Unit 16

Question 1

Which of the following might be classified as functional obsolescence?

(A) Exterior needs painting.
(B) Property fronts on a busy expressway.
(C) Very small bedroom closets.
D) Neighborhood is 35 to 50 years old.

Answer 1

(C) Very small bedroom closets.

Functional obsolescence is a loss in value
due to any cause within the property except for physical deterioration.

Question 2

When capitalization is sought, a person is particularly interested in:

A) the potential future value.
(B) cost value.
(C) total capital invested.
D) converting income into value.

Answer 2

D) converting income into value.

It is the process whereby expected future
income is converted to value.

Question 3

In estimating the value lost by a structure due to physical deterioration, the appraiser places greatest emphasis on:

(A) the condition of the surrounding
buildings.
(B) the zoning of the neighborhood.
(C) the original cost of the building.
D) the observed condition of the subject building.

Answer 3

D) the observed condition of the subject building.

A and B are external; C is irrelevant.

Question 4

Of the three methods of appraising
properties, reproduction cost approach is particularly appropriate and would give the most accurate value in the appraisal of a(n):

(A) new home.
(B) multiple dwelling.
(C) old home.
(D) medium-age home.

Answer 4

(A) new home.

Because there is no income and no depreciation

Question 5

The formula used in direct capitalization of Income property valuation is:

(A) value equals cap rate divided by income.
B) value equals annual net income divided
by cap rate.
(C) value equals income multiplied by cap rate.
(D) value equals income divided by net
assets.

Answer 5

B) value equals annual net income divided

Question 6

The economic life of a building has come to an end when:

(A) the building ceases to represent the
highest and best use of the land.
(B) the value of the land and the building equals the value of the land only.
(C) the rent produced is valued at less than a similar amount of money invested elsewhere could produce.
D) the reserve for depreciation equals the cost to replace the building.

Answer 6

(B) the value of the land and the building equals the value of the land only.

Question 7

An appraiser’s fee is typically based on which of the following?

(A) Time and expenses.
(B) Percent of value estimate.
(C) Percent of assessed valuation.
(D) Percent of Income.

Answer 7

(A) Time and expenses.

Question 8

All but one of the following is used to
estimate value:

(A) Improvements.
(B) Deterioration.
(C) Livelihood.
(D) Economic life.

Answer 8

(C) Livelihood.

Question 9

In regard to the capitalization rate:

(A) as it increases, value of property
increases.
(B) as it decreases, value of property
decreases.
(C) as it increases, value of property
decreases.
(D) changing capitalization rate has no effect on value of the property.

Answer 9

(C) as it increases, value of property decreases.

Because a higher rate indicates a higher
risk, and the higher the risk, the lower the
value.

Question 10

The difference between the cost of
replacement and current valuation is
equal to:

(A) accrued depreciation.
(B) assessed valuation.
(C) market value.
(D) book value.

Answer 10

(A) accrued depreciation.

Accrued depreciation is total depreciation
from all causes

Question 11

The most widely used approach to appraisal of real property is the:

(A) income approach.
(B) sales comparison approach.
(C) cost approach.
(D) SWAG approach.

Answer 11

(B) sales comparison approach.

Because most improved real estate con-
sists of used single-family houses which
are appraised by this method.

Question 12

The useful life of a building, or period of time after which the income provide by it is not sufficient to warrant its maintenance, is called:

(A) recapture limit.
(B) economic life.
(C) reversion limit.
(D) investment duration.

Answer 12

(B) economic life.

Question 13

Which of the following is NOT an example of physical deterioration?

(A) Poor floor plan.
(B) Peeling paint.
(C) Cracked patio.
(D) Missing shingles.

Answer 13

(A) Poor floor plan.

Question 14

Physical deterioration most closely means:

(A) obsolescence.
(B) wear and tear.
(C) repair.
(D) recapture.

Answer 14

(B) wear and tear.

Question 15

The sales comparison approach to value
gives:

(A) indication of the lowest value.
(B) indication of the highest value.
(C) indication of the future value.
(D) range of probable value.

Answer 15

(D) range of probable value.

Question 16

A homogeneous community has what effect on real estate values?

(A) Stabilizes them.
(B) Causes the value to increase.
(C) Causes the value to decrease.
(D) Doesn’t have any effect.

Answer 16

(A) Stabilizes them.

Question 17

A house with four bedrooms and one bath is an example of:
(A) economic obsolescence.
(B) functional obsolescence.
(C) physical deterioration.
(D) all of the above.

Answer 17

(B) functional obsolescence.

Question 18

Real estate values are most affected by:

(A) location.
(B) availability of money.
(C) appraisal.
(D) national trends.

Answer 18

(A) location.

Question 19

The trend in architectural design in a
neighborhood is toward more contemporary styled homes. Because of this trend a conservatively designed home will tend to:

(A) depreciate in value more rapidly.
(B) depreciate in value less rapidly.
(C) stay the same value.
(D) appreciate in value.

Answer 19

(A) depreciate in value more rapidly.

Because of lack of homogeneity.

