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Review Exercises — Appraisal is ie An appraiser is appraising a small residential property and ob- a) The act or process of telling the client the market value of the serves that it has a clothes washer and dryer. Should the...

Review Exercises — Appraisal is ie An appraiser is appraising a small residential property and ob- a) The act or process of telling the client the market value of the serves that it has a clothes washer and dryer. Should these items real estate be included in the appraisal? b) The act or process of developing an opinion of value a) The appraiser should not include these items because they are personal property. Cc) The report conveyed to the client b) The appraiser should include these items, but they should d) A lucrative profession be identified as such and their contributory value should be estimated. c) The appraiser should not include these items because they Real estate is could be taken out when the current owners leave. a) The rights in realty d) The appraiser should include these items because they were b) The physical land and appurtenances affixed to the land intended to be left with the property. c) What transfers on the day of closing d) The “bundle of rights” Items that are built to be permanent and intended to be included with real property are Real property includes a) Trade fixtures a) Any and all buildings on the subject site b) Real estate b) The interests, benefits, and rights inherent in the ownership of c) Personal property real estate d) Chattel fixtures c) The physical land and appurtenances affixed to the land d) Property that is not artificial 9. An appraiser a) Determines value The manner in which a client employs the information contained b) Determines price in the appraisal report is called c) Measures and develops an opinion of value a) The intended use d) Measures price b) The purpose of an appraisal c) The base of an appraisal d) The appraisal premise 10. Easements are another division of property rights. They usually give a party the right a) To cross over another person’s property without permission Real property consists of b) To access the property to perform a specific service a) Rights in realty Cc) To use the property during the term of the lease to a tenant b) Land and all improvements thereon d) To reenter the property if the payments are not made to the c) The right to use or occupy real estate lender on time i d) One-unit residences ie The Fifth Amendment to the US Constitution Appraisals are always used a) Requires the government to pay just compensation for land a) To make residential mortgages taken for the comman good b) To settle divorces b) Prohibits the consumption of alcoholic beverages C) To settle lawsuits Cc) Limits the terms of the President d) To solve problems that involve real estate valuation d) Is called the “Bill of Rights” 18 The Student Handbook to THe AppralsaAL OF REAL Estate, 15TH EDITION son areca  ~ Review Exercises ie Suppose that you have owned a 40-acre parcel of land for the 14. A fee simple interest in real property is limited only by last 25 years. You paid the taxes on the real estate for the first a) Taxation, eminent domain, police power, and easements 20 years but have not paid them for the last five. Which of the b) Taxation, eminent domain, police power, and escheat following statements is true? c) Eminent domain, police power, leases, and escheat a) The state will get the taxes when the property is sold, since d) Eminent domain, police power, zoning, and escheat real property cannot be sold unless the property taxes are fully paid. b) The state has the right to sell the real estate to pay the back 15. A deed should be recorded because taxes. a) Recording gives public notice of the transaction and sets the Cc) The state is powerless to collect these taxes. priority d) The state will sue you, and the courts will garnish your wages b) It is required by law to get paid. C) The title does not pass until the deed is recorded d) Recording makes the deed a legal document dS: Suppose that you own a house and five acres just outside the town of Monticello. This home is adjacent to Route 23, which has been a small two-lane highway for many years. Last year, the 16. Zoning and environmental protection regulations are examples of state decided to widen this road to six lanes to accommodate all a) Clouds on title the future traffic that will be created by a new riverboat casino.To b) Public use facilitate this expansion, the state will need about 50 feet off the c) Escheat front of your homestead. The state will d) Police power a) Just take the property and use it b) Pay whatever you ask to keep you from suing them c) Pay you a fair and equitable amount based on the estimated property value before the taking and another valuation after the taking d) Take this property from you and replace it with some land in another area of the same county Introduction to Appraisal 19  Note: Italicized references indicate the pages in The Appraisal of Real Estate, 15th edition, that readers can consult for additional discussion of these topics. b) The act or process of developing an opinion of value c) Measures and develops an opinion of value Page 1 Pages 1-2 b) The physical land and appurtenances affixed to the land 10. b) To access the property to perform a specific service Page 3 a4, a) Requires the government to pay just compensation for land b) The interests, benefits, and rights inherent in the ownership ‘taken for the common good of real estate Page 5. Pages 3-4 12, b) The state has the right to sell the real estate to pay the a) The intended use back taxes. Pages 4-5 a) Rights in realty Pages 3-4 13. c) Pay you a fair and equitable amount based on the estimat- ed property value before the taking and another valuation after the taking d) To solve problems that involve real estate valuation Pages 4-5 Page 6 14, b) Taxation, eminent domain, police power, and escheat b) The appraiser should include these items, but they should be identified as such and their contributory value should be estimated. 