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Questions and Answers
In the cost approach to value, the appraiser makes use of:
In the cost approach to value, the appraiser makes use of:
When appraising a commercial investment property, the appraiser is most concerned with:
When appraising a commercial investment property, the appraiser is most concerned with:
The sales comparison approach to value would be most important when estimating the value of a(n):
The sales comparison approach to value would be most important when estimating the value of a(n):
It is necessary to calculate a dollar value for depreciation when using which of the following?
It is necessary to calculate a dollar value for depreciation when using which of the following?
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In the appraisal of an office building, which of the following would be classified as external depreciation?
In the appraisal of an office building, which of the following would be classified as external depreciation?
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The expression 'more buildings are torn down than fall down' refers to:
The expression 'more buildings are torn down than fall down' refers to:
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Which of the following would be classified as external depreciation?
Which of the following would be classified as external depreciation?
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Reconciliation is best described as:
Reconciliation is best described as:
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An appraiser has been hired to prepare an appraisal on a property that included an elegant old mansion that is now leased to an insurance company. Which approach to value would the appraiser rely on most?
An appraiser has been hired to prepare an appraisal on a property that included an elegant old mansion that is now leased to an insurance company. Which approach to value would the appraiser rely on most?
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Defined as a loss in value from any cause, depreciation is generally divided into three categories. The loss of value due to the normal wear and tear on a property is called:
Defined as a loss in value from any cause, depreciation is generally divided into three categories. The loss of value due to the normal wear and tear on a property is called:
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An appraiser is responsible for:
An appraiser is responsible for:
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The term depreciation refers to the:
The term depreciation refers to the:
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The income approach as used by an appraiser makes use of which of the following?
The income approach as used by an appraiser makes use of which of the following?
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Using which of the following would require the value of the land to be calculated separately from the value of the improvements?
Using which of the following would require the value of the land to be calculated separately from the value of the improvements?
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In the income approach, which of the following is NOT considered when calculating the net operating income?
In the income approach, which of the following is NOT considered when calculating the net operating income?
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An appraisal report must contain all of the following EXCEPT:
An appraisal report must contain all of the following EXCEPT:
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The period of time over which an improvement to the property will contribute to its value is known as its:
The period of time over which an improvement to the property will contribute to its value is known as its:
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Reconciliation is an appraisal term used to describe:
Reconciliation is an appraisal term used to describe:
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When estimating the value of property using the cost approach, all of the following would be considered by the appraiser EXCEPT the:
When estimating the value of property using the cost approach, all of the following would be considered by the appraiser EXCEPT the:
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A buyer is considering the purchase of an apartment building in an area where there is a limited multi-family zoning. This situation would be BEST described by the economic characteristic of:
A buyer is considering the purchase of an apartment building in an area where there is a limited multi-family zoning. This situation would be BEST described by the economic characteristic of:
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In the valuation of a large apartment complex, the most weight would be given to which of the following approaches to value?
In the valuation of a large apartment complex, the most weight would be given to which of the following approaches to value?
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An appraiser has been employed to estimate the market value of a parcel of vacant land. The resulting appraisal report would NOT include reference to:
An appraiser has been employed to estimate the market value of a parcel of vacant land. The resulting appraisal report would NOT include reference to:
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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 would:
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 would:
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A 4-bedroom house with 1 bathroom by today's standards would be considered to be:
A 4-bedroom house with 1 bathroom by today's standards would be considered to be:
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The purpose of an appraisal is to:
The purpose of an appraisal is to:
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The subject property has three bedrooms and two baths. A comparable property has two bedrooms and one bath. Which of the following is TRUE?
The subject property has three bedrooms and two baths. A comparable property has two bedrooms and one bath. Which of the following is TRUE?
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In an old retail building, which of the following would most likely be a source of incurable functional obsolescence?
In an old retail building, which of the following would most likely be a source of incurable functional obsolescence?
