Unit 17 Real Property Valuation

Question 1

Reconciliation refers to
A averaging the results of the sales comparison approach.
B separating the value of land from the total value of property to compute depreciation.
C analyzing the results obtained by the three different approaches to value to arrive at a final estimate of value.
D the process by which an appraiser determines the highest and best use for a parcel of land.

Answer 1

C analyzing the results obtained by the three different approaches to value to arrive at a final estimate of value.

Question 2

One method to determine a building’s replacement cost uses the estimated cost of the raw materials needed to build the structure, plus labor and indirect costs. This is called the
A square-foot method.
B quantity-survey method.
C cubic-foot method.
D unit-in-place method.

Answer 2

B quantity-survey method.

Question 3

An appraiser needs certain financial figures in order to determine value by the income approach. Which one of the following numbers is NOT required for the income approach to value?
A Annual net operating income
B Capitalization rate
C Accrued depreciation
D Annual gross income

Answer 3

C Accrued depreciation

Question 4

The highest and best use of a property is the
A sales price paid for a similar property.
B most return the owner can receive for the use of the property.
C cost of buying a lot and erecting a similar building on it.
D use of the land for a long-term lease.

Answer 4

B most return the owner can receive for the use of the property.

Question 5

The income capitalization approach is given the most weight in the valuation of
A a single-family residence.
B a one-bedroom condominium.
C an office building.
D a school.

Answer 5

C an office building.

Question 6

Capitalization is the process by which annual net operating income is used as the basis to
A determine cost.
B estimate value.
C establish depreciation.
D determine potential tax value.

Answer 6

B estimate value.

Question 7

The depreciation that an appraiser uses in the cost approach to value represents the
A remaining economic life of the building.
B remodeling costs to increase rentals.
C loss of value due to any cause.
D costs to modernize the building.

Answer 7

C loss of value due to any cause.

Question 8

The appraised value of a residence with four bedrooms and one bathroom would probably be reduced because of
A external obsolescence.
B functional obsolescence.
C physical deterioration—curable.
D physical deterioration—incurable.

Answer 8

B functional obsolescence.

Question 9

The reason for loss of value that is always incurable is
A functional obsolescence.
B physical deterioration.
C replacement obsolescence.
D economic obsolescence.

Answer 9

D economic obsolescence.

Question 10

Which appraisal approach makes use of a rate of investment return?
A Sales comparison
B Cost
C Income capitalization
D Market data

Answer 10

C Income capitalization

Question 11

Which of the following is NOT true about
market value?
A It is the highest price a property could bring in an open market.
B Buyer and seller must be knowledgeable and acting without undue pressure.
C It should be an arm’s-length transaction.
D A reasonable amount of time should be allowed for full exposure to the market.

Answer 11

A It is the highest price a property could bring in an open market.

Question 12

Developers have just announced a new championship golf course community. Property values in the area will tend to increase due to this announcement. This is an example of the principle of
A supply and demand.
B anticipation.
C substitution.
D conformity.

Answer 12

B anticipation.

Question 13

Which of the following statements is TRUE of the income approach to value?
A The reproduction or replacement cost of the building must be computed.
B The capitalization rate must be estimated.
C Depreciation must be determined.
D Sales of similar properties must be considered.

Answer 13

B The capitalization rate must be estimated.

Question 14

In the cost approach to value, it is necessary to
A determine a dollar value for depreciation.
B estimate future expenses and operating costs.
C check sales prices of recently sold comparable properties in the area.
D reconcile differing value estimates.

Answer 14

A determine a dollar value for depreciation.

Question 15

The subject property has two bedrooms, and the comparable property has three bedrooms. The estimated value of the third bedroom is $2,500. According to the sales comparison method, the appraiser should
A deduct $2,500 from the value of the subject property.
B add $2,500 to the value of the subject property.
C deduct $2,500 from the value of the comparable property.
D add $2,500 to the value of the comparable property.

Answer 15

C deduct $2,500 from the value of the comparable property.

Question 16

All of the following items should be deducted from gross income to compute net operating income EXCEPT
A utility bills.
B mortgage payments.
C maintenance expenses.
D repair costs.

Answer 16

B mortgage payments.

Question 17

If the appraiser decides to increase the capitalization rate, the market value of the property will
A increase.
B decrease.
C stay the same.
D be equal to the capitalization rate.

Answer 17

B decrease.

Question 18

The number of years a property is expected to remain useful for its original purpose is called its
A actual life.
B economic life.
C progressive life.
D depreciated life.

Answer 18

B economic life.

Question 19

The formula for estimating value based on the gross rent multiplier is
A rental income × gross rent multiplier = estimated market value.
B rental income ÷ gross rent multiplier = estimated market value.
C estimated market value × rental income = gross rent multiplier.
D net operating income × gross rent multiplier = estimated market value.

Answer 19

A rental income × gross rent multiplier = estimated market value.

Question 20

In estimating the value of real estate using the cost approach, the appraiser should
A estimate the replacement cost of the improvements.
B deduct for depreciation of the land.
C determine the original cost and adjust for changes in capitalization rates.
D review the sales prices of comparable properties.

Answer 20

A estimate the replacement cost of the improvements.

Question 21

Under the income approach to estimating the value of real estate, the capitalization rate is the
A rate at which the property will increase in value.
B rate of return the property will earn as an investment.
C rate of capital required to keep the property operating efficiently.
D maximum rate of return allowed by usury limits.