15. a) Recording gives public notice of the transaction and sets the priority Page 5 b) Real estate 16. d) Police power Pages 5-6 Pages 4-5 20 | The Student Handbook to THE ApprRAISAL OF REAL Estate, 15TH Epirion  Review Exercises Land is unique because The concepts of land are a) No two parcels have the same soil composition a) Immobile, durable, finite, and useful b) No two parcels have the same owners b) Geographic and environmental, legal, economic, and social c) No two parcels have the same tax levies c) Land, labor, capital, and entrepreneurialism d) No two parcels can occupy the same space on the face of the d) Leasehold, leased fee, and fee simple earth An example of a governmental force that affects real estate value The supply of land is would be a) Increasing all the time a) Market demand for mortgage loans b) Established by the surveyors b) Population changes in the market c) Infinite c) Changes in decorating styles d) Finite d) Changes in local building codes Zoning and environmental protection regulations are examples of a) Clouds on title b) Public use c) Escheat d) Police power 24 | The Student Handbook to Tue ApprAIsAL OF Reat Estate, 15th Edition |  Note: Italicized references indicate the pages in The Appraisal of Real Estate, 15th edition, that readers can consult for additional discussion of these topics. £ 1. d)No two parcels can occupy the same space on the face of 4, d) Changes in local building codes the earth Page 11 Pages 9-10 5, d) Police power 2. d) Finite Page 13 Page 9 3. b) Geographic and environmental, legal, economic, and social Pages 10-12 Land, Real Estate, and Ownership of Real Property 25 Pct A A i SN  Review Exercises When real property is sold by one person to another, the amount (é Real property has value because it of money used to compensate the seller is called a) Is nearby a) The cost of the real property b) Is popular b) The value of the real property c) Is desirable c) The price of the real property d) Provides future benefits d) The income of the real property 8. The supply of one-unit residential properties is most affected by A cash-equivalent price a) An increase in employment in the area a) Reflects what a seller would accept as if he or she received b) A decrease in mortgage interest rates cash at the closing c) An increase in the number of apartments built b) Includes the seller paying no more than 5 points (5%) d) An increase in the number of homes built Cc) Indicates that the rights in realty can only be fee simple d) Assumes that the buyer did not have to get a mortgage 9. Two homes in the same addition have the same size, location, amenities, and features. One is priced at $200,000, and the A good’s capacity to satisfy human desires or needs is known as other is priced at $210,000. Which of the following statements is a) Creative demand the most accurate? b) Utility a) The lower-priced home will require a longer marketing time. c) Functional obsolescence b) The lower-priced home will attract more demand. d) Effective demand c) The lower-priced home will get fewer showings. d))The lower-priced home will always sell for more than the full list price. The city planning department has indicated that a vacant residential lot located in a flood zone cannot be given a building permit. This site 10. When a property is put up for sale, the seller is forced to reduce a) Has lost nearly all utility the price when b) Has become scarce a) The buyers tell him or her to do so Cc) Has lost all desirability b) The broker tells him or her to do so d) Has lost any effective purchasing power C) The listing expires and a new broker insists on a lower price d))The seller decides that a price reduction is needed to facilitate a sale Demand for real estate may be affected by a) Increasing population and employment b) The availability of mortgage financing ike In a high-demand market, the cost of building a new property will c) Increases in purchasing power increase substantially until t d) All of the above a) It becomes impossible for prices to go higher b) The supply increases because new builders get into the market c) The charges from suppliers and subcontractors go down The four agents of production are d) The Federal Reserve System increases interest rates a) Land, labor, capital, and improvements b) Land, labor, capital, and entrepreneurship c) Land, labor, capital, and money d) Land, improvements, labor, and materials 34 | The Student Handbook to THE APPRAISAL OF REAL Estate, 15TH EDITION hie ioica  e Review Exorcloay i IW A one-unit homeowner who builds a new and unique structure fe As an agent of production, capital is will commonly find that a) The necessary equipment, buildings, and infrastructure for a) The structure’s uniqueness will cause the market to like it and development pay more for it b) The location of the center of government b) Properties that do not conform to popular designs will sell for c) The work required to build a structure on land more d) The building in which a legislative body meets c) Generally, fewer people desire unique structures d) The market will pay as much for this property as any other because of its unique nature 18. The statement “property values are created and sustained when the characteristics of a property conform to the demand of its market” refers to 13. Externalities are a) Use value a) Factors outside the property that can affect the property value b) Contribution b) Losses in value due to design and changes in building stan- c) Conformity dards d) Supply and demand analysis C) Increases in value due to changes in land value d) Losses in value due to changes in buyer preferences 19, A builder finds that the most demand for homes in town is for homes with 2,200 to 2,300 square feet above grade. The market 14. When demand for housing increases, the supply seems to like homes as large as 3,000-sq.-ft. above grade. If a) Increases immediately homes are any larger than this, however, the price seems to increase at an increasingly lower rate. This is an example of b) Increases slowly a) The law of diminishing returns Cc) Is unaffected b) An oversupplied market d) Will diminish c) An undersupplied market d) The principle of substitution io: The overproduction of new homes a) Causes oversupply and lower prices b) Causes increases in demand c) Causes prices to increase d) Causes the market to move toward a state of equilibrium 16. A buyer invests in a small strip mall because she believes the property will net $25,000 per year. This is an example of a) Anticipation b) Change c) Competition d) Substitution The Nature of Value 35  ~~ Suggested Solutions toReview Exercises Note: Italicized references indicate the pages in The Appraisal of Real Estate, 15th edition, that readers can consult for additional discussion of these topics. 