Valuation & Appraisal
This is a quiz that asks different random questions that are designed to test your knowledge on how well you know valuation and appraisal terms. It might not be as easy as you think but just try it out to see how you will do.
Questions and Answers
- 1.
A competitive market analysis is prepared by a real estate agent to estimate the likely sales price of a property. This analysis is based on the:
- A.
Sales Comparison Method
- B.
Gross rent multipier
- C.
Cost approach
- D.
Income approach
Correct Answer
A. Sales Comparison MethodExplanation
A competitive market analysis is prepared by a real estate agent to estimate the likely sales price of a property. The sales comparison method is used in this analysis. This method involves comparing the property being analyzed to similar properties that have recently sold in the same area. By comparing factors such as size, location, condition, and amenities, the real estate agent can determine an estimated sales price for the property. This method is commonly used in real estate because it provides a direct comparison to recent sales, giving a more accurate estimate of the property's value.Rate this question:
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- 2.
In appraising a home for a lender who wishes to make a purchase loan, the appraiser would be concerned with:
- A.
The amount of the loan requested
- B.
Unpaid special assessments
- C.
The price the seller has agreed to pay
- D.
Economic changes in the arena
Correct Answer
D. Economic changes in the arenaExplanation
The appraiser would be concerned with economic changes in the arena because these changes can have a significant impact on the value of the property. Economic changes such as fluctuations in the housing market, interest rates, and local economic conditions can affect the property's market value and its ability to serve as collateral for the loan. Therefore, the appraiser needs to consider these factors to ensure that the lender is making a sound investment decision.Rate this question:
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- 3.
An example of external obsolesence would be
- A.
Numerous pillars supporting the ceiling in a store
- B.
Roof leaks, making the premises unrentable
- C.
An older building with very small rooms
- D.
Vacant and abandoned structures in the area
Correct Answer
D. Vacant and abandoned structures in the areaExplanation
External obsolescence refers to factors outside of a property that negatively impact its value. In this case, vacant and abandoned structures in the area contribute to external obsolescence. These structures can be seen as a blight on the neighborhood, reducing the desirability and attractiveness of the area. Potential buyers or tenants may be deterred from investing in or renting a property in an area with vacant and abandoned structures due to concerns about safety, security, and overall quality of life. This can lead to a decrease in property values and difficulty in finding occupants, ultimately affecting the property's marketability and profitability.Rate this question:
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- 4.
An appraisal of property is the
- A.
Supported estimate of value
- B.
Utility value
- C.
Selling price
- D.
Cost plus improvements less depreciation
Correct Answer
A. Supported estimate of valueExplanation
An appraisal of property refers to the process of determining the value of a property. It involves analyzing various factors such as market conditions, location, size, condition, and comparable sales. A supported estimate of value is an appropriate description for an appraisal because it implies that the value assigned to the property is backed by relevant data, research, and analysis. This ensures that the estimate is credible and reliable.Rate this question:
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- 5.
An appraiser would need to determine accrued depreciation when using the:
- A.
Gross rent multiplier method
- B.
Cost approach
- C.
Income approach
- D.
Sales comparison approach
Correct Answer
B. Cost approachExplanation
The appraiser would need to determine accrued depreciation when using the cost approach because this method estimates the value of a property based on the cost to replace it, taking into account any depreciation that has occurred since the property was originally built. Accrued depreciation refers to the loss in value of a property over time due to factors such as wear and tear, functional obsolescence, or external factors. By considering accrued depreciation, the appraiser can arrive at a more accurate estimate of the property's value.Rate this question:
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- 6.
In appraising property an appraiser would depreciate
- A.
Fences
- B.
Agricultural land
- C.
Land under a structure
- D.
