Valuation/Market Analysis

Question 1

Which of the following appraisal techniques require a separate estimate for the value of the land?

A) - market data approach
B) - income capitalization approach
C) - cost approach
D) - All of the above

Answer 1

C) - cost approach

Answer: C—The primary steps of the cost approach are to (1) estimate the land value, (2) estimate the replacement cost of the building new, (3) deduct all accrued depreciation from the replacement cost and (4) add the estimated land value to the depreciated replacement cost.

Question 2

The quantity survey method, unit-in-place method, and square foot/cubic foot methods of real estate appraisal most directly relate to the:

A) - cost approach
B) - income approach
C) - sales comparison approach
D) - All of the above

Answer 2

A) - cost approach

Answer: A—In the cost approach, an appraiser may use all of these methods to determine the cost to build.

Question 3

Wear and tear to the load bearing members of a building would be classified as:

A) - functional obsolescence-curable.
B) - physical deterioration-curable.
C) - functional obsolescence-incurable.
D) - physical deterioration-incurable.

Answer 3

D) - physical deterioration-incurable.

Answer: D—Physical damage to the load bearing members of a bulding would usually be considered too expensive to repair. If it is too expensive to repair, it is classified as incurable.

Question 4

Which of the following is the best expression of why real estate has value?

A) - excellent potential for speculative growth
B) - maximum utilization of available resources
C) - closest to affluent neighborhoods
D) - incalculable replacement cost

Answer 4

B) - maximum utilization of available resources

Answer: B—Maximum utilization of available resources relates to highest and best use.

Question 5

An appraiser was hired by Williams to appraise Henderson’s property. With whom should the appraiser discuss his findings?

A) - Mr. Williams
B) - Mr. Henderson
C) - any interested party
D) - any party willing to pay

Answer 5

A) - Mr. Williams

Answer: A—The results of an appraisal are confidential.

Question 6

Which of the following approaches to real estate appraisal is concerned with “the present worth of future benefits” of a property?

A) - market data
B) - income
C) - cost
D) - summation

Answer 6

B) - income

Answer: B—The income approach is based on the theory that the present worth or value of an income property is the present worth of future net income.

Question 7

The principle of “highest and best use” refers to the use:

A) - that produces the greatest net income attributable to the land.
B) - that produces the largest gross income.
C) - of improvements best adapted to the architectural style and design of the neighborhood.
D) - best suited to the environment.

Answer 7

A) - that produces the greatest net income attributable to the land.

Answer: A—Highest and best use refers to use of land. It is that use of the land that will produce the greatest net income designated and credited to the land.

Question 8

Putting aside money each year for five consecutive years to replace the roof is an example of:

A) - a trust fund.
B) - a depreciation allowance.
C) - a sinking fund.
D) - an emergency plan.

Answer 8

C) - a sinking fund.

Answer: C—A “sinking fund” is established to gradually amass enough money to satisfy a debt or to meet a specific requirement. The sinking fund method of depreciation contemplates periodic investments of equal amounts of money in a compound-interest-bearing account whereby the investment plus the compound interest will be used to replace the improvement at the end of its economic life.

Question 9

The ultimate test of functional utility is:

A) - marketability.
B) - layout.
C) - location.
D) - desire.

Answer 9

A) - marketability.

Answer: A—Functional utility is defined as the “the ability of a property or building to be useful and to perform the function for which it is intended, according to current market tastes and standards, as well as the efficiency of a building’s use in terms of architectural style, design and layout, traffic patterns, and size and type of rooms.” The ultimate test of functional utility is marketability. If the property can be marketed for the same price as others in the area, there is no functional obsolescence.

Question 10

Which of the following appraisal reports is the most complete and detailed?

A) - certificate
B) - letter
C) - short form
D) - narrative

Answer 10

D) - narrative

Answer: D—A narrative report is a complete document including all pertinent information about the area and the subject property, as well as the reasons and computations for the value consideration. It includes maps, photographs, charts, and plot plans.

Question 11

Any loss in value due to placing a building in an incompatible neighborhood would be an example of:

A) - functional obsolescence.
B) - economic obsolescence.
C) - physical wear and tear.
D) - improper design techniques.

Answer 11

B) - economic obsolescence.

Answer: B—The fact that neighboring properties are hurting the value of a building would indicate that it is suffering from economic obsolescence.

Question 12

All of the following would influence the value of a commercial lot EXCEPT:

A) - fertilization of soil.
B) - drainage.
C) - proximity to transportation.
D) - compaction of soil.

Answer 12

A) - fertilization of soil.

Answer: A—The fertility of the soil applies to agricultural land.

Question 13

What is a “fee appraiser?”

A) - An appraiser who works for a lending institution.
B) - A certified appraiser who works on salary.
C) - An appraiser who works for a federally insured lender.
D) - An independent appraiser who works on a fee basis.

Answer 13

D) - An independent appraiser who works on a fee basis.

Answer: D—A fee appraiser is a non-salaried professional who furnishes appraisal services for a fee.

