Deck 10: Real Estate Appraisal

Question 1

An appraisal is an exact determination of the value of a piece of real estate.

Answer 1

False

Question 2

Functional depreciation has to do with normal wear and tea.

Answer 2

False

Question 3

Individuals or other legal entities that may find an appraisal useful might include:

A) lenders.
B) insurance companies.
C) prospective buyers.
D) all of the above.

Answer 3

all of the above.

Question 4

The federal requirements for obtaining an appraisal license include:

A) a minimum of four years of experience.
B) a minimum of a college degree.
C) passing a uniform state examination.
D) 60 hours of continuing education.

Question 5

The principle of value that states that the current market value of a property is based on the present value of the future benefits of ownership is called the:

A) substitution principle.
B) contribution principle.
C) anticipation principle.
D) diminishing returns principle.

Question 6

The principle of value that states that over time, competitive forces tend to reduce abnormally high profits is called the:

A) proportionality principle.
B) competition principle.
C) anticipation principle.
D) contribution principle.

Question 7

The value that the end user places on a piece of real estate is called:

A) wholesale value.
B) loan value.
C) retail value.
D) replacement value.

Question 8

In understanding the forces that shape value, which of the following forces may change zoning or formulate environmental regulations?

A) Political forces
B) Social forces
C) Economic forces
D) Physical forces

Question 9

Appraisers provide which of the following services?

A) Formulating the exact worth of a piece of property
B) Giving their opinions about the value of a piece of property
C) Advising buyers as to whether they are getting a good deal
D) Advising sellers as to the exact selling price they will be able to receive

Question 10

The major weakness of the cost approach is:

A) determining the actual cost.
B) comparables may be hard to find.
C) cost does not necessarily equal value.
D) the situation in which no like properties have been sold in the last year.

Question 11

A decline in value due to factors outside the property itself is called:

A) physical depreciation.
B) functional depreciation.
C) IRS code depreciation.
D) external depreciation.

Question 12

As the capitalization rate goes up, the value of a property:

A) goes up.
B) goes down.
C) stays the same.
D) none of the above.

Question 13

In making an appraisal, the appraiser uses several approaches to value. The appraiser then:

A) averages the different values.
B) finds the median for the different values.
C) uses his or her judgment to evaluate the different values.
D) uses the pentaploid theorem.

Question 14

The method of determining a capitalization rate that uses the weighted average of the yield earned by all suppliers of the funds used to acquire a property is called:

A) the band-of-investment method.
B) the change principle.
C) the market comparison method.
D) reconciliation.

Question 15

The principle of highest and best use states:

A) over time, competitive forces tend to reduce abnormally high profits.
B) property values are subject to supply and demand.
C) a property should be used for the purpose that results in the highest present value.
D) the higher the capitalization rate, the higher the profit.

Question 16

Define market value and market price.

Question 17

In the context of determining value, define the substitution principle.

Question 18

Name the four elements of value in real estate.

Question 19

In completing an appraisal using the cost method, what is the difference between the quantity survey method and the unit-in-place method?

Question 20

Define physical depreciation and functional depreciation.

Question 21

What are the differences between sold comparables, pending comparables, listed comparables, and expired comparables? Why might you consider these four types of comparables?

Question 22

An investor is interested in buying an apartment building. The asking price is $400,000. The building contains 10 units, each of which rents for $500 per month. The vacancy rate is 5%. The annual expenses are $27,000. The investor feels comfortable with a 8% capitalization rate. Is the asking price reasonable for this investor? If not, what price should he offer?