A vacant lot
Correct Answer
A. FencesExplanation
In appraising property, an appraiser would depreciate fences because they are subject to wear and tear over time. Fences can deteriorate due to weather conditions, age, and lack of maintenance. As a result, their value decreases over time. Depreciation is a method used to estimate the decrease in value of an asset, such as fences, over its useful life. By depreciating fences, the appraiser takes into account their condition and adjusts the property's overall value accordingly.Rate this question:
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- 7.
Which of the following actions by an appraiser would be unethical?
- A.
Refusal to make an appraisal that the appraiser feels is beyond his or her expertise
- B.
Appraising a property in which the appraiser has disclosed interest
- C.
Accepting an appraisal where the fee will be a percentage of the value derived
- D.
Requesting payment in advance
Correct Answer
C. Accepting an appraisal where the fee will be a percentage of the value derivedExplanation
Accepting an appraisal where the fee will be a percentage of the value derived would be unethical because it creates a conflict of interest. This payment structure incentivizes the appraiser to provide a higher value for the property in order to receive a larger fee. It undermines the objectivity and impartiality that is expected from an appraiser, as their primary responsibility is to provide an accurate and unbiased assessment of the property's value.Rate this question:
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- 8.
An appraiser in using the expression a "willing, informed buyer and a willing informed seller," is referencing
- A.
Progression
- B.
Supply and demand
- C.
The principle of highest and best use
- D.
Market value
Correct Answer
D. Market valueExplanation
The appraiser is referencing market value when using the expression a "willing, informed buyer and a willing informed seller." Market value is the highest price that a property can be sold for in a competitive and open market, where both the buyer and seller are knowledgeable about the property's characteristics and potential uses. This concept takes into account factors such as supply and demand, as well as the principle of highest and best use, to determine the fair market value of a property.Rate this question:
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- 9.
Which appraisal method would tend to set the upper limit of value on a new structure?
- A.
Gross multiplier
- B.
Income approach
- C.
Cost approach
- D.
Sales comparison approach
Correct Answer
C. Cost approachExplanation
The cost approach is the appraisal method that would tend to set the upper limit of value on a new structure. This method involves estimating the cost to replace the structure with a similar one, taking into account factors such as materials, labor, and depreciation. By determining the maximum cost to replace the structure, the cost approach provides an upper limit on its value.Rate this question:
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- 10.
The advisability of including a tennis court with a planned apartment building may be determined by the principle of
- A.
Contribution
- B.
Progression
- C.
Substitution
- D.
Change
Correct Answer
A. ContributionExplanation
The principle of contribution suggests that the value of a property is determined by the contribution that a particular feature or improvement makes to the overall value of the property. In the context of including a tennis court with a planned apartment building, the advisability of such a decision would depend on whether the tennis court would contribute significantly to the value of the property. If the presence of a tennis court is likely to increase the overall value and desirability of the apartment building, then it would be advisable to include it.Rate this question:
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- 11.
A new, expensive home in a mixed area of commercial property and older, less expensive homes could have a market value less than the cost of the new home because of:
- A.
External obsolesence
- B.
The gross multiplier effect
- C.
Progression
- D.
Physical deterioration
Correct Answer
A. External obsolesenceExplanation
External obsolescence refers to factors outside of the property itself that negatively impact its value. In the given scenario, the presence of commercial property and older, less expensive homes in the area can contribute to external obsolescence for the new, expensive home. The mixed nature of the area may not be as desirable for potential buyers, leading to a lower market value for the new home compared to its cost.Rate this question:
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- 12.
A property has a net income of $30,000. One appraiser decides to use a 12 percent capitalization rate, while a second appraiser uses a 10 percent rate. Use of the higher rate results in:
- A.
A 2 percent increase in appraised value
- B.
A $50,000 increase in appraised value
- C.
A $50,000 decrease in appraised value
- D.
No change in appraised value
Correct Answer
C. A $50,000 decrease in appraised valueExplanation
The higher capitalization rate of 12 percent used by the first appraiser results in a lower appraised value compared to the second appraiser who uses a 10 percent rate. This is because the capitalization rate is used to determine the value of an income-producing property by dividing the net income by the capitalization rate. A higher capitalization rate means that the property's value is being discounted more, resulting in a lower appraised value. Therefore, the correct answer is a $50,000 decrease in appraised value.Rate this question:
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- 13.
