Real Estate Principles Chapter 13 Quiz 1. Warehouse and other industrial space for rent is generally expressed using which unit of measurement? A. Cubic foot B. Square foot C. Front foot D. Square yard 2. Value is affected by all but which of the following? A. Physical and environmental factors B. Government regulations C. Private restrictions D. Economic trends 3. The conditions of sale will affect which of a property's characteristics? A. Utility B. Value C. Price D. Basis 4. Which of the following would not contribute to the stability of neighborhood property values? A. Similarity in residents' socioeconomic levels B. Homogeneity in building uses C. Increased density and high turnover in residents D. Location in the direction of future population growth 5. What would be most likely to cause an "unearned increment" increase in a property's value? A. Capital improvements B. Population growth C. Landscaping D. Purchase of an adjoining parcel 6. How would the unit costs of building improvements on a small residence compare to the unit costs of building the same improvements on a large residence? A. Less than a large residence B. More than a large residence C. About the same D. None of the above 7. Residential property amenities are: A. intangible and not included in appraisal reports B. measurable on the market C. available only in more expensive properties D. All of the above 2006 Rockwell Publishing Company 1
8. Of the following characteristics, which is not an essential element of value? A. Scarcity B. Expectation C. Utility D. Demand 9. Laura's house has a fair market value of $330,000 and rents for $2,200 per month. Micah's house is across the street and rents for $2,400 per month. Assuming the same rate of return, what is the value of Micah's property? A. $360,000 B. $368,000 C. $371,000 D. $377,000 10. What does functional utility in a residence depends on? A. Improvements B. Floor plan C. Inhabitants' wishes D. Location 11. Two properties, each worth $50,000, are combined into one larger parcel that has a value of $120,000. This increase in value is called: A. blockage B. appurtenance C. plottage D. appreciation 12. Of the following, which is the most expensive and complicated appraisal type? A. Comparative unit method B. Quantity survey C. Unit-in-place D. Building permit record review 13. Under normal market conditions, an apartment building's vacancy rate is determined by: A. the building's operation costs B. building size and total number of units C. rent schedule D. the area's housing availability 14. Developer Dan builds a $300,000 home in an area filled with homes valued between $200,000 and $250,000. The value of Dan's home is likely to diminish due to: A. Progression B. Regression C. Integration D. Disintegration 2006 Rockwell Publishing Company 2
15. To an appraiser, depreciation is: A. loss in utility and value from any cause B. loss in land value C. physical deterioration of the property D. functional obsolescence 2006 Rockwell Publishing Company 3
Answer Key with Explanations 1. B Explanation: Industrial and commercial space is generally measured in square feet. Sometimes industrial property may be measured in acres. Retail property, however, may be valued by front foot. 2. C Explanation: Social ideals and standards, economic trends, government regulations, and physical and environmental factors are the major forces affecting value. 3. C Explanation: Conditions of sale such as favorable financing, an uninformed buyer, or a forced sale may affect the property's price, but will not affect any of the property's other characteristics. 4. C Explanation: Homogeneity in residents' socioeconomic levels and building uses helps to stabilize and maximize property values. But high turnover and population density do not have this same effect; these may have negative consequences for property values. 5. B Explanation: "Unearned increment" refers to an increase in property value through no effort of the property owner. An increase in population is often the cause of an unearned increment. 6. B Explanation: In general, the cost per unit of building improvements will be more with a small home than with a large home. Volume purchasing is typically less expensive. 7. B Explanation: Amenities are tangible or intangible desirable features of a home or its neighborhood. Amenities are measurable on the market. 8. B Explanation: The four essential elements of value are utility, transferability, demand, and scarcity. 9. A Explanation: The fair market value divided by the gross monthly rent provides the gross rent multiplier. Here, $330,000 divided by $2,200 is 150. Multiplying this gross multiplier times Micah's gross monthly rent gives the value of Micah's property (150 $2,400 = $360,000). 10. C Explanation: Functional utility refers to usefulness to a particular user. In a residence, its functional utility would depend on the desires of its residents. 2006 Rockwell Publishing Company 4
11. C Explanation: An increase in value that results when two or more continguous properties are combined into a more valuable parcel under single ownership is called plottage. The increase in value is due to improved usability. This often occurs where larger parcels are needed for industrial or commercial uses. 12. B Explanation: The quantity survey method is a comprehensive and expensive method of estimating building costs. 13. D Explanation: The housing supply and demand in that particular area will have a significant effect on the apartment building's vacancy rate. 14. B Explanation: A property's value is affected by surrounding properties. Under the principle of regression, a more expensive home will diminish in value if it is located in a neighborhood of less expensive homes. 15. A Explanation: Depreciation is loss in property utility and value from any cause. Physical deterioration and functional obsolescence are two causes of depreciation. 2006 Rockwell Publishing Company 5