Question 14

Economic obsolescence would be considered:

A) - curable.
B) - incurable.
C) - inherent.
D) - wear and tear.

Answer 14

B) - incurable.

Answer: B—Whether an item of depreciation is curable or incurable depends soley on the cost to cure. Since economic obsolescence is caused by external forces there is usually nothing that can be done to change it.

Question 15

Two different properties are located side-by-side in the same neighborhood. They were both built by the same contractor, at the same time, for the same cost, are maintained the same, and contain the same square footage. If one property is worth less than the other, it would be due to:

A) - functional obsolescence.
B) - economic obsolescence.
C) - deferred maintenance.
D) - physical deterioration.

Answer 15

A) - functional obsolescence.

Answer: A—The only possible difference is that the properties do not look the same. All forces and factors that could influence value operate on both properties. Possibly the floor plans are different. The difference must be architectural and is considered functional obsolescence.

Question 16

Evans owns a new personal residence. The transportation agency is widening the street in front of his residence. This will cause Evans to lose 10 feet along the front of his property which borders the street. This is an example of:

A) - functional obsolescence.
B) - economic obsolescence.
C) - physical deterioration.
D) - accrued depreciation.

Answer 16

B) - economic obsolescence.

Answer: B—Any loss in value would be considered economic obsolescence because it is caused by a force which is outside the property lines.

Question 17

Which of the following has the least to do with market value?

A) - value in exchange
B) - book value
C) - assessed value
D) - loan value

Answer 17

B) - book value

Answer: B—Book value is the adjusted basis of an asset and usually differs from appraised value or market value.

Question 18

Offers to purchase by prospective buyers will tend to set:

A) - future prices.
B) - the ceiling price.
C) - the floor for prices.
D) - None of the above.

Answer 18

C) - the floor for prices.

Answer: C—Sellers list high and buyers usually offer to pay less than they might agree to pay. In bargaining circumstances, asking prices establish the upper limit for prices in an area while offers to purchase will set the lower limit to which prices might fall.

Question 19

All of the following are recognized methods of appraisal EXCEPT:

A) - comparative method.
B) - allocation method.
C) - extraction method.
D) - economic method.

Answer 19

D) - economic method.

Answer: D—There is no appraisal method known as the “economic” method. Allocation and extraction are methods of land or site valuation.

Question 20

The increase of value with the passage of time describes:

A) - appreciation.
B) - “return on” investment.
C) - “return of” investment.
D) - depreciation.

Answer 20

A) - appreciation.

Answer: A—Appreciation is a temporary or permanent increase in the worth or value of property due to economic causes, the opposite of depreciation.

Question 21

The relationship between a property and a prospective purchaser is known as:

A) - utility.
B) - value.
C) - highest and best use.
D) - progression.

Answer 21

B) - value.

Answer: B—Value can also be described as the relationship between a property and a prospective purchaser. The most probable price a property should bring in a competitive and open market under all conditions requisite to a fair sale (market value).

Question 22

An appraiser is appraising a property which is next door to an abandoned gas station. The appraiser should recommend a:

A) - soil engineering study.
B) - toxic waste study.
C) - seismic study
D) - All of the above

Answer 22

B) - toxic waste study.

Answer: B—There is a possibility that the old underground fuel storage tanks used by the gas station were left in the ground and may be leaking. A toxic waste study would require a soil analysis to determine if the tanks have leaked. A soil engineering study is used to test the soil’s ability to support a structure. (See Toxic Substance Control Act)

Question 23

Which of the following is an example of functional obsolescence?

A) - new zoning laws
B) - encroachment of inharmonious land use
C) - deteriorated driveway
D) - ornate cornices

Answer 23

D) - ornate cornices

Answer: D—An ornate cornice is an outdated architectural design classified as functional obsolescence. A deteriorated driveway would be physical deterioration. New zoning laws and inharmonious land use would be examples of economic obsolescence.

Question 24

Which of the following is NOT one of the three great forces affecting value?

A) - social ideals and standards
B) - economic adjustments
C) - political governmental regulations
D) - private restrictions

Answer 24

D) - private restrictions

Answer: D—Real estate undergoes constant change from physical, economic, social, and political forces.

Question 25

A corner lot would most likely add value to:

A) - residential property.
B) - retail property.
C) - industrial property.
D) - agricultural property.

Answer 25

B) - retail property.

Answer: B—Retail property would benefit from the added traffic and visual exposure of a corner lot.

Question 26

The term “infill” is most closely defined as:

A) - An old building torn down and rebuilt.
B) - A building renovated for recreational facilities.
C) - A commercial building built on an empty lot in a commercially developed area.
D) - Excavation of property for a new housing development.

Answer 26

C) - A commercial building built on an empty lot in a commercially developed area.

Answer: C—Infill: In housing construction, the process of developing open areas within an established area before developing outside the established area. These areas of vacant land may have been bypassed by earlier waves of development and are now largely surrounded by developed land.

Question 27

What is the best method for appraising a warehouse?