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Who among the following CANNOT obtain appraiser licensure or certification in Illinois?
Who among the following CANNOT obtain appraiser licensure or certification in Illinois?
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In the income approach, the appraiser makes use of:
In the income approach, the appraiser makes use of:
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Which of the following is NOT a characteristic of value?
Which of the following is NOT a characteristic of value?
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In the cost approach, an appraiser uses which of the following?
In the cost approach, an appraiser uses which of the following?
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A house with outmoded plumbing is suffering from:
A house with outmoded plumbing is suffering from:
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The income approach to value would be most important in the appraisal of a(n):
The income approach to value would be most important in the appraisal of a(n):
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An appraiser who is using the sales comparison approach to value would NOT use which of the following similar homes as comparable properties? One that was:
An appraiser who is using the sales comparison approach to value would NOT use which of the following similar homes as comparable properties? One that was:
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The gross rent multiplier is used as a guideline for estimating value based on:
The gross rent multiplier is used as a guideline for estimating value based on:
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The steps in the appraisal process do NOT include:
The steps in the appraisal process do NOT include:
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A building is valued at $215,000 and contains four apartments that rent for $470 each per month. The owner estimates that the net operating income is 65 percent of the gross rental receipts. What is the capitalization rate?
A building is valued at $215,000 and contains four apartments that rent for $470 each per month. The owner estimates that the net operating income is 65 percent of the gross rental receipts. What is the capitalization rate?
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Study Notes
Real Estate Appraisal Concepts
- Cost Approach: Utilizes the estimated replacement cost of the building to determine value.
- Income Approach: Primarily focuses on income generated by commercial properties for valuation.
- Sales Comparison Approach: Most relevant when estimating the value of existing residential properties.
Depreciation in Real Estate
- Defined as a loss in value from any cause; includes physical deterioration, external depreciation, and functional obsolescence.
- Physical deterioration: Normal wear and tear impacting property value.
- Functional obsolescence: Outdated design or features, such as insufficient bathrooms for bedroom count.
External Depreciation
- Arises from factors outside the property, like poorly maintained neighboring properties.
- Important to account for in total property valuation; laws mandating renovations can classify as external depreciation.
Reconciliation Process
- Analyzes and compares results from different appraisal approaches to determine the final property value.
- Not to be confused with selecting the highest value.
Appraisal Objectives and Methods
- Appraisal reports must include reconciliation of value, date of appraisal, and final opinion but do not require sales contract copies.
- Capitalization rate is crucial for the income approach, calculated by dividing net operating income by the capitalization rate.
Economic Characteristics of Property Value
- Scarcity: Limited availability affects demand, particularly for zoned areas like multi-family housing.
Characteristics of Value
- Excludes obsolescence as a defining characteristic; includes scarcity, utility, and transferability.
- Highest and best use is critical in determining land value.
Important Formulas and Values
- Gross Rent Multiplier (GRM) relates sales price to monthly rental income; focused on estimating property value based on revenue potential.
- Capitalization rate derived from net operating income, providing insight into investment potential of income-generating properties.
Industry Regulations and Limits
- Various licensing limitations exist for appraisers, including private businesses like limited liability companies not qualifying for appraisal licensure.
- Appraisers must utilize recent and comparable property sales data for effective valuations; old products or those influenced by bankruptcy may not be relevant.
Other Considerations
- Economic life of property details how long improvements will contribute positively to value.
- Properties with issues, such as outmoded plumbing or design flaws, should be assessed for functional obsolescence and depreciation related costs.
Conclusion
- Appraisal is an essential process in determining property value with its methods of cost approach, income, and sales comparison, directly impacting buyers, sellers, and investors in real estate markets.
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Description
Test your knowledge on the key concepts of real estate appraisal as covered in Chapter 19. This quiz focuses on important terms and definitions such as the cost approach and factors appraisers consider for commercial investment properties. Perfect for students and professionals in the field of real estate.