Which of the following reports would be the most comprehensive appraisal report?
- A.
Short form report
- B.
Narrative report
- C.
Uniform residential appraisal report
- D.
Certified appraisal report
Correct Answer
B. Narrative reportExplanation
A narrative report would be the most comprehensive appraisal report because it provides a detailed and thorough analysis of the subject property. This type of report includes a comprehensive description of the property, an evaluation of the market conditions, a detailed analysis of comparable properties, and an explanation of the appraiser's conclusions and opinions. It is a comprehensive document that provides a complete picture of the property and the factors considered in the appraisal process.Rate this question:
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- 14.
A value regarded as bein a stubjective value would be
- A.
Market value
- B.
Assessed value
- C.
Use value
- D.
Book value
Correct Answer
C. Use valueExplanation
Use value refers to the subjective value that an individual or entity places on a particular item or property based on its usefulness or utility to them. It is often determined by factors such as personal preferences, needs, and the specific purpose for which the item or property is being used. Unlike market value, assessed value, or book value, which may be more objective and based on external factors, use value is more subjective and varies from person to person. Therefore, use value is the most appropriate option for a value regarded as subjective.Rate this question:
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- 15.
According to the principle of integration and disintegration
- A.
The value of a property will eventually decline
- B.
Property value is best maintained in homogeneous areas
- C.
Extraordinary rofits will disappear with competition
- D.
The maximum value would be based on cost of a comparable property
Correct Answer
A. The value of a property will eventually declineExplanation
According to the principle of integration and disintegration, the value of a property will eventually decline. This principle suggests that over time, the value of a property will decrease due to factors such as wear and tear, obsolescence, and changing market conditions. As properties age and become less desirable or outdated, their value tends to decrease. Additionally, economic factors such as inflation and changes in demand can also contribute to the decline in property value. Therefore, it is important for property owners to consider these factors and plan for the eventual decline in value.Rate this question:
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- 16.
The reason the gross rent multiplier is an inaccurate measurement of value is that it fails to consider:
- A.
Depreciation
- B.
Unusual expenses
- C.
Location
- D.
Amenity values
Correct Answer
B. Unusual expensesExplanation
The gross rent multiplier is an inaccurate measurement of value because it fails to consider unusual expenses. These expenses can significantly impact the profitability and value of a property. For example, if a property requires extensive repairs or has high maintenance costs, the gross rent multiplier would not account for these expenses, leading to an inaccurate valuation. Therefore, it is important to consider unusual expenses when determining the value of a property.Rate this question:
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- 17.
According to the principle of conformity, the highest value is maintained by having a residence
- A.
Adjoining a shopping area
- B.
Next to a church
- C.
Across from a school
- D.
In a center of a residential development
Correct Answer
D. In a center of a residential developmentExplanation
The principle of conformity suggests that the highest value is maintained by having a residence in a center of a residential development. This is because living in a center of a residential development implies that the property is located in a well-planned and well-maintained community, which often includes amenities such as parks, recreational facilities, and a sense of community. This can increase the desirability and value of the property, making it a preferred choice for many buyers.Rate this question:
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- 18.
Several $150,000 homes were built in an area where the existing homes had been valued at $400,000 to $500,000. The effect was that the value of the existing homes declined. Which real estate principle applies to this situation?
- A.
Regression
- B.
Competition
- C.
Substitution
- D.
Integration and disintegration
Correct Answer
A. RegressionExplanation
The correct answer is regression. Regression in real estate refers to the tendency for the value of higher-priced homes to decrease when lower-priced homes are introduced into the same area. In this situation, the construction of several $150,000 homes caused the existing homes, which were valued at $400,000 to $500,000, to decline in value. This is a classic example of regression in the real estate market.Rate this question:
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- 19.