A) - market-data approach
B) - square-footage method
C) - cubic-foot method
D) - income capitalization method

Answer 27

D) - income capitalization method

Answer: D—A warehouse is an income producing property and would be appraised using income capitalization.

Question 28

Two buildings are located in the same area of comparable size, both under long-term leases. One is leased to the government for a post office and the other for a hardware store. Using the income capitalization approach to appraise the properties, which of the following is correct?

A) - The same capitalization rate for both
B) - A lower capitalization rate for the hardware store
C) - A higher capitalization rate for the hardware store
D) - Proportional capitalization rates based on the different uses

Answer 28

C) - A higher capitalization rate for the hardware store

Answer: C—Part of the capitalization rate measures the risk involved in an investment. Thus, the higher the risk the higher the CAP rate; the lower the the risk the lower the CAP rate. Leasing a building for a hardware store involves higher risk of vacancy than leasing for a post office and results in a higher CAP rate.

Question 29

Which of the following items is NOT deducted from gross income to determine net income for capitalization purposes?

A) - taxes
B) - interest on money invested
C) - insurance
D) - management costs

Answer 29

B) - interest on money invested

Answer: B—Interest payments are not considered an expense when estimating the value of the property.

Question 30

In an appraisal, the term “utility value” would most nearly be described as:

A) - insurance value.
B) - liquidation value.
C) - market value.
D) - use value.

Answer 30

D) - use value.

Answer: D—Utility value is the value in use to an owner-user. A property that has no utility has no value.

Question 31

Which of the following comparables would be the most helpful in appraising a home?

A) - A similar home sold for nonpayment of taxes.
B) - A similar property sold under duress.
C) - A similar home sold by a motivated seller to a motivated buyer.
D) - A similar home sold by an unwilling seller to an unsure buyer.

Answer 31

C) - A similar home sold by a motivated seller to a motivated buyer.

Answer: C—This relates to the “willing seller, willing buyer” concept of value.

Question 32

Which of the following is true about the replacement cost method?

A) - It works best with new properties.
B) - It tends to set the upper value of a property.
C) - It works best for libraries.
D) - All of the above

Answer 32

D) - All of the above

Answer: D—Since the cost approach looks at the cost of constructing an identical building with current materials and techniques, it tends to set the upper value of the property. The cost approach is ideal for new properties and special purpose properties that have no comparables in the area or which produce no income - examples are museums, schools, churches, and libraries.

Question 33

An appraiser using the cost approach to appraise property would be least concerned about the economy in the area of the subject property when appraising:

A) - A store in a residential area
B) - An industrial park
C) - An electronic assembly plant
D) - A strip shopping mall in a residential area

Answer 33

C) - An electronic assembly plant

Answer: C—An electronic assembly plant is producing products which will not depend on the local economy. The products will be distributed either nationally or internationally. The value of the other three choices would be directly affected by the local economy.

Question 34

The immediate surroundings of real estate is important because:

A) - nice neighbors add value.
B) - property in an unattractive neighborhood won’t sell.
C) - real estate is immobile.
D) - None of the above

Answer 34

C) - real estate is immobile.

Answer: C—Real estate is immovable by nature and cannot escape its immediate surroundings.

Question 35

The effect of depreciation is:

A) - the property is hard to sell.
B) - the value goes up.
C) - the basis goes down.
D) - depreciation continues until the basis is 0.

Answer 35

C) - the basis goes down.

Answer: C—Basis, as it relates to income property goes down each year as the owner deducts depreciation. It may also go up with the addition of capital improvements. Basis or book value will never reach zero because the land does not depreciate.

Question 36

When using the cost approach, the appraiser may estimate the cost of reconstruction based on its “reproduction” cost or its “replacement” cost. “Reproduction” cost is:

A) - The cost to replace the current improvements with another structure.
B) - An estimate of the actual cost of the building when originally constructed.
C) - The cost to build an exact replica using the actual materials and design of the present building.
D) - The cost to remodel the existing structure so it meets current building codes.

Answer 36

C) - The cost to build an exact replica using the actual materials and design of the present building.

Answer: C—”Reproduction” cost is the cost of reconstructing a replica of the existing structure using the same design and materials.

Question 37

The economic life of improved property is which of the following in relation to the physical life?

A) - longer
B) - shorter
C) - the same
D) - depends on the type of building

Answer 37

B) - shorter

Answer: B—Economic life is the estimated period over which an improved property may be profitably utilized so it will yield a return. The physical life is the estimated period during which a physical thing is habitable if normally maintained. Typically, physical life is expected to be longer than economic life.

Question 38

If a building is in exceptionally good condition, its effective age is:

A) - less than its actual age.
B) - more than its actual age.
C) - the same as its actual age.
D) - depends on the type of building.

Answer 38

A) - less than its actual age.

Answer: A—Effective age is the apparent age of a building based on observed condition rather than chronological age. The effective age of improvements to real property at the time of inspection differs from actual age by such variable factors as depreciation, quality of maintenance, and the like.

Question 39

Market value is determined by:

A) - value offered.
B) - value paid.
C) - appraised value.
D) - All of the above

Answer 39

B) - value paid.

