2. The, and Act, also known as FIRREA, requires that states set standards for all appraisers.

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1 CHAPTER 4 SHORT-ANSWER QUESTIONS 1. An appraisal is an or of value. 2. The, and Act, also known as FIRREA, requires that states set standards for all appraisers. 3. Value in real estate is the "present of benefits arising from the ownership of real property. 4. To have value, real property must have these four characteristics: a) ; b) ; c) ; d). 5. If title is flawed, the property may not be. 6. The goal of appraiser is to estimate. 7. To determine market value, an appraiser must consider properties that have sold in a time, and have a purchaser and seller who are both fully. 8. a) Market value is the price a property will bring; b) Payment must be made in or its equivalent; c) Buyer and seller must be and acting without. d) A length of time must be allowed for the property to be exposed in the ; e) Both parties must be of the property's use and potential, including its and. 9. is what the property actually sold for. 10. Define subjective value:. 11. value has to do with property taxes, while value must leave enough margin for lender security. Both are completely unrelated to Market Value. 12. List the four special influences that affect value: a) ; b) ; c) ; d). Copyright All Rights Reserved 1 Real Estate Law & Practice (48 credit hrs)

2 13. The three most important factors in determining value are, and. 14. The is more important in determining a property's value than the national economy. 15. Real estate values tend to rise during periods of, when the purchasing power of the dollar. 16. A neighborhood is an area characterized by, which tends to decline when it loses. 17. Highest and Best Use is the most use for a property. 18. is the basis of the Sales Comparison approach. 19. Value will if supply decreases and demand increases or remains constant. 20. There should be in the types of real estate usages. 21. Maximum value is realized if the use of land to existing standards, a principle that use to ensure maximum future value. 22. A luxurious home in a modest neighborhood will tend to be valued in the same as other homes, while the principle of states that the lesser property will increase if located among better properties. 23. The principle that states that the consolidation of adjacent lots into one large lot will produce a higher value than the sum of the two sites is called, while is the process of merging the two lots. 24. According to Economics of Scale, a development can be built for a lower price. 25. Competition profits. 26. Property goes through phases of development (,) stability (,) and decline (.) 27. List the three basic approaches to determining value, and a fourth, which is used to check the values derived by the others. a) ; b) ; c) ; d). Copyright All Rights Reserved 2 Real Estate Law & Practice (48 credit hrs)

3 28. The Approach also known as the Market Data Approach, compares the subject property to recently comparable properties. A simplified version is called the. 29. An appraiser must adjust the comparables for dissimilar features from these four categories: a) ; b) ; c) ; d). 30. The value of a feature present in the subject property, but not in the comparable is to the sales price of the comparable while a feature present in the comparable, but not the subject is from the price of the comparable. 31. The Approach is sometimes called appraisal by summation. To determine value, first estimate the value of the, then add the cost of constructing the, then deduct 32. cost is the current cost of an exact duplicate of the subject property, while cost is the cost of improvements with similar utility or function. 33. List the four methods of determining cost: a) ; b) ; c) ; d). 34. is any condition that adversely affects the value of an improvement to real property. 35. does not depreciate. 36. List the three classes of depreciation: a) ; b) ; c). 37. is always incurable, because the devaluing is caused by factors not on the subject property. There are two different forms, which are and. 38. Curable Physical Deterioration simply requires that are economically. 39. Functional Obsolescence contains physical or features that could not be remedied easily. Copyright All Rights Reserved 3 Real Estate Law & Practice (48 credit hrs)

4 40. depreciation is the easiest, but least precise way to determine depreciation. It is also called the - method. 41. The cost approach is most appropriate for - building such as schools, churches and public buildings. 42. Accrued depreciation considers the of a structure, which is the period during which the improvements contribute to net income. is the structure's age for appraisal purposes. 43. The Income Capitalization Approach is also known as the, and is based on the value of the rights to income. It is used for valuation of properties like apartments, office buildings and shopping centers. 44. The steps for the Income Capitalization Approach are: a) Estimate income; b) Deduct vacancy and collection losses to arrive at income; c) Deduct annual operating expenses to get income, or NOI; d) Estimate the rate of return that an investor will demand, which is called the rate; e) Apply the capitalization rate to the annual net income to get the estimate of. 45. In order to provide for depreciation, the capitalization rate can be. 46. Value goes up if the goes down, and value goes if the rate goes up. 47. For certain properties, such as single-family homes, which aren't purchased primarily for their ability to generate income, either the (GRM) or the (GIM) are used in the appraisal process. 48. Because single-family residences usually produce only rental income, the gross rent multiplier relates the sales price to rental income. However, commercial and industrial properties are valued using income. 49. The Property Residual, Inwood Annuity Method uses a market driven rate, which consists of estimating future income over ownership and adding the sales price, discounted to an interest rate which would attract. 50. A discount table used to convert future income streams in today's present value, is called the table. 51. The - -Analysis examines property by taking into account effects of mortgage financing. Copyright All Rights Reserved 4 Real Estate Law & Practice (48 credit hrs)