With an annual net income of $40,000 and a capitalization rate of 8 percent, the value of the property using the income approach would be
- A.
$400,000
- B.
$440 ,000
- C.
$500,000
- D.
$520,000
Correct Answer
C. $500,000Explanation
The income approach is a method used to determine the value of a property based on its potential income. In this case, the annual net income of $40,000 is divided by the capitalization rate of 8 percent (0.08) to calculate the value. Using the formula Value = Net Income / Capitalization Rate, we get $40,000 / 0.08 = $500,000. Therefore, the value of the property using the income approach would be $500,000.Rate this question:
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- 20.
The time period during which a structure shows income that is attributable to the structure itself is known as its
- A.
Economic life
- B.
Effective age
- C.
Period for depreciation
- D.
Period of profitability
Correct Answer
A. Economic lifeExplanation
The economic life of a structure refers to the time period in which the structure generates income that can be attributed to the structure itself. This means that during this period, the structure is able to generate enough income to cover its expenses and contribute to its overall profitability. It is an important concept in determining the financial viability and value of a structure, as it helps in estimating the length of time the structure will be economically useful before it becomes obsolete or requires significant repairs or renovations.Rate this question:
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- 21.
The last lot in a subdivision sold for almost twice the price paid for the first lot sold. This is an example of the principle of
- A.
Regression
- B.
Diminishing returns
- C.
Supply and demand
- D.
Conformity
Correct Answer
C. Supply and demandExplanation
This scenario demonstrates the principle of supply and demand. The fact that the last lot in the subdivision sold for almost twice the price paid for the first lot indicates that there was a higher demand for the last lot. As the supply of lots decreased, the demand increased, causing the price to rise. This principle highlights how the interplay between supply and demand influences prices in a market.Rate this question:
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- 22.
A property being appraised has a two car garage, while a comparable has a three car garage. In making adjustments, the apppraiser would
- A.
Raise the value of the comparable
- B.
Lower the value of the home being appraised
- C.
Lower the value of the comparable
- D.
Raise the value of the home being appraised
Correct Answer
C. Lower the value of the comparableExplanation
The appraiser would lower the value of the comparable because the comparable has a higher value due to its three car garage compared to the property being appraised, which only has a two car garage. In order to make a fair comparison and adjustment, the appraiser would decrease the value of the comparable to account for the difference in the number of garage spaces.Rate this question:
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- 23.
A good definition of market value would be the
- A.
Price paid by the owner
- B.
Present worth of future benefits
- C.
Assessed valuation
- D.
Price offered by a prospective buyer
Correct Answer
B. Present worth of future benefitsExplanation
Market value refers to the estimated worth of an asset or property in the current market. It is determined by considering the present value of the future benefits that can be derived from owning the asset. This includes factors such as potential income, appreciation, and other financial gains that the owner can expect to receive over time. Therefore, the present worth of future benefits is the most suitable definition of market value as it encompasses the potential value that an asset holds for its owner.Rate this question:
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- 24.
After determining the value of the improvements of an existing structure, the appraiser deducted this amount from the market value to determine the value attributed to the land. This appraisal method is known as
- A.
Surplus productivity
- B.
The abstractive method
- C.
The development method
- D.
The land residual method
Correct Answer
B. The abstractive methodExplanation
The correct answer is "the abstractive method." In this appraisal method, the appraiser determines the value of the improvements made to an existing structure and deducts this amount from the market value. The remaining value is then attributed to the land. This method focuses on abstracting the value of the improvements to isolate the value of the land itself.Rate this question:
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- 25.
The highest and best use is the use that provides the greatest
- A.
Benefit to the community
- B.
Gross
- C.
Value
- D.