Answer: B—Market Value: The most probable price a property should bring in a competitive and open market under all conditions requisite to a fair sale. It is assumed that the buyer and seller acted prudently and knowledgeably, and that the price is not affected by undue stimulus.

Question 40

Which appraisal method values electrical work by number of light fixtures per square yard?

A) - quantity survey method
B) - unit-in-place method
C) - comparison method
D) - construction cost method

Answer 40

B) - unit-in-place method

Answer: B—The unit-in-place method is a method for computing replacement cost which uses prices for various building components as installed, based on specific units of use such as square footage or cubic footage. For example, insulation may cost $.07 per square foot, drywall $1.50 per square yard, painting $.08 per square foot, and so on.

Question 41

In appraisal, the adjustment process, whereby, comparables are adjusted to the subject property is known as:

A) - averaging.
B) - reconciliation.
C) - weighing.
D) - comparing.

Answer 41

B) - reconciliation.

Answer: B—In appraisal, reconcilation is the process of interpreting the data gathered by bringing the various value estimates into mutual relationship with one another to determine a final estimate of value. With this process, the comparables are always adjusted to the subject property.

Question 42

Which of the following best identifies the three phases normally involved in a single-family dwelling?

A) - Construction proposal, map approval, and buyer qualification
B) - Land acquisition, development, and construction
C) - Financing, building, and resale
D) - Syndication, subdivision, and recordation

Answer 42

B) - Land acquisition, development, and construction

Answer: B—These are the 3 stages of building a single-family dwelling.

Question 43

When appraising a commercial property, an appraiser would be least interested in:

A) - changes in use.
B) - physical condition.
C) - past sales of similar property.
D) - original cost.

Answer 43

D) - original cost.

Answer: D—The value of commercial property is more often derived from its income earning potential.

Question 44

When using the market-data approach to appraise a single-family home, recent sales are compared to the subject property as to:

A) - capitalization rates.
B) - exterior features only.
C) - the entire property.
D) - rental income.

Answer 44

C) - the entire property.

Answer: C—The entire property is examined for comparison purposes.

Question 45

Restoring an old home to its original condition without making any changes in the floor plan or style is referred to as:

A) - rehabilitation.
B) - reclamation.
C) - remodeling.
D) - modernization.

Answer 45

A) - rehabilitation.

Answer: A—Rehabilitation is the restoration of a property to a satisfactory condition without changing the plan, form, or style of the structure.

Question 46

The objective value of a property is closest to:

A) - market value.
B) - curb appeal.
C) - listing price.
D) - future value.

Answer 46

A) - market value.

Answer: A—Objective value is what a reasonable person ends up paying for a property.

Question 47

The principle of anticipation applies when using the:

A) - market-data approach.
B) - income approach.
C) - cost approach.
D) - summation approach.

Answer 47

B) - income approach.

Answer: B—The income approach estimates value based on the amount of net income a property is anticipated to produce over its remaining economic life.

Question 48

In order for demand to be effective, it must be implemented by:

A) - amenities.
B) - location.
C) - highest and best use.
D) - purchasing power.

Answer 48

D) - purchasing power.

Answer: D—The element of value known as “demand” is rendered ineffective by lack of purchasing power.

Question 49

What part or portion of the narrative report contains the estimate of value?

A) - Letter of Transmittal
B) - Body
C) - Conclusion
D) - Preface

Answer 49

A) - Letter of Transmittal

Answer: A—The letter of transmittal identifies the property, purpose of the appraisal, methods used, and value estimate.

Question 50

What is the first step in the appraisal process?

A) - Define the appraisal problem
B) - Make an appraisal plan
C) - Classify the data
D) - Organize the data program

Answer 50

A) - Define the appraisal problem

Answer: A—The first step in the appraisal process is to write a concise statement of the appraisal problem.

Question 51

The income approach would NOT be used when appraising:

A) - commercial retail property.
B) - residences in a subdivision.
C) - industrial buildings.
D) - neighborhood shopping centers.

Answer 51

B) - residences in a subdivision.

Answer: B—When there are no suitable comparables or in this case no income to capitalize, the income approach is not a viable method.

Question 52

The most difficult step in applying the income approach in the appraisal of income property is:

A) - verifying the income and expense records.
B) - selecting a proper capitalization rate.
C) - locating similar properties to make a market comparison.
D) - establishing the net income.

Answer 52

B) - selecting a proper capitalization rate.

Answer: B—Capitalization rates are usually established by examining established rates on similar properties. Since few comparables are usually available, it can be difficult to establish an accurate rate.

Question 53

A flight pattern to a nearby airport was changed so that planes pass over a single-family residential neighborhood. Any loss in value to these properties would be attributed to:

A) - economic obsolescence.
B) - functional obsolescence.
C) - physical obsolescence.
D) - All of the above

Answer 53

A) - economic obsolescence.

Answer: A—This outside influence is considered economic obsolescence.