1. c) The price of the real property 11, b) The supply increases because new builders get into the Page 21 market Page 21 2. a) Reflects what a seller would accept as if he or she received cash at the closing 12, c) Generally, fewer people desire unique structures 3. b) Utility 13. a) Factors outside the property that can affect the property Page 19 value. Page 28 4, a) Has lost nearly all utility Pages 19-20 14, b) Increases slowly Pages 23-24 5, d) All of the above Pages 23-24 15. a) Causes oversupply and lower prices Pages 23-24 6, b) Land, labor, capital, and entrepreneurship Page 18 16. a) Anticipation Page 22 7. d) Provides future benefits Page 21 17. a)The necessary equipment, buildings, and infrastructure for / development Page 19 8. d) An increase in the number of homes built Page 21 18. c) Conformity Page 27 t 9, b) The lower-priced home will attract more demand. Page 21 19, a) The law of diminishing returns 10. d) The seller decides that a price reduction is needed to facili- Page 26 tate a sale Page 21 36 The Student Handbook to THe AppralsaL OF REAL Estare, 15TH Epition /  Review Exercises The three approaches to value are 1h One reason to estimate the highest and best use of a property a) Market analysis, market consensus of opinion, and market “as though vacant” and “as improved” is research a) To increase the size of the report, which increases the fee b) Sales extraction, cost replication, and income multiplication b) Because It necessitates a land value estimate for analytical C) Sales comparison, cost, and income capitalization purposes d) Graphic analysis, linear regression, and statistical analysis C) To allow for estimating physical depreciation d) To recognize when the improvements should be razed Highest and best use a) Is specified by the client Land value can be estimated using all of the following techniques b) Must be considered in all appraisals except c) Includes two parts when the property is improved: the highest a) The sales comparison method and best use as though vacant and the highest and best use b) The cost method as improved c) The income method d) Assumes demand for the property within the existing or pro- d) The allocation method posed use There are three approaches to estimating market value because Land valuation techniques include a) Purchasers have three alternative options available a) Subdivision development, depreciated cost, and consensus b) USPAP indicates that all appraisals must use all three ap- b) Sales comparison approach, consensus, and extraction proaches to value c) Sales comparison approach, allocation, and extraction C) There are three ways to look at anything d) Assessment multipliers, assessor's opinions, and multiple d) It is required for good statistical significance regression multipliers 10. One activity that is not part of defining the appraisal problem is The valuation technique in which land and building are valued a) Identifying the fee with the client separately is b) Identifying the property rights to be appraised a) The income capitalization approach c) Identifying the type of value to be estimated b) The sales comparison approach d) Identifying the valuation date c) Linear regression d) The cost approach A, What is usually the final step of the valuation process? a) Final reconciliation and estimation of the single value estimate The valuation technique in which the income a property earns is b) Final reconciliation and determination of the range or single considered is estimate a) The income capitalization approach c) Completion of a report with the defined value b) The sales comparison approach d) Application of the three approaches to value c) The cost approach d) None of the above In the parts of the valuation process, defining the value to be estimated is part of the a) Identification of the appraisal problem b) Preliminary analysis and data selection and collection c) Highest and best use analysis d) Land value opinion The Valuation Process 45  Note: Italicized references indicate the pages in The Appraisal of Real Estate, 15th edition, that readers can consult for additional discussion of these topics. c) Sales comparison, cost, and income capitalization 6. a) Identification of the appraisal problem Page 36 Page 30 c) Includes two parts when the property is improved: the 7. d) To recognize when the improvements should be razed highest and best use as though vacant and the highest and Pages 34-35 best use as improved Pages 34-35 8. b)The cost method Page 35 c) Sales comparison approach, allocation, and extraction Page 35 9. a) Purchasers have three alternative options available Pages 29-30 d) The cost approach Page 36 10. a) Identifying the fee with the client Page 30 a) The income capitalization approach Page 36 11. c) Completion of a report with the defined value Page 37 L “46| The Student Handbook to THE ApprAIsAL OF REAL Estate, 15TH EDITION ;  Review Exercises The date of the value opinion is Ihe In an appraisal assignment, a jurisdictional exception is applica- a) The first date the appraiser was on site ble when b) The last date the appraiser was on site (the inspection date) a) An attorney says it is applicable c) The date stipulated by the client b) That part of USPAP does not seem to fit the assignment d) The date the appraiser received the order c) The client says it is applicable d))The state or local laws or regulations are contrary to a part or parts of USPAP An appraisal is made as of a specified date to a) Establish the due date of the fee b) Prove that the appraiser inspected the property An appraiser inspected the subject property and found termite damage on the floor joists in the crawl space. The client told him C) Satisfy the requirements of the client to assume that it was repaired and condition the value on the d)) Indicate the date when the buyer agreed to purchase the repair. This is an example of a(n) property a) Extraordinary or special assumption b) Hypothetical condition Data requirements for an appraisal assignment are determined c) Unethical request by the d)) Request that is common, ethical, and part of the standard a) Client limiting conditions found in most appraisal reports b) Appraiser c) Nature of the problem An appraiser was asked to appraise the fee simple interest in a d) Type of property 0.24-acre site improved with a 24-year-old residence in February. The ground and the roof of the house were covered with 10 inch- es of snow. The appraiser stated in the report that “It is assumed The value to be estimated is determined by the that the roof covering is in marketable condition.’ This would be a) Property type an example of b) Client’s problem a) An extraordinary or special assumption c) Highest and best use b) A hypothetical condition d) Existing zoning classification c) A general assumption d) An ordinary limiting condition An appraiser found that the subject has a septic system in the front yard. The appraiser could not tell if the system was working, 10. An appraiser states the following in an appraisal report: “This so she assumed it was operational. The appraiser has made a(n) appraisal assumes that there are no negative subsurface condi- a) Extraordinary or special assumption tions that will impact the market’s reaction to this property, such b) Hypothetical condition as subsidence or the existence of toxic waste or soft substrata that is incapable of supporting a building foundation.” This is an c) Standard assumption that is assumed in all appraisals example of a(n) d) Error in judgment a) Extraordinary or special assumption b) Hypothetical condition An appraiser was asked to appraise the fee simple interest in a c) General assumption 0.24-acre site improved with a 24-year-old residence. The ap- d) Ordinary limiting condition praiser stated in the report that “It is clear that the roof covering is not in marketable condition. It is a condition of this appraisal and the value opinion that the roof shingles be replaced.’ This would be an example of a(n) a) Extraordinary or special assumption b) Hypothetical condition c) General assumption d) Ordinary limiting condition Elements of the Assignment 51  Note: Italicized references indicate the pages in The Appraisal of Real Estate, 15th edition, that readers can consult for additional discussion of these topics. 1. cc) The date stipulated by the client 6. b) Hypothetical condition Page 41 Page 44. 2. ¢) Satisfy the requirements of the client 7, d) The state or local laws or regulations are contrary to a part Page 41 or parts of USPAP Page 45 3. c) Nature of the problem 8. b) Hypothetical condition Page 44 4. b) Client’s problem Page 41 9, a) An extraordinary or special assumption Pages 43-44 5. a) Extraordinary or special assumption Pages 43-44 10. c) General assumption Pages 42-45 52 The Student Handbook to THE APPRAISAL OF REAL Estate, 15TH EDITION  Review Exercises The value of a property to a particular user is known as 6. Which of the following is not a part of the definition of market a) Market value value used by federal financial institutions? b) Value in exchange a) Buyer and seller are typically motivated c) Use value b) The property sells in 90 to 120 days d) Leasehold value c) Payment Is made in cash or cash-equivalent terms d) Both parties are well informed Market value is a) Always equal to cost Investment value is best measured by b) Always equal to sale price a) Market price to a specific investor c) The amount of money a property should sell for on the open b) Market value to a specific investor market c) The cost of acquiring a competitive substitute property with the d) A fact that can be reported by the appraiser same utility to a typical purchaser d) The present worth of anticipated future benefits to a specific investor The mayor of a small town recently hired you to estimate the value of a new one-story, three-bay fire station. The fire station was built last year at a cost of $2.5 million (land and buildings). Estimating market value for federal financial institutions requires Similar-sized, one-year-old commercial buildings in comparable identification of the desires and priorities of locations are selling for $2 million. If you appraise this building a) Well-informed buyers and sellers for approximately $2.5 million, you probably have conveyed an b) A fully informed seller opinion of c) A typically informed purchaser a) Market value d) A typically informed seller b) Investment value c) Use value d)) Value in transition Market value is a) Equal to market price b) An estimate of a price that would have been negotiated for a Investment value is sale a) The value of a specific property to anyone c) A measure of value in use b) The value of a property within a specific use d) Equal to replacement cost c) The value of a property to a specific buyer with specific invest- ment criteria d) The value on which lenders will base loans. Dennis hired an appraiser for an assignment involving a commer- cial property. Dennis asked the appraiser to provide an opinion of value for him using his investment criteria, which included an Market value can be described as overall capitalization rate of 12%. The market capitalization rate a) The price a person paid for real property for this type of investment would normally be 10%. The opinion of value that the appraiser provides would be the b) The cost of the land plus the cost of the building a) Investment value c) The present worth of future benefits b) Exchange value d) Whatever someone will pay for something c) Market value d) Use value Identifying the Type of Value and Its Definition 57  Review Exercises. 11. Aclient asked an appraiser to value the ABC industrial property 12. The local government levies taxes based on a defined value of based on the assumptions that the real estate. A local government official develops an opinion The consummation of the sale occurred within a short time of the value according to state regulations. The local government period official is developing the The seller was under extreme compulsion to sell a) Market value The exposure time was short b) Value in use There was no special financing c) Assessed value This value is best described as d) Insurable value a) Market value b) Liquidation value c) Sheriff's value d) Value in use 58 | The Student Handbook to THE ApprAIsAL oF Reat Estate, 15TH EDITION nni th al iN AR Nla untill Saree  " Suggested Solutions toReview Exercises — Note: Italicized references indicate the pages in The Appraisal of Real Estate, 15th edition, that readers can consult for additional discussion of these topics. 