Capitalization rate
Correct Answer
C. ValueExplanation
The highest and best use refers to the use of a property that maximizes its value and benefits the community the most. This means that the property should be utilized in a way that generates the highest possible value, whether it be through increased revenue, improved functionality, or enhanced community services. By identifying and implementing the highest and best use, the property can reach its full potential and contribute positively to the community.Rate this question:
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- 26.
Demand is not effective in determining the value of real property unless it is combined with
- A.
Scarcity
- B.
A use
- C.
Purchasing power
- D.
Access
Correct Answer
C. Purchasing powerExplanation
Demand alone is not enough to determine the value of real property because it does not take into account the ability of buyers to actually purchase the property. Purchasing power refers to the financial capacity of individuals or entities to buy goods or services, including real estate. Therefore, combining demand with purchasing power provides a more accurate assessment of the value of real property, as it considers both the desire for the property and the ability to pay for it.Rate this question:
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- 27.
An investor making extraordinary profits from the first mini warehouse in the area would be concerned with the principal of
- A.
Substitution
- B.
Competition
- C.
Surplus productivity
- D.
Conformity
Correct Answer
B. CompetitionExplanation
An investor making extraordinary profits from the first mini warehouse in the area would be concerned with the principle of competition. This is because with the success of the first mini warehouse, it is likely that other investors will enter the market and open their own mini warehouses in the area. This increased competition can potentially reduce the investor's profits as customers have more options to choose from. Therefore, the investor needs to be mindful of the competitive landscape and find ways to differentiate their mini warehouse from others to maintain their profitability.Rate this question:
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- 28.
The principle of supply and demand predicts
- A.
Increasing price when supply increases
- B.
Decreasing demand when supply increases
- C.
Increasing demand when price decreases
- D.
Decreasing price when demand increases
Correct Answer
C. Increasing demand when price decreasesExplanation
According to the principle of supply and demand, when the price of a product decreases, it becomes more affordable for consumers. As a result, the demand for the product tends to increase because more people are willing and able to purchase it at a lower price. Therefore, the correct answer is that the principle of supply and demand predicts increasing demand when the price decreases.Rate this question:
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- 29.
An appraiser wanted to know the capitalization rate applicble for a recent sale. The net income was reported at $21,000 and the property sold for $300,000. What capitalization rate applied to this sale?
- A.
6%
- B.
7%
- C.
8%
- D.
9%
Correct Answer
B. 7%Explanation
The capitalization rate is calculated by dividing the net income by the sale price and multiplying by 100. In this case, the net income is $21,000 and the sale price is $300,000. Therefore, the capitalization rate is (21,000 / 300,000) * 100 = 7%.Rate this question:
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- 30.
The appraiser used 80 percent of the value arrived at by the market comparison approach, 20 percent of the value arrived at with the cost approach, and did not consider the value arrived at using the income approach. the process the appraiser was engaged in is known as:
- A.
The sum of the values
- B.
Reconciliation
- C.
The abstractive method
- D.
The index method
Correct Answer
B. ReconciliationExplanation
The appraiser used a combination of different approaches (market comparison, cost, and income) to determine the value of the property. The process of combining these different values and arriving at a final estimated value is known as reconciliation. In this case, the appraiser used 80 percent of the value from the market comparison approach, 20 percent from the cost approach, and did not consider the value from the income approach. This demonstrates the process of reconciliation to determine the overall value of the property.Rate this question:
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- 31.
The appraiser could calculate the annual gross rent multiplier that applied to a recent sale by:
- A.
Capitalizing the annual gross income
- B.
Dividing the annual gross income by the price paid
- C.
dividing the price paid by the annual gross income
- D.
Multiplying the monthly gross income by 12
Correct Answer
C. dividing the price paid by the annual gross incomeExplanation
The correct answer is dividing the price paid by the annual gross income. This calculation gives the annual gross rent multiplier, which is a measure of how many times the price paid for a property is equivalent to the annual gross income it generates. By dividing the price paid by the annual gross income, the appraiser can determine this multiplier and use it as a benchmark for comparing the value of similar properties.Rate this question:
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- 32.