Question 54

Capitalization is a process whereby an appraiser:

A) - finds gross income of equity capital.
B) - converts income into capital value.
C) - establishes cost of capital investment.
D) - All of the above

Answer 54

B) - converts income into capital value.

Answer: B—Capitalization is a mathematical processs used in estimating the value of income producing property by applying a certain capitalization rate to the net operating income.

Question 55

The capitalization rate in the income approach provides for “return of” and “return on” the investment. “Return of” refers to:

A) - return of the land.
B) - depreciation.
C) - monthly savings.
D) - principal payments.

Answer 55

B) - depreciation.

Answer: B—An investor is allowed a “return on” his/her investment which is the same as interest, and a “return of” which is depreciation. The “return on” is the investor’s profit. The “return of” allows for depreciation of the wasting asset.

Question 56

An appraiser would determine the value of an apartment building by:

A) - capitalizing anticipated future income.
B) - calculating the reproduction cost.
C) - using comparables exclusively.
D) - analyzing past income streams.

Answer 56

A) - capitalizing anticipated future income.

Answer: A—The income capitalization method analyzes a property’s anticipated future income.

Question 57

A loss in value due to a city sewer system in poor condition would be classified as:

A) - physical deterioration.
B) - functional obsolescence.
C) - wear and tear.
D) - economic obsolescence.

Answer 57

D) - economic obsolescence.

Answer: D—A poor sewer system is an outside influence and is considered economic obsolescence.

Question 58

Value is best described as:

A) - desirability.
B) - worth.
C) - equity.
D) - cost.

Answer 58

B) - worth.

Answer: B—Value is generally described as the amount of money deemed to be the equivalent in worth of the subject property. Cost does not equal value nor does equity.

Question 59

If interest rates on loans increase, capitalization rates would tend to:

A) - increase.
B) - decrease.
C) - remain the same.
D) - disappear.

Answer 59

A) - increase.

Answer: A—The “return on” part of the capitalization rate is the same as interest. If interest rates increase, the capitalization rate increases.

Question 60

After capitalizing the net income of a property and then deducting the replacement cost of the improvements, an appraiser has established the:

A) - value of the land.
B) - market value of the property.
C) - use value to the owner.
D) - potential value to an investor.

Answer 60

A) - value of the land.

Answer: A—The total value of a property is made up of the value of the land plus improvements.

Question 61

An appraiser employed to appraise a commercial strip mall valued at $550,000 must hold which of the following appraisal licenses?

A) - certified general
B) - certified residential
C) - trainee
D) - licensed

Answer 61

A) - certified general

Answer: A—There are different levels of appraiser licenses issued by the Office of Real Estate Appraisers (OREA). A certified general appraiser’s license would be required to appraise a commercial strip mall valued at $550,000.

Question 62

Which of the following should be included when estimating the value of an income property using the capitalization approach?

A) - vacancy loss
B) - principal payments on a loan
C) - interest payments on a loan
D) - management expenses

Answer 62

D) - management expenses

Answer: D—Management expenses should be considered when using the capitalization approach. Loan payments are not considered in capitalizing net income.

Question 63

To arrive at a capitalization rate in the appraisal of an income producing property, no provisions should be made for:

A) - manager’s salary.
B) - “return of” the investment.
C) - federal income taxes.
D) - All of the above

Answer 63

C) - federal income taxes.

Answer: C—To arrive at a capitalization rate, the appraiser makes an allowance for depreciation or a “return of” the investment. No provisions are made for federal income taxes that might become due on the property income.

Question 64

Which of the following is an appraiser’s primary concern in the appraisal of residential property?

A) - marketability
B) - square footage
C) - functional utility
D) - operating expenses

Answer 64

A) - marketability

Answer: A—If a residential property is not marketable, it is worthless.

Question 65

Property that is very seldom sold would be appraised by which of the following appraisal techniques?

A) - market data approach
B) - cost approach
C) - capitalization approach
D) - Hoskold or Inwood method

Answer 65

B) - cost approach

Answer: B—An example of property that is seldom sold would be government buildings or churches. There is usually no comparative information available on these types of properties. The cost approach relates to construction information which is readily available.

Question 66

In the appraisal of residential property, the cost approach is most appropriate in the case of:

A) - new property.
B) - middle-age property.
C) - older property.
D) - multi-family property.

Answer 66

A) - new property.

Answer: A—Cost estimates per square foot can more easily be ascertained with new property. This is not to imply that the cost approach is always the best method for the appraisal of new property.

Question 67

Of the following, which would most likely be the highest value?

A) - loan value
B) - tax value
C) - market value
D) - book value

Answer 67

C) - market value

Answer: C—The other choices would most likey be lower than market value.

Question 68

A four-bedroom house with a one-car garage would be an example of:

A) - physical deterioration.
B) - functional obsolescence.
C) - economic obsolescence.
D) - environmental obsolescence.

Answer 68

B) - functional obsolescence.

Answer: B—Functional obsolescence is a loss in the value of a property resulting from a deficiency in the floor plan of a house. A one-car garage would be inadequate for the four bedroom house.

