It is highly scientific and relies heavily on statistics.**

**For an effective and meaningful Sales Comparison Approach, the subject property and the comparables used in the sales comparison approach must:** - Have the same potential highest and best use - Be of the same construction quality and condition - Have sold recently - Be located in the same municipality and school district

**Have the same potential highest and best use**