Chapter 16 Real Estate Appraisal Flashcards

Chapter 16 Real Estate Appraisal Flashcards How is a gross rent multiplier calculated?a) Multiply comparable property sales price by comparable property rent.b) Divide comparable property sales price by comparable property rent.c) Multiply comparable property sales price by subject property rent.d) Divide comparable property sales price by subject property rent.

b) Divide comparable property sales price by comparable

property rent.The "IRV" formula provides a simple way to derive capitalization rates from comparable sales, estimate the value of a subject prop., or estimate the income required from an investment property. This approach is not used in 1-4 family rentals. GRM is used instead.GRM=Comparable Sales Price /Gross Monthly Rent.What estimate is a result of income divided by a capitalization rate?a) Market valueb) The effective gross incomec) Reproduction costd) The amount of accrued depreciation

a) Market valueIncome/Rate=Market Value

How is investment value best defined?a) The value to an individualb) The highest price a property would sell for in an open market?c) The value based on the use of the propertyd) The minimum value of a business opportunity

a) The value to an individual

A new airport built in proximity to a residential neighborhood may cause properties to lose value due to which of the following?(a) Physical deterioration(b) External obsolescence(c) Functional obsolescence(d) Proximity obsolescence (b) External obsolescence The various approaches to estimating value are based upon which of the following principles?(a) Alignment(b) Retribution(c) Substitution(d) Capital Investment (c) Substitution Which approach to value is typically used to estimate the value of special purpose properties?(a) Comparable Sales or Sales Comparison approach(b) Income Capitalization approach(c) Gross Income Multiplier Approach(d) Cost Depreciation Approach (d) Cost Depreciation Approach When making adjustments based on the following information, what should be done with the $2,000?Comparable sales price... $40,000Comparable property.........Two-car garageSubject property................No garageGarage value....................$2,000(a) It should be added to the price of the comparable property.(b) It should be added to the price of the subject property.(c) It should be subtracted from the price of the subject property.(d) It should be subtracted from the price of the comparable property.(d) It should be subtracted from the price of the comparable property.What is the market value?Market value is the value to a typical buyer and a typical seller. This is the MOST COMMON type of value that is estimated by appraisers.

What are the three approaches to value during an appraisal?Sales comparison approach **cost-depreciation approachincome approach The monthly rent of a residence that recently sold for $91,800 is $850. What is the monthly gross rent multiplier?(a) 0.09(b) 9(c) 10.8(d) 108 (d) 108 All of the following methods may be used to estimate

replacement/reproduction cost, EXCEPT:a) Quantity

surveyb) Economic age-lifec) Unit-in-placed) Comparative unit

b) Economic age-life

Appraisal Price definition:amount that is actually paid in a real estate transaction External ObsolescenceLoss in value caused by factors beyond the boundaries of

the subject propertyex: if you live near a landfill

What is the basis for the principle of substitution?a) An informed buyer will pay no more for a property than the cost of acquiring another equally desirable property with the same or equal utility.b) Properties will typically hold their value when properties in a neighborhood tend to be similar and conform to common standardsc) Although a property may have multiple potentials uses, one will be the highest and best use.d) Smaller properties in a neighborhood of large properties will tend to increase in value, while larger properties in an area of smaller properties will tend to decrease in value over time.

a) An informed buyer will pay no more for a property than

the cost of acquiring another equally desirable property with the same or equal utility.Which appraisal approach is most suitable for estimating the value of a single-family property?(a) Cost-depreciation(b) Sales comparison(c) Income residual(d) Land residual

b) Sales comparisonThe Comparable sales approach is

usually the most applicable method for appraising residential properties. It is the basis for the value estimates used by real estate brokers and sales associates.A warehouse sold for $740,000. If market evidence indicates an annual gross income multiplier (GIM) of 8 is appropriate, how much income should be produced?(a) $1,081.50(b) $59,200.00c) $80,937.50(d) $92,500.00 (d) $92,500.00 Which of the following conditions is necessary for the sales price of a property to equal its market value?a) The parties cannot be dealing with a self-interest.b) The property would have to be exposed to the market for an unreasonably short time.c) There can be no existing liens against the title.d) The transaction must involve a willing and informed buyer and seller.The transaction must involve a willing and informed buyer and seller.If net operating income is $4,000 and the capitalization rate is 16%, what is the value of the investment property?(a) $21,000(b) $24,360(c) $25,000(d) $64,000 (c) $25,000 An appraiser has selected a comparable sale for inclusion in an appraisal that recently sold for $95,000. The comparable has 3 bedrooms, 2 baths and a pool. The subject has 4 bedrooms, 2 baths and no pool. Analysis by

the appraiser indicates a bedroom is worth $10,000 and a pool is worth $7,500. What is the adjusted sales price of the comparable property?(a) $77,500(b) $92,500(c) $97,500(d) $112,500 (c) $97,500 What is the principle of highest and best use? State that the best use for the property, known as its highest, best and most profitable use, s that which will most likely produce the greatest net return to the lander over a

given period of time If income remains constant and the capitalization rate is reduced, what is the effect on value?a) insufficient