Unit 8 Flashcards - approximately $50,000. If their owner sells the...

Unit 8 Flashcards There are two vacant adjacent lots, each worth approximately $50,000. If their owner sells them as a single lot, however, the combined parcel will be worth $120,000.What principle does this illustrate?A)ProgressionB)SubstitutionC)RegressionD)Plott age The answer is plottage. Plottage is the principle that states that the value of a large parcel is greater than the sum value of individual smaller parcels. The process of merging parcels is assemblage.In Pennsylvania, who is permitted to perform a broker's price opinion (BPO)?A)An appraiserB)Any associate brokerC)A broker of recordD)A salesperson The answer is an appraiser. Anyone who performs a broker's price opinion (BPO) in Pennsylvania must be a certified appraiser. Pennsylvania real estate licensees may not perform a BPO.The term reconciliation refers to which of the following?A)The process by which an appraiser determines the highest and best use for a parcel of landB)Analyzing the results obtained by the three approaches to value to determine a final estimate of valueC)Separating the value of the land from the total value of the property to compute depreciationD)Loss of value due to any cause The answer is analyzing the results obtained by the three approaches to value to determine a final estimate of value.Reconciliation is the art of analyzing and effectively weighing the findings from the three approaches to value to derive a single estimate of market value. Reconciliation is not an average of the findings.From the reproduction or replacement cost of the building, an appraiser deducts depreciation, which representsA)loss of value due to any cause.B)the remaining economic life of the building.C)costs to modernize the building.D)remodeling costs to increase rentals.The answer is loss of value due to any cause. The reproduction or replacement cost reflects new construction, but the value has to reflect the actual condition of the property, due to whatever cause, and is captured after deductions for depreciation.The amount of money a property commands in the marketplace is itsA)market price.B)index.C)market value.D)capitalization rate.The answer is market price. Market price is the actual amount of money a property commands, or its selling price.Market price may or may not be the same as market value, depending on a number of factors that affect the sale.An appraiser is responsible forA)estimating value.B)determining value.C)finding value.D)computing value.The answer is estimating value. An appraiser is an independent professional trained to provide an unbiased estimate of value in an impartial and objective manner, according to the appraisal process.The market value of a parcel of real estate isA)its value without improvements.B)an estimate of its future benefits.C)an estimate of the most probable price it should bring.D)the amount of money paid for the property.The answer is an estimate of the most probable price it should bring. Market value is an estimate of the most probable price a property will bring in a fair sale. Price is the actual money paid. Neither cost nor price necessarily equals value.Capitalization is the process by which annual net income is used as the basis toA)determine potential tax value.B)determine cost.C)estimate value.D)establish depreciation.The answer is estimate value. The capitalization rate (cap rate) represents the rate of return that an investor will demand for the investment of capital in this type of building.If a property's annual net income is $24,000 and it is valued at $300,000, what is its capitalization

rate?A)8%B)15%C)10½%D)12% The answer is 8%. $24,000 divided by $300,000 equals an 8% cap rate.

Which is frequently used in appraising older structures because it eliminates obsolete features and takes advantage of current construction materials and techniques?A)SubstitutionB)Reproduction costC)Replacement cost newD)Depreciated cost The answer is replacement cost new. Replacement cost new is the cost at current prices to construct an improvement similar to the subject property, but not necessarily an exact duplicate, using current construction methods and materials. It eliminates obsolete features and takes advantage of current construction materials and techniques.The early houses that a developer built in a neighborhood were smaller than the homes built later when demand for the homes increased. The early homes have a higher value than their square footage would expect due to the principal ofA)highest and best use.B)increasing returns.C)substitution.D)progression.The answer is progression. Under the principle of progression, the value of a small, modest home is higher if it is located among larger, fancier properties.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 wouldA)divide the net operating income by the capitalization rate.B)divide the capitalization rate by the net operating income.C)multiply the net operating income by the capitalization rate.D)multiply the effective gross income by the capitalization rate.The answer is divide the net operating income by the capitalization rate. The cap rate is based on the rate of return that an investor will demand for the investment of capital; it is determined by dividing the net operating income by the price the investor is willing to pay.In Pennsylvania, who is permitted to prepare a comparative market analysis?A)Any real estate licenseeB)Only appraisersC)Only brokersD)Any lender The answer is any real estate licensee. Real estate licensees may prepare a comparative market analysis so long as it is presented only as a probable sales price of a specific property, not an appraisal.Who is permitted to draw up an appraisal?A)Broker of recordB)Any of these professionals, so long as they are licensedC)SalespersonD)Appraiser The answer is appraiser. A properly licensed appraiser is the only one in Pennsylvania who is permitted to provide an unbiased estimate of value, according the appraisal process.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)Antiquated restroom facilitiesC)Next door to a closed factoryD)A poor architectural design resulting in a cluttered floor plan The answer is next door to a closed factory. Depreciation is always incurable if caused by negative factors not on the subject property, such as environmental, social, or economic forces; including close proximity to a polluting or closed factory.When appraising real estate, the first consideration of the appraiser should be theA)asking price of the property.B)selling prices of similar properties.C)original cost of the property.D)highest and best use of the property.The answer is highest and best use of the property. The highest and best use of a property is its most profitable single use that is legal, feasible, and will bring the most money over time.The characteristics of value include which of the following?A)AnticipationB)BalanceC)CompetitionD)Scarcity The answer is scarcity. Scarcity is an element of value.Competition, anticipation, and balance are economic principles.Which approach to value makes use of a rate of investment return?A)Income approachB)Gross income multiplierC)Cost approachD)Sales comparison approach The answer is income approach. The rate of investment return or the capitalization rate is used in the income approach to value, which in turn is based on the present

value of the rights to future income.