Chapter 7.1 Quiz (14% Of The Exam)

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Chapter 7.1 Quiz (14% Of The Exam) - Quiz

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Questions and Answers
  • 1. 

    After the appraiser has collected all the data and applied the appropriate appraisal method(s), what is the next step in the appraisal process? 

    • A.

      Simply average out the value estimates

    • B.

      Reconcile or correlate the values found in the different approaches

    • C.

      Assign appropriate value to individual estimates

    • D.

      Give an opinion of value

    Correct Answer
    B. Reconcile or correlate the values found in the different approaches
    Explanation
    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.

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  • 2. 

    When an appraiser uses the market data approach to appraisal, she would be most interested in the date: 

    • A.

      The price was agreed upon

    • B.

      Escrow was opened

    • C.

      Recordings occurred

    • D.

      Escrow closed

    Correct Answer
    A. The price was agreed upon
    Explanation
    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.

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  • 3. 

    Which type of appraisal report has the following headings: Introduction, Site and Improvement Analysis, Supporting Data, Opinion of Value? 

    • A.

      Letter report

    • B.

      Form report

    • C.

      Narrative report

    • D.

      Oral report

    Correct Answer
    C. Narrative report
    Explanation
    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.

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  • 4. 

    What appraisal license is required to appraise a strip mall valued at $500,000? 

    • A.

      Certified general real estate appraiser

    • B.

      Certified residential real estate license

    • C.

      Residential license

    • D.

      Trainee license

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

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  • 5. 

    When the highest and best use of a property is expected to change, the current use is called: 

    • A.

      The temporary use

    • B.

      The interim use

    • C.

      The transitional use

    • D.

      The possible use

    Correct Answer
    B. The interim use
    Explanation
    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.

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  • 6. 

    When homes in an area represent the highest and best use of the land and are similar in architectural design, this would best exemplify which of the following principles of appraisal? 

    • A.

      Change

    • B.

      Conformity

    • C.

      Contribution

    • D.

      Progression and regression

    Correct Answer
    B. Conformity
    Explanation
    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.

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  • 7. 

    An owner of a 40-unit apartment house is considering installing a swimming pool. He seeks a professional opinion from an appraiser. The appraiser would base his opinion upon which principle of appraisal? 

    • A.

      Contribution

    • B.

      Regression

    • C.

      Substitution

    • D.

      Integration

    Correct Answer
    A. Contribution
    Explanation
    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.

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  • 8. 

    The value of the best property in a neighborhood is adversely affected by a substandard property nearby. This can be described as the principle of: 

    • A.

      Balance

    • B.

      Regression

    • C.

      Contribution

    • D.

      Progression

    Correct Answer
    B. Regression
    Explanation
    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.

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  • 9. 

    Market value is the price a willing buyer will pay and a willing seller will accept with both being fully informed, and the property being exposed to the market for a reasonable period of time. Market value is best expressed as: 

    • A.

      Present value of future income

    • B.

      Cost to reproduce improvements new

    • C.

      Value of a property is in the eye of the beholder

    • D.

      Objective value

    Correct Answer
    D. Objective value
    Explanation
    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.

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  • 10. 

    The "improved value" of land is: 

    • A.

      The current market value of the land and improvements combined

    • B.

      The present value of income to be received from the use of the land in the future

    • C.

      The replacement cost of the improvements minus the depriciation

    • D.

      The difference between the contract rent and the economic rent

    Correct Answer
    A. The current market value of the land and improvements combined
    Explanation
    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.

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  • 11. 

    When comparing the value of property and the price of property, changes in financing terms will affect: 

    • A.

      Value only

    • B.

      Price, not value

    • C.

      Only properties that have been sold

    • D.

      Both value and prices

    Correct Answer
    B. Price, not value
    Explanation
    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.

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  • 12. 

    All of the following are essential elements of value, except: 

    • A.

      Utility

    • B.

      Expectation

    • C.

      Scarcity

    • D.

      Transferability

    Correct Answer
    B. Expectation
    Explanation
    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.

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  • 13. 

    When developers select land for a residential subdivision they consider topography. Many developers believe that: 

    • A.

      Subdivisions which are built on rolling hills are less attractive aesthetically than those located on flat land

    • B.

      Some limited irregularity in topography is generally desirable for residential subdivisions

    • C.

      Flat land is more aesthetically desirable than rolling hils

    • D.

      None of the above

    Correct Answer
    B. Some limited irregularity in topography is generally desirable for residential subdivisions
    Explanation
    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.

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  • 14. 

    The position of a building on a lot in relationship to exposure to the rays of the sun, prevailing wind, view, privacy from the street, etc., is known as: 

    • A.

      Elevation

    • B.

      Plottage

    • C.

      Orientation

    • D.

      Assemblage

    Correct Answer
    C. Orientation
    Explanation
    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.

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  • 15. 

    The market data approach to appraisal is based upon which of the following? 

    • A.

      Principle of regression

    • B.

      Principle of anticipation

    • C.

      Principle of contribution

    • D.

      Principle of substitution

    Correct Answer
    D. Principle of substitution
    Explanation
    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.

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  • 16. 

    In the market data approach to appraisal, any differences between the comparables and the subject property are handled in which of the following ways? 

    • A.

      Subject property is adjusted to the standards set by the comparables

    • B.

      The subject property values are averaged to form a price range

    • C.

      The comparables are adjusted to a market average

    • D.

      The comparables are adjusted to the characteristics of the subject property

    Correct Answer
    D. The comparables are adjusted to the characteristics of the subject property
    Explanation
    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.

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  • 17. 

    When a residential neighborhood is comprised mostly of owner occupied residential properties it tends to: 

    • A.