A seller agreed to sell a home with no down payment and the below market rate seller financing. The favorable financing could be expected to affect the
- A.
Price but not the value of the property
- B.
Value of the property but not the price
- C.
Utility of the property
- D.
Depreciation method
Correct Answer
A. Price but not the value of the propertyExplanation
The seller's agreement to sell the home with no down payment and below market rate seller financing would likely affect the price of the property. This means that the buyer would be able to purchase the property at a lower price due to the favorable financing terms. However, it would not necessarily affect the value of the property itself, as the value of a property is typically determined by factors such as location, condition, and market demand, rather than the financing terms.Rate this question:
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- 33.
A property owner would have the greatest difficulty in correcting depreciation caused by
- A.
Chronological age
- B.
The built in nature of the structure
- C.
Forces outside the property boundaries
- D.
Wear and tear due to use
Correct Answer
C. Forces outside the property boundariesExplanation
Forces outside the property boundaries refer to external factors that can cause depreciation to a property. These forces are beyond the control of the property owner, making it difficult for them to correct or prevent the depreciation. Examples of such forces can include natural disasters like floods or earthquakes, changes in the neighborhood or surrounding area that negatively impact property value, or economic factors like inflation or recession. Unlike chronological age, the built-in nature of the structure, or wear and tear due to use, which can be managed or repaired by the property owner, forces outside the property boundaries are more challenging to address.Rate this question:
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- 34.
In Appraials, what percent is factored in for depreciation per year?
- A.
2%
- B.
4%
- C.
5%
- D.
10%
Correct Answer
A. 2%Explanation
In appraisals, depreciation is a measure of the decrease in value of an asset over time. The correct answer is 2% because it indicates that 2% of the asset's value is factored in for depreciation per year. This means that the value of the asset is expected to decrease by 2% annually.Rate this question:
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- 35.
What is the formula for assessing value?
- A.
Depreciation x cost - land
- B.
Depreciation + replacement cost + land
- C.
Replacement cost - depreciation + land
- D.
Replacement cost + depreciation + land
Correct Answer
C. Replacement cost - depreciation + landExplanation
The formula for assessing value is calculated by subtracting the depreciation from the replacement cost and adding the value of the land. This formula takes into account the cost of replacing the asset, the decrease in value due to depreciation, and the value of the land on which the asset is located.Rate this question:
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- 36.
In using the sales comparison approach to value to appraise a single family residence, an appraiser might have to make adjustments for
- A.
Assessed valuation differences
- B.
A difference in possible rental income
- C.
Date of sale
- D.
Difference in the capitalization rate
Correct Answer
C. Date of saleExplanation
In using the sales comparison approach to value to appraise a single family residence, the appraiser might have to make adjustments for the date of sale. This is because the real estate market is constantly changing, and the value of properties can fluctuate over time. The date of sale adjustment takes into account any market trends or conditions that may have affected the sale price of the property. By adjusting for the date of sale, the appraiser can ensure that the property is valued accurately based on current market conditions.Rate this question:
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- 37.
Each unit in a fourplex rents for $225 per month. With the sales price of $81,000, the annual gross rent multiplier is
- A.
7.5
- B.
30
- C.
90
- D.
360
Correct Answer
A. 7.5Explanation
The annual gross rent multiplier is calculated by dividing the sales price of the property by the annual rental income. In this case, each unit in the fourplex rents for $225 per month, so the annual rental income would be $225 * 12 months * 4 units = $10,800. Dividing the sales price of $81,000 by the annual rental income of $10,800 gives us a gross rent multiplier of approximately 7.5.Rate this question:
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- 38.
How do you calculate the gross rent multiplier
- A.
Rent x 12
- B.
Rent x # units divided by income per month x 12
- C.
Rent x # units divided by income per month x # units
- D.