5 52. is the art of analyzing the findings of more than one of the three approaches are used. It is more complicated than averaging, because certain approaches are more reliable with some kinds of. 53. The Analysis is a valuation technique which indicates a of prices. It measures the relationship between and. 54. With S.L.R.A., after deriving the range, the are graphed to check the relationship between the and. 55. Multiple Regression Analysis uses many unknown, and requires the use of a programmed. Copyright All Rights Reserved 5 Real Estate Law & Practice (48 credit hrs)

6 CHAPTER 4 QUIZ 1. A comparative market analysis is prepared by a real estate agent to estimate the likely sales price of a property. This analysis is based on the: a. market comparison approach b. gross rent multiplier method. c. cost approach d. income approach 2. In appraising a home for a lender who wishes to make a purchase loan, the appraiser is concerned with: a. the amount of the loan requested. b. unpaid special assessments. c. the price to be paid by the purchaser. d. economic changes in the area. 3. An example of economic obsolescence is: a. numerous pillars supporting the ceiling in a store. b. roof leaks making the premises unrentable. c. an older building with massive cornices. d. vacant and abandoned structures in the area. 4. An appraisal of property is the: a. supported estimate of value. b. utility value. c. selling price. d. cost plus improvements less depreciation. 5. An appraiser would need to determine accrued depreciation when using the: a. gross rent multiplier method. b. cost approach. c. income approach. d. market comparison approach. 6. An appraiser computes the replacement cost of a structure when using the: a. market comparison approach. b. cost approach. c. capitalization approach. d. gross rent multiplier method. 7. It would be unethical for an appraiser to: a. refuse to make an appraisal that the appraiser feels is beyond his or her expertise. b. appraise a property in which the appraiser has a disclosed interest. c. accept an appraisal where the fee will be a percentage of the value derived. d. request payment in advance. Copyright All Rights Reserved 6 Real Estate Law & Practice (48 credit hrs)

7 8. To appraise a property involved in a federally related loan of $1 million or more, the appraiser is required to: a. be federally licensed. b. be federally certified. c. be state certified. d. have the MAI designation 9. To be depreciated, real property must be: a. owned in fee simple. b. improved. c. paid for. d. rented. 10. The advisability of including a tennis court with a planned apartment building may be determined by the principle of: a. contribution. b. progression. c. substitution. d. change. 11. An expensive home in an area of less expensive homes is considered: a. economic obsolescence. b. functional obsolescence. c. progression. d. plottage. 12. A property has a net income of $30,000. An appraiser decides to use a 12 percent capitalization rate rather than a 10 percent rate. Use of the higher rate results in: a. a 2 percent increase in appraised value. b. a $50,000 increase in appraised value. c. a $50,000 decrease in appraised value. d. no change in appraised value. 13. Which of the following would be the most comprehensive appraisal report? a. Short form report b. Narrative report c. Uniform Residential Appraisal Report d. Certified appraisal report 14. Which of the following is a subjective value? a. Market b. Assessed c. Use d. Exchange Copyright All Rights Reserved 7 Real Estate Law & Practice (48 credit hrs)

8 15. All of the following statements describe the capitalization rate EXCEPT: a. the rate increases when risk increases. b. the rate provides for the return on and the return of the investment. c. the rate is divided into net income to determine value. d. a decrease in rate results in a decrease in value. 16. The reason the gross rent multiplier is an inaccurate measurement of value is that it fails to consider: a. depreciation. b. unusual expenses. c. location. d. amenity values. 17. According to the principle of conformity, the highest value is maintained by having a residence: a. adjoining a shopping area. b. next to a church. c. across from a school. d. in the center of a residential development. 18. Several $150,000 homes were built in an area where the existing homes had been valued at $400,000 to $500,000. The effect was that the value of the existing homes declined. Which real estate principle applies to this situation? a. Regression b. Competition c. Substitution d. Integration 19. With an annual net income of $40,000 and a capitalization rate of 8 percent, the value of the property using the income approach would be: a. $400,000. b. $440,000. c. $500,000 d. $520, The time period during which a structure shows income that is attributable to the structure itself is known as its: a. economic life. b. effective age. c. period for depreciation. d. period of profitability. Copyright All Rights Reserved 8 Real Estate Law & Practice (48 credit hrs)

9 21. The last lot in a subdivision sold for more than three times the price paid for the first lot sold. This is an example of the principle of: a. regression. b. diminishing returns. c. supply and demand. d. conformity. 22. An owner has a property showing a monthly net income of $300. As an investor, you feel that a 10 percent rate of return is proper for this type of investment. Therefore, you would expect the property to be valued at: a. $27,000. b. $30,000. c. $33,000. d. $36, Value is described as the: a. price paid by the owner. b. present worth of future benefits. c. assessed valuation. d. price offered by a prospective buyer. 24. Vacant, vandalized commercial buildings around your property would be an example of: a. economic obsolescence. b. functional obsolescence. c. band of investments. d. principle of contribution. 25. The highest and best use provides the greatest: a. benefit to the community. b. gross. c. net. d. capitalization rate. 26. Demand is not effective in determining the value of real property unless it is combined with: a. scarcity. b. a use. c. purchasing power. d. access. 27. An investor making extraordinary profits from a mini-warehouse is concerned with the principle of: a. substitution. b. competition. c. surplus productivity. d. conformity. Copyright All Rights Reserved 9 Real Estate Law & Practice (48 credit hrs)