      Stabilize values

    • B.

      Attract commercial shopping centers to the neighborhood

    • C.

      Deteriorate faster than areas with many rental properties

    • D.

      Lower property values

    Correct Answer
    A. Stabilize values
    Explanation
    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.

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  • 18. 

    The best appraisal method used by an appraiser to establish the value of a "specific purpose property" would be which of the following: 

    • A.

      The market data approach

    • B.

      The cost approach

    • C.

      The capitalization or income approach

    • D.

      The gross multiplier approach

    Correct Answer
    B. The cost approach
    Explanation
    Cost approach (replacement approach) - used when other approaches are not appropriate such as specific purpose buildings or new subdivision homes

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  • 19. 

    The fastest and easiest method of estimating the replacement cost of improvements is the: 

    • A.

      Reproduction cost

    • B.

      Unit-in-place cost method

    • C.

      Quantity survey method

    • D.

      Comparative method

    Correct Answer
    D. Comparative method
    Explanation
    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.

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  • 20. 

    What type of depreciation is most difficult to correct? 

    • A.

      Internal obsolescence

    • B.

      Economic obsolescence

    • C.

      Physical obsolescence

    • D.

      Wear and tear

    Correct Answer
    B. Economic obsolescence
    Explanation
    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.

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  • 21. 

    A developer wanted to subdivide land into residential lots. The city planning commission decided to increase the front yard setback requirement by 10 feet. The resulting loss in buildable space caused a loss in value of the lots. The loss in value was the result of: 

    • A.

      Physical obsolescence

    • B.

      Functional obsolescence

    • C.

      Economic obsolescence

    • D.

      Physical deterioration

    Correct Answer
    C. Economic obsolescence
    Explanation
    Economic obsolescence is caused by external events (events occurring outside property lines)

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  • 22. 

    The flight pattern at a nearby airport was changed so that planes pass directly over a residential neighborhood. The resulting loss in value to these properties was the result of: 

    • A.

      Economic obsolescence

    • B.

      Physical deterioration

    • C.

      Functional obsolescence

    • D.

      Physical obsolescence

    Correct Answer
    A. Economic obsolescence
    Explanation
    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.

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  • 23. 

    Which of the following would be an example of functional obsolescence? 

    • A.

      New zoning laws

    • B.

      Incompatible land use in the neighborhood

    • C.

      Deteriorated driveway

    • D.

      A one-car garage

    Correct Answer
    D. A one-car garage
    Explanation
    Internal (functional) obsolescence is caused by events occurring within the property lines and observable during an inspection by an appraiser

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  • 24. 

    All of the following factors contribute to obsolescence, except: 

    • A.

      Wear and tear from years of use

    • B.

      Obsolete equipment

    • C.

      Changes in locational demand

    • D.

      Misplaced improvements in the neighborhood

    Correct Answer
    A. Wear and tear from years of use
    Explanation
    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.

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  • 25. 

    Determining the appropriate capitalization rate is the most difficult step in the capitalization approach to appraisal. In order to calculate capitalization rate, the appraiser can utilize which of the following methods: 

    • A.

      Market comparison

    • B.

      Band of investment

    • C.

      Summation

    • D.

      Any of the above

    Correct Answer
    D. Any of the above
    Explanation
    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.

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  • 26. 

    In the capitalization approach, which of the following expenses is not deducted from gross income to determine annual net income? 

    • A.

      Electricity

    • B.

      Cost of capital

    • C.

      Cost of management

    • D.

      Replacement reserves

    Correct Answer
    B. Cost of capital
    Explanation
    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.

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  • 27. 

    In the capitalization approach to appraisal, which of the following expenses is subtracted from the scheduled gross income to arrive at the effective gross income? 

    • A.

      Taxes

    • B.

      Vacancies

    • C.

      Loan payments

    • D.

      Depreciation of improvements

    Correct Answer
    B. Vacancies
    Explanation
    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.

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  • 28. 

    Two similar buildings are leased on a long term basis, one for a post office and the other for a hardware store. Using the capitalization approach to appraise the properties, the post office would demand: 

    • A.

      A lower capitalization rate

    • B.

      The same capitalization rate as the hardware store

    • C.

      A higher capitalization rate

    • D.

      The two capitalization rates could not be compared because the properties involve different uses

    Correct Answer
    A. A lower capitalization rate
    Explanation
    Leasing a building for a post office involves little risk of vacancy and results in a lower capitalization rate

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  • 29. 

    In the appraisal of an income-producing property, to arrive at a capitalization rate, no provision should be made for which of the following: 

    • A.

      Depreciation

    • B.

      Federal taxes

    • C.

      Return of the investment

    • D.

      Return on the investment

    Correct Answer
    B. Federal taxes
    Explanation
    Cap rates do not include federal taxes

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  • 30. 

    Which of the following best describes an acre? 

    • A.

      4,350 sq. ft.

    • B.

      4,840 sq. yds.

    • C.

      43,500 sq. ft.

    • D.

      50,000 sq. ft.

    Correct Answer
    B. 4,840 sq. yds.
    Explanation
    Acre = 43,560 square feet = 4,840 square yards = about 209 feet by 209 feet, if square

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  • 31. 

    A developer ordered several truckloads of soil to be used in a new housing project for backfill. The most probable use of this backfill will be: 

    • A.

      As topsoil for landscaping and beautification purposes

    • B.

      To fill in the old septic tank

    • C.

      To fill in excavations or to brace around foundation walls

    • D.

      To supplement the results of the percolation test

    Correct Answer
    C. To fill in excavations or to brace around foundation walls
    Explanation
    Backfill: dirt used to fill excavations or brace foundations

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