Rent x # units x 12
Correct Answer
B. Rent x # units divided by income per month x 12Explanation
The gross rent multiplier is calculated by dividing the total purchase price of a property by the gross annual rental income it generates. In this case, the correct answer is "rent x # units divided by income per month x 12." This formula takes into account the monthly rent multiplied by the number of units, and then divides it by the monthly income per unit, which is then multiplied by 12 to get the annual income.Rate this question:
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- 39.
Federal law requires that an appraiser be licensed or certified for
- A.
Any appraisal
- B.
Any residential appraisals
- C.
Any federally related appraisal
- D.
Federally related appraisals of $250,000 or more
Correct Answer
D. Federally related appraisals of $250,000 or moreExplanation
According to federal law, an appraiser must be licensed or certified for federally related appraisals of $250,000 or more. This means that for any appraisal that is related to federal transactions and involves a property value of $250,000 or higher, the appraiser must have the necessary license or certification. This requirement ensures that appraisals for higher-value properties involved in federal transactions are conducted by qualified professionals who meet the standards set by the law.Rate this question:
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- 40.
A buyer who looked at seven very similar homes in a three year old subdivision made an offer on the home with the lowest list price. the buyer was utilizing the principal of
- A.
Supply and demand
- B.
Substitution
- C.
Conformity
- D.
Change
Correct Answer
B. SubstitutionExplanation
The buyer's decision to make an offer on the home with the lowest list price suggests that they were utilizing the principle of substitution. This principle states that buyers will choose a similar product that offers the same benefits at a lower price. In this case, the buyer considered the seven similar homes and chose the one with the lowest list price, indicating that they were looking for a comparable home at a more affordable price.Rate this question:
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- 41.
A separate value for the land is needed for the
- A.
Income approach
- B.
Gross rent multiplier method
- C.
Cost approach
- D.
Market comparison approach
Correct Answer
C. Cost approachExplanation
The cost approach requires a separate value for the land because it focuses on determining the cost to replace the property, including the cost of the land and the cost of constructing a similar property. By separating the value of the land, the cost approach ensures that the value of the property is determined based on its physical characteristics and the cost of construction, rather than the value of the land itself. This approach is commonly used for new or unique properties where comparable sales data may not be readily available.Rate this question:
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- 42.
What is the formula for the cost approach
- A.
Replacement cost x depreciation - land
- B.
Rent x # units divided by income per month x 12
- C.
Replacement cost - depreciation + land
- D.
Land x depreciation + cost
Correct Answer
C. Replacement cost - depreciation + landExplanation
The formula for the cost approach is to calculate the replacement cost of the property and subtract the depreciation value, then add the value of the land. This approach is commonly used in real estate appraisal to estimate the value of a property based on the cost to replace it with a similar property, accounting for any depreciation and the value of the land.Rate this question:
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- 43.
With fixed rents and a capitalization rate of 8 percent, an increase in taxes of $4,000 would result in the value of a property:
- A.
Decreasing by $5,000
- B.
Decreasing by $50,000
- C.
Remaining unchanged
- D.
Increasing
Correct Answer
B. Decreasing by $50,000Explanation
An increase in taxes of $4,000 would result in a decrease in the value of a property by $50,000. This is because the increase in taxes directly affects the net income from the property. With fixed rents and a capitalization rate of 8 percent, the increase in taxes reduces the net income by $4,000 / 0.08 = $50,000. As the value of a property is closely tied to its income potential, the decrease in net income leads to a decrease in property value.Rate this question:
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- 44.
What is the capitalization formula?
- A.
Increase in expenses / the capitalization rate
- B.
Income * capitalization rate
- C.
Income / capitalization rate
- D.
Depreciation * capitalization rate
Correct Answer
A. Increase in expenses / the capitalization rateExplanation
The correct answer is "increase in expenses / the capitalization rate". This formula is used to calculate the value of an asset based on the increase in expenses and the capitalization rate. By dividing the increase in expenses by the capitalization rate, we can determine the capitalized value of the asset. This formula is commonly used in finance and real estate to determine the value of an investment property or business.Rate this question:
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- 45.
