CHAPTER 7: REAL ESTATE APPRAISAL Flashcards

CHAPTER 7: REAL ESTATE APPRAISAL Flashcards

An appraiser who is using the sales comparison approach to determine value would use all of the following

comparable properties EXCEPT a similar home that was:A.

Sold over 6 months agoB. Sold recently but is located in another similar neighborhoodC. Sold by the owners who were undergoing a foreclosureD. Sold recently but is located on a much larger lot

• Sold by the owners who were undergoing a foreclosure

An appraiser has been hired to prepare an appraisal on a property that includes an elegant old mansion that is now used as an insurance company office. Which approach to value would the appraiser rely on most?A. Income approachB. Gross rent multiplier approachC. Sales comparison approachD. Replacement cost approach

• Income approachThe income approach to value is

based on the present value of the rights to future income. It assumes that the income generated by a property will determine the property's value.In the valuation of a large apartment complex, the most weight would be given to which of the following approaches to value?A. The cost approachB. The income approachC.The sales comparison approachD. All approaches equally weighted

• The income approachThe income approach is used for

valuation of income-producing properties such asapartment buildings, office buildings, and shopping centers. In estimating value using the income approach, an appraiser

must take five steps:1. Estimate annual gross

income2.Deduct an appropriate allowance for vacancy and rent loss3. Deduct the annual operating expenses,4.Estimate the price a typical investor would pay5. Apply the capitalization rate Defined as a loss in value from any cause, depreciation is generally divided into three categories. The loss of value

due to the normal wear and tear on a property is called:A.

external depreciation.B. physical depreciation.C. functional obsolescence.D. economic deterioration

• physical depreciation

An appraisal report must contain all of the following

EXCEPT:A. a reconciliation of value.B. a copy of the sales

contract.C. the date of the appraisal.D. the highest and best use

• a copy of the sales contract.

When appraising a commercial property, the appraiser is

most concerned with the:A. accrued depreciation on the

property.B. income generated by the property.C. sales prices of comparable properties.D. total debt service on the property.

• income generated by the property.

The period of time over which an improvement to the

property will contribute to its value is known as its:A.

amortized life.B. chronological life.C. actual life.D.economic life.

• economic life.

The income approach as used by an appraiser makes use of which of the following?A. EqualizationB. DepreciationC.AppreciationD. Capitalization

• CapitalizationUnder the income approach, the estimate

of value is arrived at by capitalizing the annual net income.The solution to these problems is based on the following

formula: Value X Capitalization rate = Net Operating

Income In the cost approach to value, the appraiser makes use

of:A. The owner's original cost of the buildingB. The

estimated replacement cost of the buildingC. The sales prices similar buildings in the areaD. The assessed value of the building

• The estimated replacement cost of the building

To find the value of a property using the income approach to value, if the net operating income and the capitalization

rate were known, the appraiser would:A. multiply the net

operating income by the capitalization rate.B. multiply the effective gross income by the capitalization rate.C. divide the net operating income by the capitalization rate.D. divide the capitalization rate by the net operating income

• divide the net operating income by the capitalization

rate.income approachThe process of estimating the value of an income-producing property by capitalization of the annual net income expected to be produced by the property during its remaining useful life.It is necessary to calculate a dollar value for depreciation when using which of the following?A. The sales comparison approach to valueB. The cost approach to valueC. The income approach to valueD. Gross rent multipliers

• The cost approach to value

In the appraisal of an office building, which of the following would be classified as external depreciation?A. Termite damage to the structural components of the buildingB. A poor architectural design resulting in a cluttered floor planC. An inadequate number of elevators and antiquated restroom facilitiesD. A law requiring the building to be retrofitted with fire sprinklers

• A law requiring the building to be retrofitted with fire

sprinklers Which of the following would be classified as external depreciation?A. A leaking roof that needs to be completely replacedB. Poorly maintained properties in the neighborhoodC. A poorly designed floor plan that could be modifiedD. Convenient access to schools and recreational facilities

• Poorly maintained properties in the

neighborhoodExternal obsolescence. If caused by negative factors not on the subject property, such as zoning, environmental, social, or economic forces, the depreciation is always incurable. The loss in value cannot be reversed by spending money on the property.

Reconciliation is best described as:A. selecting the highest

value given by the three approaches to value.B. comparing comparable properties and identifying their amenities.C.determining the final value by selecting one value from those given.D. analyzing the results obtained from the three approaches to value.

• analyzing the results obtained from the three

approaches to value The steps in the appraisal process include all of the

following EXCEPT:A. gathering specific data on the subject

property.B. gathering general data for the area of the subject property.C. considering the seller's estimate of the

property's value.D. applying the three approaches to value to the collected data.

• considering the seller's estimate of the property's value.

In the cost approach an appraiser uses which of the following?A. Sales prices of similar propertiesB. The owner's original cost of constructionC. An estimate of the

building's replacement costD. The property's depreciated value as used for income tax purposes

• An estimate of the building's replacement cost

The market price of real estate is generally the same as:A.

the sales price.B. the market estimate.C. the highest and