1. cc) Use value tf: d) The present worth of anticipated future benefits to a spe- Pages 52-53 cific investor Page 54 2. c)The amount of money a property should sell for on the open market 8. a) Well-informed buyers and sellers Pages 48-50 Pages 48-50 3. oc) Use value 9. b) An estimate of a price that would have been negotiated for Pages 52-53 a sale Pages 48-50 4. cc) The value of a property to a specific buyer with specific investment criteria 10. a) Investment value Page 54 Page 54 5. c) The present worth of future benefits Maile b) Liquidation value Pages 48-50 Pages 55-57 6. b) The property sells in 90 to 120 days ie. c) Assessed value Pages 48-50 Page 55 Identifying the Type of Value and Its Definition 59 Piscean aniccna  Review Exercises ae Life estates Use the following data to solve Review Exercises 6 through 8. a) Are not salable and therefore are never appraised Suppose that you own a one-acre parcel in downtown Cleveland. This b) Represent the full bundle of rights limited by the life of a parcel was vacant when you leased it three years ago to the Cleveland person Development Company for 99 years. The 99-year lease specified a Cc) Are not legal in most states rent of $30,000 per year net to the owner. The Cleveland Development Company built a 15-story office building on this parcel and leased the d) Cannot be used for income property building space to 31 different tenants, including two whole floors to Amalgamated Products. Suppose that you are a man who owns a small rental house with two acres, and you marry a woman who has a son from a 6. Amalgamated Products holds previous marriage.To provide for your new stepson, you give him a) The fee simple interest a life estate in the small house. When your stepson turns 18, he can b) The leased fee a) Mortgage his interest c) The leasehold b) Rent the property out d) A subleasehold C) Sell the life estate to someone else who will rent the property d) All of the above You hold a) The leased fee A lease b) The leasehold a) Must be for at least one year c) A subleasehold d) A subleased fee b) Conveys the right of occupancy to another c) Must include the landlord paying the taxes d)) Does not affect the appraisal because it does not affect the What happens to the building at the end of the 99-year lease? salable interest a) Any buildings on this land belong to you and/or your successors. b) The Cleveland Development Company can remove the building before the lease ends. Air rights are c) The building still belongs to the Cleveland Development Com- a) The rights to adequate ventilation of leased property pany because that company built it. b) The rights to use and control space above a specific parcel of d) You will probably have to sell this property long before the 99 land (as defined on the surface) years is up, which will void the lease. Cc) The right to have air above the subject property d) Similar to a cooperative. A project with units that are limited both vertically and horizontal- ly and have a percentage ownership in the common elements is a Suppose that you buy a single-story home that is attached on a) Condominium two sides and has the following characteristics: b) PUD A slab floor c) Cooperative A common maintenance agreement for exterior repairs d))Timeshare Common snow plowing and street maintenance A common swimming pool, clubhouse, and tennis courts You have to pay a $100-per-month fee for maintenance, and 10. A real property interest held by a lessee and conveying the right you were told by the broker that the property is a “condo.’ The of use and occupancy for a stated term under certain conditions assessor says that you have a 4,000-sq.-ft. lot, and the legal is called the description is “Lot 12 in the Calgary Addition.” You probably own a) Leasehold a) An attached home on a small lot with a mandatory fee b) Fee simple estate b) A condominium c) Leased fee c) A townhouse d) Determinable fee estate d) A zero lot line Identifying the Rights to Be Appraised 71  Review Exercises td, Which of the following is not a way to hold title to realty? 15. Suppose that you bought the fee simple interest in a parcel of a) Joint tenancy real estate last year. Six months later, you leased the vacant land b) Tenancy at will to John for 50 years, and he built a four-story office building on it. The salable rights are as follows: c) Tenancy in common a) You have the fee simple, and John has a leased fee. d) Tenancy by the entirety b) You have a leased fee, and John has a leasehold. c) You have a leasehold, and John has a leased fee. 12. The highest and fullest estate in land is the d) You have a leased fee, and John has the fee simple. a) Fee for service b) Fee simple 16, A leased fee is c) Fee simple determinable a) An ownership interest of the tenant when a lease is in effect d) Life estate b) An ownership interest of the landiord when a lease is in effect ¢) An ownership interest of the mortgage holder when a lease is 13. Ownership of real property by two or more parties with an undi- in effect vided interest is called d) An ownership interest of the sublessor when a lease is in a) Joint tenancy effect b) Tenancy by the entirety c) Sole proprietorship a7, Bob owned a 100-acre farm in Hamilton County. When he died, d) Tenancy in common he had no heirs, no friends, and no will. Which of the following statements is true? a) The land will be in Bob’s name forever because he died with- 14, TDRs are out heirs. a) Topical development restrictions b) The land will pass to the adjacent owners equally. b) Transferable development rights c) The land will pass to the first person to occupy the land for Cc) Temporary development rights seven years (i.e., squatter’s rights). ; d) Tailored developments—residential d) The state will take the property and sell it. 72 | The Student Handbook to THe AppRAISAL OF REAL Estate, 15TH EpItion  Note: Italicized references indicate the pages in The Appraisal of Real Estate, 15th edition, that readers can consult for additional discussion of these topics. 1. _b) Represent the full bundle of rights limited by the life of a 10. a) Leasehold person Page 62 Page 64 dy b) Tenancy at will 2. d)All of the above Page 68 Page 64 PE b) Fee simple 3. b) Conveys the right of occupancy to another Page 60 Pages 61-62 13, d) Tenancy in common 4. bb) The rights to use and control space above a specific parcel Page 68 of land (as defined on the surface) Page 66 14, b) Transferable development rights Page 65 5, a)An attached home on a small lot with a mandatory fee 15. b) You have a leased fee, and John has a leasehold. 