Chapter 7.1 Quiz (14% Of The Exam)

A certified general real estate appraiser's license is required to appraise a non-residential property valued over $250,000

The principle of regression states that the value of the best property in a neighborhood is negatively impacted by the presence of a substandard property nearby. In other words, the value of the better property tends to decrease when it is surrounded by lower quality properties. This principle is often observed in real estate, where the value of a property is influenced by the surrounding properties and their conditions.

The appraiser would base his opinion upon the principle of contribution. This principle states that the value of a particular component or improvement is determined by the amount it contributes to the overall value of the property. In this case, the appraiser would assess how much value the swimming pool would add to the apartment house and provide an opinion based on that assessment.

The appraiser using the market data approach is interested in the date when the price was agreed upon because this approach relies on comparing the subject property to similar properties that have recently sold in the market. By knowing the date the price was agreed upon, the appraiser can ensure that the comparable sales used in the appraisal are recent and reflect the current market conditions. This helps in determining an accurate and fair market value for the subject property.

Cost approach (replacement approach) - used when other approaches are not appropriate such as specific purpose buildings or new subdivision homes

Economic obsolescence is the most difficult type of depreciation to correct because it is caused by external factors that are beyond the control of the owner or user of the asset. It is typically due to changes in the market, technology, or other economic conditions that render the asset less valuable or useful. Unlike wear and tear or physical obsolescence, which can be addressed through maintenance or repairs, economic obsolescence requires significant changes or investments to overcome. Internal obsolescence refers to depreciation caused by factors within the asset itself, while wear and tear refers to the gradual deterioration of the asset over time.

When the highest and best use of a property is expected to change, the current use is referred to as the interim use. This means that the property is being utilized temporarily until it can be redeveloped or repurposed for a more profitable or suitable use. The interim use acknowledges that the current use is not permanent and will eventually be replaced by a different and more advantageous use of the property.

After the appraiser has collected all the data and applied the appropriate appraisal method(s), the next step in the appraisal process is to reconcile or correlate the values found in the different approaches. This involves comparing the estimates obtained from different methods and determining their consistency or discrepancies. The appraiser must analyze and weigh the results from each approach to arrive at a final value estimate that is most accurate and reliable. This step ensures that the final appraisal report provides a comprehensive and cohesive assessment of the property's value.

Expectation is not considered an essential element of value because it is a subjective perception and can vary from person to person. While utility, scarcity, and transferability are objective factors that contribute to the value of a good or service, expectation is based on personal beliefs, desires, and anticipations. Therefore, it is not universally recognized as an essential element of value.

Orientation refers to the position of a building on a lot in relation to various factors such as exposure to the sun's rays, prevailing wind, view, and privacy from the street. It determines how the building is situated to maximize natural light, ventilation, and views, while also considering privacy and protection from harsh weather conditions. By carefully considering the orientation, architects and designers can create spaces that are comfortable, energy-efficient, and aesthetically pleasing.

In the market data approach to appraisal, any differences between the comparables and the subject property are handled by adjusting the comparables to the characteristics of the subject property. This means that the comparables are modified or altered to make them more similar to the subject property in terms of its characteristics. This adjustment takes into account factors such as size, location, amenities, condition, and other relevant features that may affect the value of the subject property. By making these adjustments, the appraiser can more accurately determine the fair market value of the subject property based on the comparable sales data.

Backfill: dirt used to fill excavations or brace foundations

The "improved value" of land refers to the current market value of both the land and any improvements made on it. This means that the value takes into account any buildings, structures, or other improvements that have been added to the land. By considering both the land and improvements together, the improved value provides a comprehensive assessment of the total worth of the property in the current market.

The loss in value to the properties in the residential neighborhood was caused by economic obsolescence. This refers to a decrease in value due to external factors such as changes in the surrounding area or market conditions. In this case, the change in flight pattern resulted in increased noise and disturbance for the residents, making the properties less desirable and therefore decreasing their value. This is an example of how external economic factors can impact the value of a property.

In the capitalization approach to appraisal, the expenses that are subtracted from the scheduled gross income to arrive at the effective gross income are the vacancies. This is because vacancies represent the potential loss of rental income that the property owner may experience due to unoccupied units or spaces. Subtracting the estimated vacancies from the scheduled gross income provides a more accurate representation of the property's actual income potential.

