Deck 7: Single-Family Housing: Pricing, investment, and Tax Considerations

Question 1

Comparable properties must be chosen from those homes that have been sold,or have been listed for sale,most recently and that are located in the same city as the subject property.

Answer 1

False

Question 2

Estimating the land value for an improved property cannot be accomplished using the sales comparison method of valuation.

Answer 2

False

Question 3

Housing futures contracts allow investors to speculate on changes in home prices without actually owning a home.

Answer 3

True

Question 4

When the value of public goods exceeds their cost,the effect on house prices is called the "capitalization effect."

Question 5

Residential appraisers use only the sales comparison approach to determine value of the homes they appraise.

Question 6

One concern of appraisers when using the sales comparison approach is that financing benefits paid for by a seller of a property may result in a selling price for the comparable property that is lower than the market value.

Question 7

Cluster analysis using location quotients and/or employment multipliers provides a snapshot of employment at a point in time but does not provide a forecast of future employment in a specific industry.

Question 8

A housing bubble occurs when there is a big increase in the supply of homes.

Question 9

If mortgage interest rates increase,demand for purchased housing tends to increase.

Question 10

A location quotient is the ratio of total employment to base employment.

Question 11

The appraisal function is purely objective; an appraiser's judgment is not part of the decision process.

Question 12

If the cost of rental housing increases relative to house prices,demand for purchased housing tends to increase.

Question 13

Potential investors,in analyzing the profit potential for a distressed property,generally consider a financial framework including the acquisition phase,the holding period phase and the disposition phase.

Question 14

When using the cost approach to valuation,current market data for land values must be obtained.

Question 15

Mortgage interest and property taxes are deductible for federal income tax purposes for homeowners.

Question 16

Assume that houses in an area appreciate at the rate of 4 percent a year.A borrower expects to have a loan-to-value ratio of 90 percent.What is the approximate expected appreciation rate on home equity (EAHE)?

A)4.0%
B)10%
C)20%
D)40%

Question 17

Use of construction costs is very important in the sales comparison approach to valuation.

Question 18

Which of the following statements best describes the "wealth effect"?

A)Households with equity in their houses are wealthier than households that rent their housing
B)Expected appreciation in assets,such as home equity,may increase spending on other goods and services in the economy
C)Economists believe that wealthier households have a positive effect on the housing market,while low-income households have a negative effect
D)A 10 percent increase in homeownership is associated with a 12 percent increase in economic growth

Question 19

Population increases are usually associated with increases in demand and house price appreciation.

Question 20

It is likely that two identical houses located in different school districts will sell for different prices.

Question 21

The appraised value of a property usually represents the:

A)Actual value of the property
B)Actual selling price of the property
C)Actual opinion of an appraiser
D)Actual replacement value of the property

Question 22

Which of the following is NOT tax deductible for homeowners?

A)Points in mortgage loans
B)Mortgage interest
C)Property taxes
D)Maintenance expenses

Question 23

When a homeowner improves some aspect of his property far in excess of comparable properties in the neighborhood,he is said to have:

A)Under-improved the property
B)Over-improved the property
C)Reached the point of increasing returns
D)Exceeded the breakeven point

Question 24

The influence on property values brought about by a net benefit related to the value of public goods less their cost is referred to as:

A)A capital gain
B)A capital loss
C)The capitalization effect
D)The depreciation effect

Question 25

When considering the federal income tax treatment for housing,which of the following is tax deductible?

A)Mortgage principle and interest paid
B)Mortgage interest paid
C)Homeowner's insurance paid
D)Mortgage principal paid

Question 26

The subject property of an appraisal has only two bedrooms,but one of the comparables used in the appraisal has three.If the adjustment for a third bedroom is $5,000,the adjustment would be:

A)A $5,000 increase to the comparable's selling price
B)A $5,000 decrease to the comparable's selling price
C)A $5,000 increase to the subject's selling price
D)A $5,000 decrease to the subject's selling price

Question 27

Which of the following would NOT result in an increase in housing demand?

A)Population growth
B)Employment growth
C)Higher interest rates
D)Higher household income

Question 28

When calculating taxes,the difference between the acquisition cost and selling price of a house is called:

A)Ordinary income
B)Amortization
C)Capital gain
D)Deferred income

Question 29

The capitalization effect:

A)Is one of the major factors leading to housing bubbles
B)Has no impact on housing prices
C)Relates the quality of public services that individuals receive relative to the taxes that are paid for the services
D)Relates the interest rate on mortgage loans to the value of residential real estate

Question 30

The objective of appraisal is to:

A)Establish the highest possible price that a property can sell for
B)Establish the most probable price that would be paid for a property under competitive market conditions
C)Establish the market value for a property's land without any structures (such as a house)
D)Establish the market value for a property if the property is put to its highest and best use

Question 31

An appraisal usually contains three approaches to valuation.Which of the following is NOT one of those approaches?

A)The Market Approach
B)The Ratio Approach
C)The Cost Approach
D)The Income Approach

Question 32

A home sales transaction in which the seller was not under undue pressure to sell for a discounted price (e.g.,foreclosure,selling to family member,etc.)is referred to as a(an):

A)Aboveboard transaction
B)Arm's-length transaction
C)Parsed transaction
D)Tainted transaction

Question 33

Which of the following is NOT a factor in causing a property to become distressed:

A)Borrower's personal debts
B)Delinquent property taxes
C)Delinquent homeowner's insurance bill
D)Borrower's inability to make mortgage payments

Question 34

A region has a location quotient of 0.5 for manufacturing.This means that: (B)

A)The region's share of employment in manufacturing is twice as big as the share of manufacturing employment in the U.S.
B)The region's share of employment in manufacturing is half as big as the share of manufacturing employment in the U.S.
C)Manufacturing is a "base" or "driver" industry for the region
D)Both A and C
E)Both B and C

Question 35

A property is purchased for $200,000 with an 80 percent LTV.After five years,the owner's equity is $80,000.What would be the approximate annual expected appreciation rate on home equity (annual EAHE)?

A)13.9%
B)14.9%
C)20.0%
D)80.0%
E)100%

Question 36

Federal income tax policy has generally been thought to:

A)Discourage homeownership
B)Encourage renting
C)Increase interest rates
D)Encourage homeownership