10 28. The principle of supply and demand predicts: a. increasing price when supply increases. b. decreasing demand when supply increases. c. increasing demand when price decreases. d. decreasing price when demand increases. 29. An investor was able to buy a property at the capitalization rate she was using. She computed the net income at $21,000 and paid a $300,000 purchase price. What was her capitalization rate? a. 6% b. 7% c. 8% d. 9% 30. In appraising a ten-year-old, single-family home, the appraiser is interested in the: a. capitalization rate for the property. b. location of the home. c. current gross rent multiplier. d. owner's cost basis. 31. The annual gross rent (income) multiplier is calculated by: a. capitalizing the annual gross income. b. dividing the annual gross income by the price paid. c. dividing the price paid by the annual gross income. d. multiplying the monthly gross income by A seller agreed to sell a home with no down payment and below-market-rate seller financing. The favorable financing could be expected to affect the: a. price of the property. b. value of the property. c. utility of the property. d. depreciation method. 33. A property owner would have the greatest difficulty in correcting depreciation caused by: a. chronological age. b. the built-in nature of the structure. c. forces outside the structure. d. wear and tear due to use. 34. An appraiser sets a replacement cost of a structure at $120,000 and appraises the land value separately at $80,000. The appraiser places an economic life on the structure at 50 years and states that it has an effective age of ten years. Using the cost approach, the appraiser would appraise this property at: a. $200,000. b. $176,000. c. $160,000. Copyright All Rights Reserved 10 Real Estate Law & Practice (48 credit hrs)

11 d. $140, During an inflationary period, a property's highest value is its: a. book value. b. market value. c. loan value. d. assessed value. 36. Each unit in a fourplex rents for $225 per month. With a sales price of $81,000, the annual gross rent multiplier is: a b. 30. c. 90. d All of the following items could be depreciated by an appraiser EXCEPT: a. a vacant structure. b. unimproved land leased for open storage. c. a single-family house used for rental purposes. d. a residence used for owner occupancy. 38. The oldest and easiest to learn method of appraisal is the: a. cost approach. b. market comparison approach. c. capitalization of income approach. d. abstractive method. 39. A separate value for the land is needed for the: a. income approach. b. gross rent multiplier method. c. cost approach. d. market comparison approach. 40. With fixed rents and a capitalization rate of 8 percent, an increase in taxes of $4,000 would result in the value of a property: a. decreasing by $5,000. b. decreasing by $50,000. c. remaining unchanged. d. increasing. 41. An appraiser counting the number of electrical outlets in a structure is using the: a. market comparison method. b. income approach. c. cost approach. d. gross rent multiplier method. Copyright All Rights Reserved 11 Real Estate Law & Practice (48 credit hrs)

12 42. The replacement cost approach is an effective method for appraising all of the following EXCEPT a(n): a. new apartment building. b. old public library. c. old residence. d. new commercial structure. 43. Which appraisal principle indicates the economic effect an improvement has on property? a. Progression b. Substitution c. Surplus d. Contribution 44. The use of more than one appraisal method with different weights assigned to each method describes: a. reconciliation. b. a certified appraisal. c. the development method. d. the quantity survey method. 45. In the market comparison method, amenities are balanced out: a. to allow for appreciation. b. because of the principle of competition. c. because the market is not static. d. because no two properties are identical 46. Which of the following is an example of economic obsolescence? a. Leaking roof b. Numerous small rooms c. Four-bedroom home with one bath d. Graffiti in the neighborhood 47. "The whole is worth more than the sum of its parts" refers to: a. progression. b. assemblage. c. land residual. d. depreciation. 48. Two adjacent residences in the center of a large development had similar values when they were built 30 years ago. They have been maintained in similar condition, but one is now worth far more than the other. The reason for this difference in value could be: a. physical deterioration. b. economic obsolescence. c. functional obsolescence. d. the principle of integration and disintegration. Copyright All Rights Reserved 12 Real Estate Law & Practice (48 credit hrs)

13 49. S.L.R.A. is based on the proposition that there is a direct relationship between the: a. sales price and appraised value. b. sales price and square footage. b. square footage and cubic yardage. c. linear regression and spatial progression. 50. If properties were plotted on a Simple Linear Regression graph, and property A had 1000 square feet and valued at $90,000, and property B had 1500 square feet and was valued at $140,000, what would be the most likely value for property X, having 1250 square feet? a. $75,000. c. $115,000. b. $95,000. d. $155,000. Copyright All Rights Reserved 13 Real Estate Law & Practice (48 credit hrs)

14 Copyright All Rights Reserved 14 Real Estate Law & Practice (48 credit hrs)