When a residential neighborhood is comprised mostly of owner-occupied residential properties, it tends to stabilize values. This is because homeowners have a vested interest in maintaining and improving their properties, which helps to maintain the overall quality and desirability of the neighborhood. Additionally, owner-occupied properties are often more stable in terms of occupancy, reducing the likelihood of vacancies or turnover. This stability in the neighborhood can lead to a more consistent and stable housing market, which helps to stabilize property values.

The comparative method is the fastest and easiest method of estimating the replacement cost of improvements because it involves comparing the cost of similar properties or improvements in the same area. This method takes into account factors such as size, materials, and quality, allowing for a more accurate estimate. Additionally, it saves time and effort by relying on existing data and market trends rather than conducting a detailed analysis or survey.

Internal (functional) obsolescence is caused by events occurring within the property lines and observable during an inspection by an appraiser

The correct answer is "wear and tear from years of use". This is because wear and tear from years of use is a common factor that contributes to obsolescence. Over time, equipment and materials can deteriorate or become outdated due to regular usage and exposure to various environmental factors. This can lead to reduced functionality and effectiveness, making them obsolete. On the other hand, factors such as obsolete equipment, changes in locational demand, and misplaced improvements in the neighborhood directly contribute to obsolescence by rendering certain things or areas no longer useful or desirable.

Conformity is the principle of appraisal that is best exemplified when homes in an area represent the highest and best use of the land and are similar in architectural design. This means that the properties in the area conform to a certain standard, creating a sense of uniformity and consistency. This principle is important in determining the value of a property, as it takes into account the overall aesthetic and functional appeal of the neighborhood.

Cap rates do not include federal taxes

Market value is the price at which a property would sell in a competitive and open market. It is determined by objective factors such as the property's location, size, condition, and comparable sales in the area. The term "objective value" implies that market value is based on measurable and unbiased criteria, rather than being subjective or based on personal opinions or preferences.

A narrative report is a type of appraisal report that includes headings such as Introduction, Site and Improvement Analysis, Supporting Data, and Opinion of Value. This type of report provides a detailed and descriptive analysis of the property being appraised, including its location, physical characteristics, and any factors that may affect its value. It presents a narrative explanation of the appraiser's findings and conclusions, allowing for a comprehensive understanding of the property's value.

Some limited irregularity in topography is generally desirable for residential subdivisions because it adds visual interest and variety to the landscape. Flat land can be monotonous and lack character, while rolling hills can create a more dynamic and visually appealing environment. The irregularity in topography can also provide opportunities for unique home designs and landscaping features.

Changes in financing terms will affect the price of a property, not its value. Financing terms such as interest rates, loan terms, and down payment requirements can impact the affordability and accessibility of a property for potential buyers. These changes can influence the demand for the property, which in turn can affect the price at which it is bought or sold. However, the underlying value of the property, which is determined by factors such as location, condition, and features, is not directly impacted by changes in financing terms.

Economic obsolescence is caused by external events (events occurring outside property lines)

The market data approach to appraisal is based on the principle of substitution. This principle assumes that a buyer will not pay more for a property when there are similar properties available at a lower price. In other words, a buyer will not pay more for a property if they can find a comparable property with similar features and benefits at a lower cost. This principle is important in determining the value of a property based on the prices of similar properties in the market.

Leasing a building for a post office involves little risk of vacancy and results in a lower capitalization rate

The cost of capital is not deducted from gross income to determine annual net income in the capitalization approach. The cost of capital refers to the cost of financing a business, such as interest on loans or dividends on stocks. It is not considered an expense that directly relates to the operations of the business or the generation of income. Therefore, it is not subtracted from gross income when calculating net income.

Acre = 43,560 square feet = 4,840 square yards = about 209 feet by 209 feet, if square

The correct answer is "any of the above". This means that the appraiser can utilize any of the three methods mentioned - market comparison, band of investment, or summation - to calculate the capitalization rate. Each method has its own advantages and may be more appropriate in different situations. Therefore, the appraiser has the flexibility to choose the method that best suits the specific appraisal scenario.