6, d)Asubleasehold Pages 62-63 Page 63 16. b) An ownership interest of the landlord when a lease is in 7. a)The leased fee effect Pages 62-63 Page 62 8. a) Any buildings on this land belong to you and/or your suc- NA d) The state will take the property and sell it. cessors. Page 5 Page 62 9. a) Condominium Pages 71-72 Identifying the Rights to Be Appraised 73 Ue i  oe Review Exercises The scope of work in an appraisal report is acceptable 3 The scope of work of an appraisal a) If the client approves it a) Must always include an inspection of the subject and all b) If the secondary market approves it comparable sales Cc) If it meets or exceeds the expectations of parties who are b) Must always include an interior and exterior inspection of the regularly intended users for similar assignments and what the subject property appraiser's peers’ actions would be in performing the same or c) Must always include an inspection of the subject, at least on a similar assignment the exterior d) If the client approves, the appraiser thinks it is not misleading, d) May or may not include an inspection of the subject or compa- and the state appraiser board has given explicit approval rable sales The scope of work decision Scope of work a) Is established and cannot be changed after the assignment is a) Is a term that is unique to the appraisal profession accepted b) Defines the level of detail of the appraisal report b) Is an ongoing process that can change as the appraisal pro- C) Defines the extent of research and analyses of the appraisal cess proceeds process Cc) Is established solely by the client d) Is not used in appraisal d) Is established by the Appraisal Subcommittee (ASC) 78 | The Student Handbook to THE ApprAISAL OF REAL Estate, 15TH EDITION ae een RENN Sonn SUSE TO Re aoe ee ENTE DTetal Yaticacheecineeee  Note: Italicized references indicate the pages in The Appraisal of Real Estate, 15th edition, that readers can consult for additional discussion of these topics. f 1. cc) If it meets or exceeds the expectations of parties who are 3. dd) May or may not include an inspection of the subject or regularly intended users for similar assignments and what comparable sales the appraiser's peers’ actions would be in performing the Pages 75-80 same or a similar assignment Page 75 4. c) Defines the extent of research and analyses of the apprais- al process 2. b) Is an ongoing process that can change as the appraisal Page 75 process proceeds Page 79 Scope of Work | 79  : Review Exercises © Improvement cost data can be obtained from 6, The assessment ratio is a) Builders a) The ratio of assessed value to market value b) Marshall & Swift and other cost services b) The ratio of assessed value to the average value for properties c) Sales of new homes in the same district d) All of the above c) The ratio of the assessor's salary to the total property value in that jurisdiction d) Used in nonresidential appraisals becalise it is simple and Demand for housing is affected when easy to understand a) Builders cannot find enough building materials to complete the job Ten mills equals b) A new factory opens and several hundred new employees are hired a) 0.1000 c) Zoning laws restrict new construction to the point that not b) 0.0100 enough homes are built c) 0.0010 d) The builders do not recognize a downturn in the market d) 0.0001 Competitive supply sources for housing include If a property has a market value of $56,000 in a city that charges a) Rental units a millage rate of 75 mills and applies an assessment ratio of 25%, what are the annual real estate taxes for this property? b) Houses for sale c) Houses that will be for sale a) $1,050 d) All of the above b) $4,200 c) $10,500 d) $3,150 If the subject property is 10% superior to Comparable Sale 1 and the comparable sold for $100,000, what is the indicated value of the subject? If the assessment ratio is 25% and the millage rate is 120 mills, a) $100,000 x 1.10 = $110,000 what is the tax rate? b) $100,000/0,90 = $111,111 a) 3.6% c) $100,000 x 0.90 = $90,000 b) 3.0% d) $100,000/1.10 = $90,909 C) 0.30% d) 0.36% If a comparable property is 10% superior to the subject property and the comparable sold for $100,000, what is the indicated 10. In the appraisal of a one-unit residence, a significant attribute is value of the subject? a) The availability of rail siding access t a) $100,000 x 1.10 = $110,000 b) The amount of road frontage b) $100,000/0.90 = $111,111 c) The size and age of the house c) $100,000 x 0.90 = $90,000 d) The depth of the crawl space area d) $100,000/1.10 = $90,909 92 | The Student Handbook to THE ApprAISAL OF REAL Estate, 15TH EDITION  Review Exercises AT If a comparable sold for $100,000 and is identical to the subject 13, In the sale of residential properties, the amount of property taxes is property except that the subject has more living area, a) Irrelevant because buyers don’t care about taxes; they only a) The comparable is worth less than $100,000, care about the payment amount b) The subject is worth more than $100,000. b) Important because the ability to qualify for a mortgage loan C) The subject is worth the same as the comparable. includes principal, interest, taxes, and insurance (PITI); lenders d))The subject should be worth more than $100,000 if the extra compare the buyers’ income amounts with the required pay- area is recognized in the market as adding more value. ment, including taxes and insurance c) Significant but only if it is above the market standard d) Not included in any calculation or consideration in the mort- 2s Macro-level data is gage approval process a) Data about the subject property b) The sale prices of the comparables 14, For appraisal purposes, a household is best described as Cc) Items of information on value influences that derive from a) All persons who live in one multi-unit apartment building social, economic, governmental, and environmental forces and originate outside the property being appraised b) All persons related to each other who occupy one housing unit d) The comparable rentals c) A married couple and their dependent children d) All persons, related or unrelated, who occupy one housing unit Data Collection 93  Note: Italicized references indicate the pages in The Appraisal of Real Estate, 15th edition, that readers can consult for additional discussion of these topics. 1. _d) All of the above 8. a)$1,050 Page 92 56,000 x 0.25 = 14,000 14,000 x 0.075 = 1,050 2. b) A new factory opens and several hundred new employees are hired 9. b) 3.0% Pages 23-24 0255402010103 0.03 = 3% 3. d) All of the above Page 104 10. c) The size and age of the house 4. a) $100,000 x 1.10 = $110,000 11. d) The subject should be worth more than $100,000 if the ex- Comparable sale $100,000 tra area is recognized in the market as adding more value. Factor x 1.10 Value of the subject $110,000 12. c) Items of information on value influences that derive from social, economic, governmental, and environmental forces 5. d)$100,000/1.10 = $90,909 and originate outside the property being appraised Subject value $90,909 Page 87 Factor x 1.10 pe eres Ot compaiatlien, 10000 13. b) Important because the ability to qualify for a mortgage loan includes principal, interest, taxes, and insurance (PITI); lenders compare the buyers’ income amounts with the 6. a) The ratio of assessed value to market value required payment, including taxes and insurance Page 93 Pages 92-93 7. b) 0.0100 14. d) All