Question 69

An appraiser using the cost method can use the unit cost per square foot or per cubic foot in his/her computations. On a unit cost basis:

A) - a small house would cost more than a large house.
B) - a small house would cost less than a large house.
C) - a large house would cost more than a small house.
D) - the cost would be the same for a small house as a large house.

Answer 69

A) - a small house would cost more than a large house.

Answer: A—The cost of the essential core items such as the kitchen and bathrooms (which are usually the most expensive to produce) would be prorated over a smaller number of square feet so the unit cost would be higher in a small house.

Question 70

Which is the least important in appraising property using the cost approach?

A) - square footage cost
B) - estimated rental income
C) - depreciation allowance
D) - land value

Answer 70

B) - estimated rental income

Answer: B—Income is not considered when using the cost approach method.

Question 71

Which of the following would most likely lower the value of a single-family residence?

A) - deferred maintenance
B) - strict zoning
C) - questionable neighborhood
D) - obsolescence

Answer 71

A) - deferred maintenance

Answer: A—Deferred maintenance is physical deterioration or loss in value of a building resulting from postponed maintenance to the building.

Question 72

Which of the following is the biggest problem in using the cost approach to appraise an older building?

A) - economic conditions have changed
B) - construction materials and methods have changed
C) - estimating accrued depreciation
D) - lack of comparable properties recently sold

Answer 72

C) - estimating accrued depreciation

Answer: C—For appraisal purposes, accrued depreciation is the difference between the cost to reproduce the property (as of the appraisal date) and the property’s current value as judged by its condition. Accrued depreciation is difficult to estimate on very old properties.

Question 73

A $260,000 house, having been built among $100,000 to $145,000 homes, would eventually see the value of the surrounding homes. This influence on the value of the $260,000 house is known as:

A) - supply and demand.
B) - social obsolescence.
C) - deterioration.
D) - regression.

Answer 73

D) - regression.

Answer: D—Principle of Regression: Between dissimilar properties, the worth of the better property is adversely affected by the presence of the lesser-quality property.

Question 74

When using the land residual technique, the goal is to establish the value of the:

A) - land.
B) - building.
C) - property.
D) - off-site improvements.

Answer 74

A) - land.

Answer: A—The land residual technique is a method of estimating the value of land through the capitalization of income used when the value of the land is not known.

Question 75

An appraisal under the cost approach method, places the value of landscaping, fences and walkways:

A) - always as a separate item.
B) - as part of the building.
C) - usually in the land value.
D) - None of the above

Answer 75

C) - usually in the land value.

Answer: C—Landscaping, fences, and walkways are considered as improvements or simply as part of the land.

Question 76

The basic valuation principle underlying the market approach is:

A) - change.
B) - increase and decrease.
C) - anticipation.
D) - substitution.

Answer 76

D) - substitution.

Answer: D—The Principle of Substitution is the basis of all appraisal techniques in determining property value. Simply stated, value will tend to be set by the cost of acquiring an equally desirable substitute.

Question 77

When using the building residual technique, the unknown value is the value of the:

A) - land.
B) - building.
C) - property.
D) - fixtures.

Answer 77

B) - building.

Answer: B—The building residual technique is used to determine the value of the building only.

Question 78

A gross rent multiplier is obtained by:

A) - dividing gross monthly rent by the property’s value.
B) - dividing gross monthly rent by the selling price.
C) - dividing sales price by gross monthly rent.
D) - dividing net income by the gross monthly rent.

Answer 78

C) - dividing sales price by gross monthly rent.

Answer: C—The gross rent multiplier is obtained by dividing the sales price or value by the gross monthly rent.

Question 79

Which of the following appraisal methods, prices all labor and material in construction?

A) - quantity survey
B) - unit-in-place
C) - capitalization
D) - comparison

Answer 79

A) - quantity survey

Answer: A—The quantity survey method involves a detailed estimate of the quantities of raw materials used (lumber, plaster, brick, cement), as well as the current price of the material and installation costs. It also includes indirect costs, such as building permit, land survey, and overhead.

Question 80

What is the most expensive and most difficult type of appraisal?

A) - unit-in-place
B) - quantity survey
C) - square foot cost
D) - development method

Answer 80

B) - quantity survey

Answer: B—The quantity survey method of appraisal is a highly technical process that requires the appraiser to list every item of material and the cost to install it in the building. It is a very detailed and expensive way to appraise a building.

Question 81

The hardest and yet most important part of the market data method of appraising is:

A) - adjusting for differences between the comparable and the subject property.
B) - analyzing the volume of sales data.
C) - collecting a sufficient volume of sales data.
D) - establishing the unit of comparison.

Answer 81

A) - adjusting for differences between the comparable and the subject property.

Answer: A—The most difficult part of the market data method of appraising is adjusting for differences in the properties.

Question 82

When an appraiser uses the term “adjusted sales prices” when describing comparables, he/she is referring to:

A) - sales price less concessions.
B) - sales price plus adjustments for inflation.
C) - sales price plus or minus adjustments for specific characteristics.
D) - All of the above

Answer 82

C) - sales price plus or minus adjustments for specific characteristics.

