Law Practice 7 Flashcards

Law & Practice 7 Flashcards The accumulation of several contiguous properties under one ownership, thus creating a large parcel of

proportionate greater value, involves:a) depreciationb)

plottagec) corner influenced) zoning value

b) plottageExplanation:Contiguous means adjoining. The

question represents the definition of plottage.Which of the following is not relevant in appraising a home?a) Circumstances of saleb) Original cost to build 12 months previouslyc) Square footage of improvementsd) Recent selling price of comparable properties

a) Circumstances of saleExplanation:Circumstances of the

sale do not affect the value of the property, though they may very well affect the sales price. The original cost to build just a year ago will have some relevance since very little depreciation would have taken place in the ensuing 12 months.There are three approaches to valuation, and all three should be used. Depending on the type of property being appraised however, one approach will have more weight and should afford greater authority. The comparison

approach is given greater weight in the appraisal of:a)

apartment propertyb) service propertyc) single-family dwellingsd) industrial property

c) single-family dwellingsExplanation:The comparison

approach would be the most reliable method regardless of the type of property being appraised, because recent sales prices of similar type properties reflect the attitudes of buyers and sellers on the open market - an invaluable guide for any appraiser. However, when appraising something other than a residence, the appraiser very often is not able to find enough sales of similar properties to serve as reliable value indicators and he must then apply other techniques.

An appraiser's work entails:a) finding valueb) determining

the valuec) computing valued) estimating value

d) estimating valueExplanation:An appraisal is an

estimation of value.An appraiser who is using the market data approach to appraise a family residence would never use the selling price of which of the following?a) A similar home that sold over six months agob) A similar home that sold recently but is located in another neighborhoodc) A similar home that was sold by owners who were forced to sell at any price because of financial difficultiesd) A home of similar size but situated on a corner lot

c) A similar home that was sold by owners who were forced

to sell at any price because of financial

difficultiesExplanation:The scarcity or supply of property,

the transferability and the utility all contribute to the value of property.The Principal of Substitution, which states that no one will pay more for one item if an equally substitutable item is available at a lower price, applies to what appraisal methods?a) Market data onlyb) Sales Comparison, replacement cost, and incomec) Income onlyd) Replacement cost and market data only

b) Sales Comparison, replacement cost, and

incomeExplanationAll methods of appraisal are based upon the principal of substitution.An appraisal principle that holds that the maximum value of a property tends to be set by the cost of acquiring an equally desirable and valuable substitute property, assuming no costly delay is encountered in making the substitution.The principle of substitution states that a buyer will not pay more for a property than the cost of an equally desirable alternative property.This is a fundamental of any of the three approaches to valuing a property, but is the backbone of

the Sales Comparison Approach (AKA (market data approach.)

The highest and best use is the use that:a) contributes to

the best interest of the communityb) complies with zoning and deed restrictionsc) produces the highest gross incomed) produces the greatest property value

d) produces the greatest property valueExplanation:Highest

and best use is a concept in real estate appraisal. It states that the value of a property is directly related to the use of that property; the highest and best use is the reasonably probable use that produces the highest property value. This

use, the highest and best use, may or may not be the current use of the property.

An arm's-length transaction is best represented by:a) a

father selling the family ranch to his sonb) a tax salec) a seller and buyer, unknown to each other, both ready, willing, and able to complete a saled) all of the above

• a seller and buyer, unknown to each other, both ready,

willing, and able to complete a saleExplanation:When

parties to a transaction are independent and on an equal footing it is referred to as an "arm's-length transaction". It is used specifically in contract law to describe an equitable agreement that will stand up to legal scrutiny.A simple example of not at arms length is the sale of real property from parents to children. The parents might wish to sell the property to their children at a price below market value, which could have tax and other legal consequences.Appraisers, when determining the market value of a property look for sold properties that are arm's-length transactions to use as valid comparibles. The sold price of non-arm's-length transactions are a poor gauge of true market value.The concept holding that real estate values are constantly in flux in response to various social, economic,

governmental and environmental forces is called the:a)

principle of substitutionb) principle of changec) principle of supply and demandd) principle of competition

b) principle of changeExplanation: The principle of change

holds that no physical or economic condition remains constant and that change is largely the result of cause and

effect and that existence occurs in three states: integration,

equilibrium and degeneration.An appraiser, who estimates value, looks for what elements to see if an object has value?a) Utility and usefulness onlyb) Utility, demand, scarcity, and transferabilityc) Original cost of object and utilityd) Price of the object and usefulness in the future

b) Utility, demand, scarcity, and

transferabilityExplanation:These are the 4 elements of

market value of concern to an appraiser.What forces affect value?a) Socialb) Economicc) Government regulationsd) All of the above

d) All of the aboveExplanation:The market is impacted by

all those forces, hence they all affect value.

The market value of a parcel of real estate is:a) the amount

of money paid for the propertyb) an estimate of its future benefitsc) an estimate of the most probable price it should sell ford) an estimate of its value without improvements

• an estimate of the most probable price it should sell

forExplanation:Market Value:Market Value is the present worth of one commodity to draw on the open market. The original cost of an item has no relevance to its value. Cost is defined as the actual dollars spent to produce an asset.The market price is the actual selling price of the property. Market value, cost, and the market price could be the same, but they seldom are.For example, using the market data approach, an appraiser has determined that the market value of a property is $175,000. But under the cost approach, it would cost $190,000 to rebuild the property. The property sold for $200,000 which makes the price $200,000, because that is what somebody is willing to pay.The appraiser is hired to determine the market value for the property, not the price of the property.When a house that is in poor condition is located within a neighborhood where all the other properties are well kept,

on this property this is an example of:a) Principal of