persons, related or unrelated, who occupy one housing unit Page 90 ‘ 94 | The Student Handbook to THE AppRAISAL OF REAL Estate, 15TH EpiTion i  Review Exercises You buy a one-unit home for $200,000 and put down 20% as 6. The secondary mortgage market equity on the deal. How much is the mortgage? a) Is where second mortgages are bought and sold a) $240,000 b) Has historically been dominated by investors like Fannie Mae b) $200,000 and Freddie Mac who buy and sell mortgage loans c) $160,000 C) Is located in Chicago d) $140,000 d) Is where inferior credit (B paper) loans are bought and sold You purchase a one-unit home for $200,000 and put 25% down. 7. A mortgage is a The lender charges three points to get the mortgage. How much a) Document that makes a borrower promise to repay money do the points cost you? b) Document that indicates the interest rate and terms of a loan a) $8,000 c) Pledge of collateral for a real estate loan b) $4,500 d) Share of stock in a company c) $2,000 d) $0 8. Ifa 5% annual rate mortgage has quarterly payments, the effec- tive interest rate is You have a first mortgage of $150,000 and a second mortgage a) 5% per annum of $70,000 on your home, and the property value is $200,000. b) 2.50% per month What is your equity? c) 1.25% per quarter a) $50,000 d) 2.50% per half b) $30,000 c) $20,000 d) -$20,000 9. A deed of trust is a) A document that makes a third party responsible for the money b) A document that gives a third party the deed until the mort- A contract for deed, also known as an installment sales contract gage loan is paid off or land contract, is c) The same as a contract for deed a) A sale of real property with the seller financing the sale and d) Used as a tool to make foreclosure more efficient transferring the rights in realty b) A sale of real estate with the seller financing the sale but retaining the deed until the loan is paid off Note: A financial calculator is needed to solve Review Exercises 10 c) A purchase agreement with many conditions through 13 and 15 through 17. d) A sales contract with a mortgage loan 10. What is the periodic payment of a fully amortized mortgage with quarterly payments, an initial loan amount of $250,000, a loan term of 25 years, and an interest rate of 4.75% per year? The US Federal Reserve System a) $4,284.68 a) Was established and is now controlled by Congress b) $2,152.34 b) Was established by Congress but is now independent of it c) $2,500.00 c) Was established and is controlled by the president of the d) $12,854.04 United States d) Was established and is controlled by the US national banks Economic Trends in Real Estate Markets and Capital Markets {107  _ Review Exercises. te What is the periodic payment of a fully amortized mortgage with 14, An appraiser doing market research found a comparable sale in annual payments, an initial loan amount of $250,000, a loan which the seller took back a mortgage with a 20% down payment term of 25 years, and an interest rate of 4.75% per year? at 8% per year with monthly payments based on a 30-year amor- a) $4,284.68 tization but with a five-year balloon payment. The sale price was b) $2,152.34 $209,000. The current market rate for mortgages is 5% for 30 years. A week after the closing, the seller sold the mortgage for c) $17,296.28 $150,000 to a local real estate broker. What is the cash-equiva- d) $12,854.04 lent sale price of this comparable sale? a) $159,205.70 b) $191,800.00 2) What is the future value in two years of a single cash payment of $1,000 received today at 10% interest per year? Assume annual c) $201,005.70 accounting. d) $209,000.00 a) $1,210.00 b) $826.45 15. What is the periodic payment of a fully amortized mortgage with c) $1,000.00 monthly payments, an initial loan amount of $250,000, a loan d) $900.00 term of 25 years, and an interest rate of 4.75% per year? a) $2,850.48 b) $1,425.29 13. What is the present value of a cash payment of $1,000 that will not be received for two years at 10% per year? Assume annual c) $17,102.88 accounting. d) $8,551.44 a) $1,210.00 b) $826.45 16, What is the balance in five years of a mortgage with monthly c) $1,011.12 payments, an initial loan amount of $250,000, a loan term of 25 d) $901.33 years, and an interest rate of 4.75% per year? a) $220,557 b) $250,000 c) $142,524 d) $205,555 Ais What is the new payment on a 25-year, monthly payment, adjustable-rate mortgage after five years if the interest rate changes from 4.75% to 3.75%? The original amount of the loan was $250,000, the original term was 25 years, and there are 20 years left on the mortgage. Round your answer. L a) $1,000 b) $1,300 c) $1,600 d) $1,900 108} The Student Handbook to THe Appraisat OF REAL Estate, 15TH EDITION Note: Italicized references indicate the pages in The Appraisal of Real Estate, 15th edition, that readers can consult for additional discussion of these topics. ¢ c) $160,000 9. b)A document that gives a third party the deed until the mort- 200,000 x 0.80 = 80,000 gage loan is paid off Page 118 b) $4,500 200,000 x 0.75 = 150,000 10, a) $4,284.68 150,000 x 0.03 = 4,500 Term is 4 x 25: 100 [n) Interest rate Is 4.75 / 4: 1.1875 (1) Amount loaned: 250,000 (CHS) [PV] d) -$20,000 Balloon payment: 0 [FV] 150,000 + 70,000 = 220,000 Solve for (PMT) = 4, 284.68 200,000 — 220,000 = -$20,000 b) A sale of real estate with the seller financing the sale but 11, c) $17,296.28 retaining the deed until the loan is paid off Term is one per year: 25 [n] Page 120 Interest rate Is 4.75/ 1: 4.75 (i) a Amount loaned: 250,000 (CHS) (PV) Balloon payment 0 [FV) b) Was established by Congress but is now independent of it Solve for (PMT) = 17,296.28 Page 121 12, a) $1,210.00 b) Has historically been dominated by investors like Fannie Mae and Freddie Mac who buy and sell mortgage loans Term:. 2 {n) Page 129 Interest rate Is 10%: 10 (i) Amount loaned: 1,000 [CHS] (PV) Periodic payment: 0 (PMT) c) Pledge of collateral for a real estate loan Solve for balloon payment (FV) 1,210 Pages 117-118 c) 1.25% per quarter 5+4=1.25 Economic Trends in Real Estate Markets and Capital Markets [ios  ~ Suggested Solutions toReview Exercises. 