Answer: C—Adjusted Sales Price: In appraisal, increases or decreases to the sales price of a comparable property are made to arrive at an indicated value for the property being appraised.

Question 83

Amenities are:

A) - features that add to the value or desirability of a property.
B) - items of personal property that may be depreciated.
C) - capital improvements that add to the cost basis.
D) - None of the above

Answer 83

A) - features that add to the value or desirability of a property.

Answer: A—Amenities are features both tangible and intangible that enhance and add to the value or desirability of real estate. In a condominium for example, common amenities include a swimming pool, clubhouse, and a good view.

Question 84

A property with great amenity value would best be appraised by using the:

A) - reproduction cost method.
B) - comparison method.
C) - capitalization method.
D) - replacement cost method.

Answer 84

B) - comparison method.

Answer: B—The comparison method would be used in this case by adjusting comparables to compensate for the amenities of the subject property.

Question 85

The effectiveness of the market data approach would be limited most by:

A) - financing terms of comparable properties.
B) - the types of properties that are regularly sold.
C) - rapidly changing economic conditions.
D) - differences in comparable properties.

Answer 85

C) - rapidly changing economic conditions.

Answer: C—If economic conditions are rapidly changing, it is difficult to make the adjustments to the price of comparable properties.

Question 86

A cul-de-sac is which of the following?

A) - street
B) - drainage ditch
C) - French door
D) - wood molding

Answer 86

A) - street

Answer: A—A cul-de-sac is a dead-end street or a street open at only one end.

Question 87

An increase in value as a result of taking several small parcels and joining them together to form a larger parcel is called:

A) - plottage value.
B) - combined increment.
C) - combination factor.
D) - combined worth.

Answer 87

A) - plottage value.

Answer: A—Assemblage is the combining of two or more adjoining lots into one large tract. This is usually done to increase the value of the individual lots because a larger building capable of producing a larger net return may be erectd on a larger parcel. The resulting added value is called plottage value.

Question 88

Which of the following is NOT a method of depreciation?

A) - straight line
B) - sum-of-the-years-digits
C) - sinking fund
D) - obsolescence

Answer 88

D) - obsolescence

Answer: D—Straight line, sum-of-the-years-digits, and sinking fund are all methods of calculating depreciation. Obsolescence is a loss in value due to a decrease in the usefulness of property caused by decay, changes in technology, people’s behavior, patterns and tastes, or environmental changes.

Question 89

The oldest appraisal method is the:

A) - cost approach.
B) - income method.
C) - reproduction cost approach.
D) - comparison method.

Answer 89

D) - comparison method.

Answer: D—The sales comparison approach is the oldest and easiest method of appraising property.

Question 90

Which represents the four unities of market value?

A) - location, interest, demand, financing
B) - time, title, interest, possession
C) - possession, encumber, will, sell
D) - demand, utility, scarcity, transferability

Answer 90

D) - demand, utility, scarcity, transferability

Answer: D—Referred to as the four characteristics of market value: Demand, Utility, Scarcity, Transferability. On the state exam they are sometimes referred to as the “primary requisites of value.” Memory aid: DUST

Question 91

An appraiser would most likely use a depth table when confronted with a valuation problem involving:

A) - capitalization of net income.
B) - a sinking fund.
C) - commercial property.
D) - residential property.

Answer 91

C) - commercial property.

Answer: C—Depth tables are tables of percentage used to provide a uniform system of measuring the additional value of lots which may be more valuable because of added depth. Depth tables are used on vacant land usually for commercial property.

Question 92

You are preparing a competitive market analysis on a vacant lot that you hope to list for sale. Which of the following approaches to value will be used in the development of the estimated value?

A) - Cost approach
B) - Gross rent multiplier
C) - Income approach
D) - Sales comparison approach

Answer 92

D) - Sales comparison approach

Answer: D—The sales comparison approach is most applicable to the appraisal of vacant land. The cost approach is most applicable to the appraisal of special purpose properties such as a church. The gross rent multiplier is used as a substitute for the income approach in the valuation of a single-family home. The income approach is used in the appraisal of an income-producing property.

Question 93

The period over which a property may be profitably utilized is called its:

A) - economic life.
B) - amortized life.
C) - income life.
D) - net life.

Answer 93

A) - economic life.

Answer: A—Economic life is the estimated period over which it is anticipated that a property may be profitably utilized.

Question 94

Which would be considered economic obsolescence?

A) - poor architectural design
B) - blighted neighborhood
C) - termite damage
D) - deferred maintenance

Answer 94

B) - blighted neighborhood

Answer: B—Economic obsolescence concerns influences outside the property limits and would include a blighted neighborhood.

Question 95

How would an appraiser define the boundaries of a residential neighborhood?

A) - by social conformity
B) - geographically
C) - by traffic patterns
D) - by economic status

Answer 95

A) - by social conformity

Answer: A—A neighborhood is defined as a contiguous area showing common social characteristics.

Question 96

What is excess land in the matter of site analysis?

