Real Estate Appraisal Chapter 19 Quiz

Questions and Answers

In the cost approach to value, the appraiser makes use of:

The estimated replacement cost of the building (correct)

The sales prices of the similar buildings in the area

The owner's original cost of the building

The assessed value of the building

When appraising a commercial investment property, the appraiser is most concerned with:

Income generated by the property (correct)

Total debt service on the property

Sales prices of comparable properties

Accrued depreciation on the property

The sales comparison approach to value would be most important when estimating the value of a(n):

Retail location

New residence

Existing residence (correct)

Apartment building

It is necessary to calculate a dollar value for depreciation when using which of the following?

Gross rent multipliers Signup and view all the answers

In the appraisal of an office building, which of the following would be classified as external depreciation?

A law requiring the building to be retrofitted with fire sprinklers Signup and view all the answers

The expression 'more buildings are torn down than fall down' refers to:

Functional and external depreciation Signup and view all the answers

Which of the following would be classified as external depreciation?

Poorly maintained properties in the neighborhood Signup and view all the answers

Reconciliation is best described as:

Analyzing the results obtained from the three approaches to value Signup and view all the answers

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?

Income approach Signup and view all the answers

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:

Physical deterioration Signup and view all the answers

An appraiser is responsible for:

Estimating value Signup and view all the answers

The term depreciation refers to the:

Loss of value in real estate from any cause Signup and view all the answers

The income approach as used by an appraiser makes use of which of the following?

Capitalization Signup and view all the answers

Using which of the following would require the value of the land to be calculated separately from the value of the improvements?

The gross rent multiplier Signup and view all the answers

In the income approach, which of the following is NOT considered when calculating the net operating income?

Debt service Signup and view all the answers

An appraisal report must contain all of the following EXCEPT:

A copy of the sales contract Signup and view all the answers

The period of time over which an improvement to the property will contribute to its value is known as its:

Economic life Signup and view all the answers

Reconciliation is an appraisal term used to describe:

The appraiser's analysis and comparison of the results of each appraisal approach Signup and view all the answers

When estimating the value of property using the cost approach, all of the following would be considered by the appraiser EXCEPT the:

Loss of value due to uncollected delinquent rent Signup and view all the answers

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:

Scarcity Signup and view all the answers

In the valuation of a large apartment complex, the most weight would be given to which of the following approaches to value?

The income approach Signup and view all the answers

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:

The physical dimensions of the parcel Signup and view all the answers

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:

Divide the net operating income by the capitalization rate Signup and view all the answers

A 4-bedroom house with 1 bathroom by today's standards would be considered to be:

Functionally obsolete Signup and view all the answers

The purpose of an appraisal is to:

Estimate the value of the property Signup and view all the answers

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 value of the comparable will be adjusted upwards Signup and view all the answers

In an old retail building, which of the following would most likely be a source of incurable functional obsolescence?

Closely-spaced internal support columns Signup and view all the answers

Who among the following CANNOT obtain appraiser licensure or certification in Illinois?

A limited liability company engaged in licensed real estate activities Signup and view all the answers

In the income approach, the appraiser makes use of:

Capitalization rate Signup and view all the answers

Which of the following is NOT a characteristic of value?

Obsolescence Signup and view all the answers

In the cost approach, an appraiser uses which of the following?

An estimate of the building's replacement cost Signup and view all the answers

A house with outmoded plumbing is suffering from:

Functional obsolescence Signup and view all the answers

The income approach to value would be most important in the appraisal of a(n):

Office building Signup and view all the answers

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:

Sold by the owners who were undergoing a foreclosure Signup and view all the answers

The gross rent multiplier is used as a guideline for estimating value based on:

The relationship of the sales prices to the monthly rental income Signup and view all the answers

The steps in the appraisal process do NOT include:

Considering the seller's estimate of the property's value Signup and view all the answers

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?

6.8 percent Signup and view all the answers

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.