An appraiser counting the number of electrical outlets in a structure is using the
- A.
Market comparison method
- B.
Income approach
- C.
Cost approach
- D.
Gross rent multiplier method
Correct Answer
C. Cost approachExplanation
The cost approach is used by an appraiser to determine the value of a structure by estimating the cost to replace it with a similar one. In this case, the appraiser is counting the number of electrical outlets in the structure, which is a component of the overall cost of construction. By using the cost approach, the appraiser can calculate the value of the structure based on the cost of its individual components, including electrical outlets.Rate this question:
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- 46.
A property being appraised had 2,400 square feet, but a comparable used by the appraiser had only 2,250 square feet. The appraiser should
- A.
Disregard the comparable because of dissimilar size
- B.
Use the comparable but ignore the slight size difference
- C.
Adjust the sale price of the comparable upward because of size difference
- D.
Adjust the sale price of the comparable downward because of the size difference
Correct Answer
C. Adjust the sale price of the comparable upward because of size differenceExplanation
The appraiser should adjust the sale price of the comparable upward because of the size difference. This is because the property being appraised has a larger square footage compared to the comparable. Since the size of a property is an important factor in determining its value, the appraiser needs to make an adjustment to account for the difference in size. By adjusting the sale price of the comparable upward, the appraiser can reflect the higher value associated with the larger size of the property being appraised.Rate this question:
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- 47.
Which appraisal principle indicates the economic effect an improvement has on property?
- A.
Progression
- B.
Substitution
- C.
Surplus
- D.
Contribution
Correct Answer
D. ContributionExplanation
The principle of contribution in property appraisal refers to the economic effect that a specific improvement has on the overall value of the property. It recognizes that the value of an improvement is determined by how much it contributes to the property's worth. In other words, the principle of contribution states that the value of an improvement is not based solely on its cost, but rather on the impact it has on the property's value as a whole.Rate this question:
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- 48.
The use of more than one appraisal method with different weights assigned to each method describes:
- A.
Reconciliation
- B.
A certified appraisal
- C.
The development method
- D.
The quantity survey method
Correct Answer
A. ReconciliationExplanation
Reconciliation refers to the process of combining and analyzing multiple appraisal methods, with different weights assigned to each method. This approach helps to reach a consensus and find a middle ground when there are conflicting outcomes or discrepancies between the different appraisal methods. By considering the strengths and weaknesses of each method and assigning appropriate weights, reconciliation ensures a more comprehensive and balanced evaluation.Rate this question:
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- 49.
In the market comparison method, amenities are balanced out
- A.
To allow for appreciation
- B.
Because of the principle of competition
- C.
Because the market is not static
- D.
Because no two properties are identical
Correct Answer
D. Because no two properties are identicalExplanation
In the market comparison method, amenities are balanced out because no two properties are identical. This means that even if two properties have similar amenities, there may still be differences in other factors such as location, size, condition, and so on. These differences can significantly affect the value and appreciation of the properties. Therefore, in order to accurately determine the market value and potential appreciation of a property, it is important to consider the unique characteristics and attributes of each individual property.Rate this question:
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- 50.
The first step in appraising an apartment building using the income approach would be to determine the
- A.
Scheduled gross income
- B.
Effective gross income
- C.
Net income
- D.
Vacancy factor
Correct Answer
A. Scheduled gross incomeExplanation
The first step in appraising an apartment building using the income approach would be to determine the scheduled gross income. This refers to the total potential income that the property could generate if it were fully occupied and all units were rented at their current market rates. This figure does not take into account any deductions for vacancies, collection losses, or operating expenses. By calculating the scheduled gross income, appraisers can establish a baseline for evaluating the property's income potential and determining its value.Rate this question:
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Current Version
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Apr 17, 2024Quiz Edited by
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Jan 20, 2011Quiz Created by
Bdgimler
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