A) - Land not needed to accommodate the site’s primary highest and best use.
B) - Land which exceeds that needed to serve or support the existing improvements on the site.
C) - Land identified with sites larger than other marketable lots in the area.
D) - All of the above

Answer 96

D) - All of the above

Answer: D—Each statement relates to different ways an appraiser describes excess land.

Question 97

Knowing that the value of a home can be influenced by neighboring property, the value of a home would least likely be influenced by a neighborhood containing:

A) - mixed residential and commercial properties.
B) - large expensive homes converted to small condominiums.
C) - much lower priced homes.
D) - vacant lots.

Answer 97

D) - vacant lots.

Answer: D—Of the choices given, the vacant lots would have the least affect on value.

Question 98

The subjective value of a property is the:

A) - exchange value.
B) - market value.
C) - use value to the owner.
D) - lender’s value.

Answer 98

C) - use value to the owner.

Answer: C—Since value sometimes depends on the use by a specific owner, it tends to be considered subjective.

Question 99

When analyzing the income produced by a property, an appraiser is concerned with:

A) - amount of income.
B) - prospect of continued income.
C) - quality of tenants.
D) - All of the above

Answer 99

D) - All of the above

Answer: D—All of these are important factors to consider when calculating net income for capitalization purposes.

Question 100

When performing an appraisal for insurance purposes, an appraiser would be concerned with:

A) - capitalized value.
B) - replacement cost.
C) - comparable sales prices.
D) - physical condition.

Answer 100

B) - replacement cost.

Answer: B—Valuation for insurance purposes is concerned with replacement cost.

Question 101

As far as sales are concerned, the most important date on an appraisal is the:

A) - date of the offer.
B) - date escrow is opened.
C) - date of acceptance of the offer.
D) - date of recording.

Answer 101

D) - date of recording.

Answer: D—Since the value could change for a variety of reasons during escrow, the most important date on an appraisal is the date escrow closes or in this question the date of recording.

Question 102

The measurement or the length of road that abuts a thoroughfare is referred to as:

A) - front foot.
B) - frontage.
C) - width.
D) - the side of the parcel.

Answer 102

B) - frontage.

Answer: B—Frontage is a term used to describe or identify that part of a parcel of land or an improvement on the land which faces the street.

Question 103

A group of buildings developed in a line along the frontage of a main highway would most likely be a(n):

A) - neighborhood shopping center.
B) - industrial park.
C) - strip shopping center.
D) - commercial strip development.

Answer 103

C) - strip shopping center.

Answer: C—Strip centers (sometimes referred to as convenience centers) are characterized by adjoining buildings that are narrow in depth relative to their length. The typical design for these districts is a straight line of stores set back far enough from the street to allow for perpendicular parking.

Question 104

Depression, expansion, prosperity, and recession are all terms related to the:

A) - real estate cycle.
B) - mortgage market cycle.
C) - capital market cycle.
D) - business cycle.

Answer 104

D) - business cycle.

Answer: D—Depression, expansion, prosperity, and recession are all terms that refer to the business cycle.

Question 105

While the economy is experiencing inflation, interest rates:

A) - drop and housing prices rise.
B) - rise and housing prices drop.
C) - and housing prices rise.
D) - None of the above

Answer 105

C) - and housing prices rise.

Answer: C—During inflationary periods, interest rates and housing prices usually rise.

Question 106

What is meant by the expression “turnkey project?”

A) - low income, federally funded housing project
B) - a development where everything is ready for the buyer to move in
C) - a development where there is a lock-box on each door
D) - urban redevelopment.

Answer 106

B) - a development where everything is ready for the buyer to move in

Answer: B—A turnkey project is a development term meaning the complete construction package from ground breaking to building completion. All that is left undone is to “turn over the keys” to the buyer.

Question 107

Which of the following includes site plans, elevations drawings and street locations?

A) - Schematics
B) - Plottage
C) - Subdivision Map
D) - Public Report

Answer 107

C) - Subdivision Map

Answer: C—Subdivision Map would include all of these.

Question 108

A homeowner builds a $200,000 house among $75,000 to $100,000 homes. A loss in value suffered by the expensive home would be best attributed to:

A) - physical deterioration.
B) - functional obsolescence.
C) - economic obsolescence.
D) - the Principle of Balance.

Answer 108

C) - economic obsolescence.

Answer: C—This would be considered economic obsolescence. Functional obsolescence occurs inside the property lines. Physical deterioration refers to deferred maintenance.

Question 109

Of the following, value is best described as:

A) - present worth of future benefits.
B) - relationship between money and desire.
C) - commodities in exchange.
D) - speculative gain.

Answer 109

A) - present worth of future benefits.

Answer: A—This definition of value is most applicable to income producing properties. “The present worth of future benefits” have to do with the projected income stream.

Question 110

Demand being equal:

A) - prices decrease as availability decreases
B) - prices increase as availability increases
C) - prices increase as availability decreases
D) - prices always increase

Answer 110

C) - prices increase as availability decreases

Answer: C—This is an example of supply and demand.