Answer 21

B rate of return the property will earn as an investment.

Question 22

An example of economic obsolescence is
A numerous pillars supporting the ceiling in a store.
B roof leaks making the premises unusable and therefore unrentable.
C massive cornices in an older structure.
D abandoned buildings in the area.

Answer 22

D abandoned buildings in the area.

Question 23

A house is located in a suburban community. A new expressway is being built a few blocks away that will reduce the commute time to the urban employment center by 30 minutes. The house is expected to increase in value based on the principle of
A anticipation.
B competition.
C contribution.
D highest and best use.

Answer 23

A anticipation.

Question 24

The subject property is a two-story home with three bedrooms, three baths, a family room, a dining room, and an attached two-car garage. Which of the following would be a legitimate comparable sale?
I Two-story home with 3 bedrooms and 2.5 baths in the same neighborhood that sold 18 months ago
II One-story home in a different neighborhood with 3 bedrooms and 2 baths, a detached one-car garage, and no family or dining room
A I only
B II only
C Both I and II
D Neither I nor II

Answer 24

D Neither I nor II

Question 25

Which of the following statements is TRUE of a comparative market analysis?
A It is another term for an appraisal.
B It can help the seller price the property.
C By law, it must be completed for each listing taken.
D Per Commission Rule, it must be retained by the broker for at least five years.

Answer 25

B It can help the seller price the property.

Question 26

Which North Carolina licensee may perform a Broker Price Opinion?
I Provisional broker
II Full broker
A I only
B II only
C Either I or II
D Neither I nor II

Answer 26

B II only

Question 27

In the appraisal process, the appraiser must consider highest and best use where the appraiser
A analyzes market forces such as competition and current versus potential uses to determine the reasonableness of the property’s present use in terms of its profitability.
B selects the best comparable properties for the appraisal.
C considers the scope of the assignment and the fee for the work.
D determines whether the effective age of the property and its economic life.

Answer 27

A analyzes market forces such as competition and current versus potential uses to determine the reasonableness of the property’s present use in terms of its profitability.

Question 28

Federally related appraisals must follow the guidelines stated in
A the North Carolina Real Estate Commission rules.
B the Society of Real Estate Appraisers Code of Ethics.
C the Uniform Standards of Professional Appraisal Practice.
D policy manuals provided to appraisal students at their universities.

Answer 28

C the Uniform Standards of Professional Appraisal Practice.

Question 29

If the GRM in a neighborhood is $125 and the monthly rent in a duplex is $1,000 per unit, then the approximate value of the property is
A $137,500.
B $125,000.
C $250,000.
D $1,500,000.

Answer 29

C $250,000.

Question 30

If a property’s annual net income is $24,000 and it is valued at $300,000, what is its capitalization rate?
A 8%
B 10.5%
C 12.5%
D 15%

Answer 30

A 8%

Question 31

A 20-year-old, well-maintained building has an estimated replacement cost of $100 per square foot. The building has 2,000 square feet. Land value is estimated at $350,000. Based on an inspection of the building, the appraiser estimates that the building has an effective age of 10 years and a useful life of 40 years. Site improvements, including underground utilities and landscaping, have an estimated value of $130,000. Using the cost-approach, an appraiser would estimate the value of this property as
A $500,000.
B $580,000.
C $630,000.
D $680,000.

Answer 31

C $630,000.

Question 32

The subject property has 2,100 square feet,
4 bedrooms, a 2-car garage, no patio, no pool,
2.5 baths, and sits on 1 acre. The comparable recently sold for $140,000 and has 1,900 square feet, 3 bedrooms, a 1-car garage, a patio, a pool, 2 baths, and sits on 1.5 acres. Market cost data shows the following values: square foot = $72, 1 bedroom = $2,000, 1-car garage = $1,500, patio = $2,000, pool = $14,000, ½ bath = $800, and
1 acre = $30,000. Using this cost data, what is
the estimated value of the subject property?
A $113,700
B $125,700
C $127,700
D $129,200

Answer 32

C $127,700

Question 33

A broker is asked to estimate the value of a property. She finds four recently sold comparables, A, B, C, and D. Comparables A, B, and D have positive features worth $3,000, $2,000, and $5,000, respectively, which are not common to the subject property. Comparable C has negative features worth $3,500 that are not common to the subject property. The comparables sold for the following prices: A, $73,000; B, $74,000; C, $62,000; and D, $71,000. What is the range of indicated values for the subject property?
A $58,500 to $76,000
B $65,500 to $66,000
C $65,500 to $72,000
D $66,000 to $72,000

Answer 33

C $65,500 to $72,000

Question 34

The subject property to be appraised is a three-bedroom brick ranch with 3,000 square feet. It does not have a garage but does have a patio. Comparable 1 is a three-bedroom brick ranch that recently sold for $100,000. It has 2,800 square feet, a garage, and a patio. Comparable 2, a three-bedroom brick ranch, recently sold for $110,000. It also has a garage and a patio and 3,000 square feet. Comparable 3, a three-bedroom brick ranch, recently sold for $86,000, has 2,600 square feet and no garage, but it does have a patio. Using the sales comparison approach, estimate the value of the subject property.
A $94,000
B $106,000
C $109,000
D $114,000

Answer 34

B $106,000