13. b) $826.45 16. a) $220,557 Term: 2(n] Term is 12 x 25: 300 [Nn] or 25 [Nn] Interest rate is 10%: 10 [i] Interest rate is 4.75 / 12: 0.3958 [i] or 4.75 [i] Future payment: 1,000 Amount loaned: 250,000 Periodic payment: 0 Balloon payment: 0 Solve for [PV] = -826.45 Solve for = 1,425.24 Change N to PMTs made (5 x 12): 60 [nN] or 5 {n] 14. b) $191,800.00 Solve for [FV] = 220,557.30 The cash equivalency of a sale can be obtained by adding together the amount of the equity to the value of the mortgage (V,,+V,=V,). Therefore, if the down payment was $41,800 17. b)$4,300 and the mortgage was worth $209,000 (assuming it sold for its value), then $41,800 + 150,000 = 191,800. Term is 12 x 25: 300 or 25 (9} Interest rate is 4.75 /12: 0.3958 (iJ or 4.75 (i) Amount loaned: 250,000 15. b) $1,425.29 Balloon payment: 0 Term is 12 x 25: 300 [Nn] or 25 Solve for [PMT] = 1,425.24 Interest rate is 4.75 /12: 0.3958 [i] or 4.75 (9 [i] Change N to PMTs made Amount loaned: 250,000 (5 x 12): 60 [nN] or5(9]{n] Balloon payment: 0 Solve for = 220,557.30 Solve for = 1,425.29 Put balance in Year 5 in [PV]: [CHS] [PV] Change term to 20 years (20 x 12): 240 {Nn} or 20 [9 Change the interest rate } (3.75/ 12): 0.3125 [i] or 3.75 (i) Change future value to 0: 0 Solve for = 1,307.66 110; The Student Handbook to Tue AppralsAL oF Reat Estate, 15TH EDITION  A neighborhood is 6. Linkages are a) A residential subdivision a) The devices used to change a property from one use to another b) An area with similar zoning and density b) The relationships between a buyer and seller in a real estate deal c) A group of complementary land uses c) Time-distance relationships between a property use and the d) An area with homes of the same price supporting facilities d) The tools necessary to market real estate A district is a) An area within a neighborhood where all the properties are 7. Atrade area is vacant a) An area where property owners trade rather than sell the b) A type of neighborhood that is characterized by one predomi- properties nant land use b) A geographic area from which a retail center draws its customers c) The delineation of zoning classifications c) An area where the owners-inhabitants are generally employed d) An area where city attorneys reside d) An area where an office building owner trades tenants with other office building owners Neighborhood social influences include all of the following except a) Population density 8. The value of improved residential real estate is most influenced by b) Occupant skill levels a) The passage of time c) Occupant age levels b) The brokers’ opinions of the property values d) Vacancy rates c) Changes in shopping patterns for consumers of goods and services d) Construction cost increases Economic influences include all of the following except a) Occupant income levels b) Crime levels 9. The four forces that influence real estate values are c) Property rent levels a) Social, economic, governmental, and environmental d) Property value levels b) Land, labor, capital, and green space c) Eminent domain, police power, escheat, and taxation d) Governmental, social, taxation, and economic conditions Governmental influences include all of the following except a) Tax burdens b) Special assessments 10. Market area life cycles include c) Zoning, building, and housing codes a) Growth, stability, decline, and gentrification d) Changes in property use b) Growth, stability, appreciation, and decline c) Growth, stability, decline, and revitalization d) Growth, level off, appreciation, and decline 11. Which of the following can serve as evidence that a neighbor- hood is in the growth cycle? a) Abandoned automobiles on site b) Several newspapers on front porches c) Older structures being remodeled d) New construction of buildings 122; The Student Handbook to THE ApprRAisAL OF REAL Estate, 15TH EDITION i | ia chile i Sci al atic all  Note: Italicized references indicate the pages in The Appraisal of Real Estate, 15th edition, that readers can consult for additional discussion of these topics. 1. c)A group of complementary land uses 7 b)A geographic area from which a retail center draws its Page 138 customers Page 149 2. b)A type of neighborhood that is characterized by one pre- dominant land use 8. d) Construction cost increases Page 139 Pages 147-150 3. d) Vacancy rates 9. a) Social, economic, governmental, and environmental Page 143 Page 142 4. bb) Crime levels 10. c) Growth, stability, decline, and revitalization Pages 143-144 Page 140 5. d) Changes in property use 11. d) New construction of buildings Pages 144-145 Page 140 6. c)Time-distance relationships between a property use and the supporting facilities Page 146 Neighborhoods, Districts, and Market Areas {123  hisddbadd Exercises. A site is 5; Plottage value is a) A platted subdivision lot a) The process by which large parcels of land are divided into lots b) The same as raw land and recorded in county offices c) Land underneath buildings b) The assemblage of two or more parcels of land d) Land that is improved so that it is ready to be used for a c) The name of the discount given when larger parcels sell for specific purpose more per acre than smaller ones d) An incremental Increase in value that results when two or more sites are combined to produce greater utility Which of the following statements is correct? a) Land and sites can be created by people. Excess land is b) Sites can be created, but land Is fixed in amount. a) Land that is not needed to support the subject’s primary high- c) Land can be created and destroyed, but sites are fixed in est and best use or not needed to support existing improve- amount. ments d) Neither land nor sites can be created or destroyed because b) Land that is not needed according to zoning requirements both are fixed in amount. c) Land included with the subject that is above the lender's limits d) Land value that is above the assessor's estimate of value An example of a rectangular survey legal description is a) Part of the Northwest Quarter of Section 25, Township 17N, Range 3E A rectangular site measures 125 feet (frontage) by 256 feet b) Lot 27 in Pleasant View Acres (depth), of which 26 feet is in the public right of way. What is the gross and net site area? c) A parcel of land beginning at the oak tree in Bill Jones’s farm, then southwest 123 feet to the center of the creek next to the a) 0.66 acre gross and 0.73 acre net bridge over US Highway 35 b) 35,100 square feet gross area and 32,000 square feet net area d) Unit 27 in Mark’s Horizontal Property Regime Cc) 38,656 square feet gross area and 32,000 square feet net area d) 32,000 square feet gross area and 28,750 square feet net area Which of the following statements about zoning is correct? a) Zoning controls land use. An acre of land includes b) Zoning controls building construction. a) 43,560 square feet c) Zoning is controlled and regulated by the federal government. b) 320 acres d) Zoning is only used in cities and metropolitan areas. c) 180 acres d) 27 hectares Flood maps are published by t a) The Army