Question 20

A residence located In an area where there are factories and plants, and where there is much smoke and dust, is sufiering from:

(A) physical depreciation.
(B) external obsolescence.
(C) functional obsolescence.
(D) None of the above.

Answer 20

(B) external obsolescence.

Because of influences outside the
property line.

Question 21

Al but which one of the following would be considered in the cost approach appraisal method?

(A) Operating expenses.
(B) Depreciation.
(C) Land value.
(D) Replacement cost.

Answer 21

(A) Operating expenses.

Using cost approach, appraiser estimates
current reproduction cost, deducts depre-
clation and adds value of vacant land.

Question 22

In estimating value, the before and after
method is used most often with:

(A) condemnation.
(B) exchange.
(C) cost of reproduction.
(D) option.

Answer 22

(A) condemnation.

The “before and after” method is primarily used in condemnation cases. This is because when a portion of land is condemned for a public project, the appraiser needs to determine the value of the entire property before the taking and then the value of the remaining portion after the taking. The difference in value represents the compensation owed to the property owner.

Question 23

Functional obsolescence is a decrease in value due to:

(A) being “outdated.”
(B) decline in neighborhood.
(C) something wearing out.
(D) excessive cost.

Answer 23

(A) being “outdated.”

Question 24

Market value is most closely related to:

(A) selling price.
(B) replacement price.
(C) analysis.
(D) reproduction price.

Answer 24

(A) selling price.

Market value is the price that a willing sell-
er will accept from a willing buyer.

Question 25

With respect to an appraisal, which of the following is NOT correct? (A) It is the appraiser's opinion of market value. (B) It is the appraiser's conclusion of market value. (C) it is the appraiser's estimate of market value. (D) It is the appraiser's determination of market value.

Answer 25

(D) It is the appraiser's determination of market value. ## Footnote An appraiser can estimate value, give an opinion, or come to a conclusion of value, but he or she cannot determine value; only the market can do that.

Question 26

The method most frequently used to determine value for a fire insurance policy is: (A) sales comparison. (B) cost approach. (C) income approach. (D) declining balance.

Answer 26

(B) cost approach. ## Footnote In the cost approach to real estate valuation, the value of a property is estimated by calculating the cost to reproduce or replace the improvements on the land, minus any depreciation, plus the land's market value. The insurance company is concerned with neither the income produced by an insured property nor its market value.

Question 27

Which of the following factors would have little or no effect in estimating the value of a commercial property? (A) Purpose of the appraisal. (B) Income from property. (C) Original cost of the property (D) Zoning

Answer 27

(C) Original cost of the property

Question 28

The use of the gross multiplier to assist in appraising real property leased to various tennants is based upon: (A) gross income in relation to capitalized value. (B) relationship between rental value and sale price of property. (C) gross income and anticipated gross income. (D) scheduled gross income and expected net income.

Answer 28

(B) relationship between rental value and sale price of property. ## Footnote In real estate, a gross rent multiplier (GRM) is a quick metric used to evaluate the value of a rental property by comparing its price to its annual gross rental income. A lower GRM generally suggests a better value, while a higher GRM might indicate a premium price. The GRM is calculated by dividing the property's sale price by its annual gross rental income.

Question 29

In appraising a house, the appraiser finds that Comparable A is similar to the subject property and sold for $180,000. Comparable B is also similar except it has one additional bedroom and sold for $200,000. In regard to the extra bedroom, what adjustment is made? (A) Add $20,000 to the subject property. (B) Add $20,000 to Comparable A. (C) Subtract $20,000 from the subject property. D) Subtract $20,000 from Comparable B.

Answer 29

D) Subtract $20,000 from Comparable B. ## Footnote If the comparable is better, subtract (CBS).

Question 30

The amount which a seller who does not have to sell will accept from a buyer who does not have to buy is called: (A) market value. (B) market price. (C) assessed value. (D) appraised value.

Answer 30

(A) market value.

Question 31

The definition of market value assumes that: (A) the buyer is not under pressure to buy and the seller is not under pressure to sell. (B) the property has been on the market for a reasonable length of time. (C) Both A and B. (D) Neither A nor B.

Answer 31

(C) Both A and B.

Question 32

Which of the following statements is true? (A) Market price and market value are Interchangeable terms. (B) An appraiser would most likely use the cost approach to estimate the value of a church. (C) The income approach is used for most appraisals. (D) The cost approach is used to estimate the value of vacant land.

Answer 32

(B) An appraiser would most likely use the cost approach to estimate the value of a church. ## Footnote Because there is no income and because there are no comparables.

Question 33

If the subject property has central air conditioning valued at $2,000, and the comparable does not, the sale price of the comparable is adjusted by: (A) + $2,000. (B) - $2,000. (C) - $1,000. (D) Can't be computed based on the Information given.

Answer 33

(A) + $2,000. ## Footnote If the comparable is inferior, add (CIA).

Question 34

Accrued depreciation may be defined as: (A) future depretiation. (B) the total depreciation from the time of construction to the date of appraisal from all causes. (C) deferred maintenance. (D) none of the above.

Answer 34

(B) the total depreciation from the time of construction to the date of appraisal from all causes. ## Footnote It is total depreciation from all causes: physical, functional and external.