Real Estate Valuation & Feasibility Analysis - Midterm Review PDF

Real Estate Valuation & Feasibility Analysis - MIDTERM REVIEW 42 MC - based on the textbook 2 excel models (build for scratch), - Similar to Assignment 2 (with rent stops) - Next one will be sensitivity analysis (npv, effective lease rent / sensitivity table) Ch...

Real Estate Valuation & Feasibility Analysis - MIDTERM REVIEW 42 MC - based on the textbook 2 excel models (build for scratch), - Similar to Assignment 2 (with rent stops) - Next one will be sensitivity analysis (npv, effective lease rent / sensitivity table) Chapter 1: Introduction to Appraisal 1. Appraisal is: b) The act or process of developing an opinion of value 2. Real estate is: b) The physical land and appurtenances affixed to the land 3. Real property includes: b) The interests, benefits, and rights inherent in the ownership of real estate 4. The manner in which a client employs the information contained in the appraisal report is called: a) The intended use 5. Real property consists of: a) Rights in realty 6. Appraisals are always used: d) To solve problems that involve real estate valuation 7. An appraiser is appraising a small residential property and observes that it has a clothes washer and dryer. Should these items be included in the appraisal? b) The appraiser should include these items, but they should be identified as such and their contributory value should be estimated. 8. Items that are built to be permanent and intended to be included with real property are: b) Real estate 9. An appraiser: c) Measures and develops an opinion of value 10. Easements are another division of property rights. They usually give a party the right: b) To access the property to perform a specific service 11. The Fifth Amendment to the US Constitution: a) Requires the government to pay just compensation for land ‘taken for the common good 12. Suppose that you have owned a 40-acre parcel of land for the last 25 years. You paid the taxes on the real estate for the first 20 years but have not paid them for the last five. Which of the following statements is true? : b) The state has the right to sell the real estate to pay the back taxes.  13. 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 state decided to widen this road to six lanes to accommodate all the future traffic that will be created by a new riverboat casino. To facilitate this expansion, the state will need about 50 feet off the front of your homestead. The state will : c) Pay you a fair and equitable amount based on the estimated property value before the taking and another valuation after the taking 14. A fee simple interest in real property is limited only by: b) Taxation, eminent domain, police power, and escheat 15. A deed should be recorded because: a) Recording gives public notice of the transaction and sets the priority 16. Zoning and environmental protection regulations are examples of : d) Police power Chapter 2: Land, Real Estate, and Ownership of Real Property 1. Land is unique because: d) No two parcels can occupy the same space on the face of the earth 2. The supply of land is: d) Finite 3. The concepts of land are: b) Geographic and environmental, legal, economic, and social 4. An example of a governmental force that affects real estate value would be: d) Changes in local building codes 5. Zoning and environmental protection regulations are examples of: d) Police power Chapter 3: The Nature Of Value 1. When real property is sold by one person to another, the amount of money used to compensate the seller is called: c) The price of the real property 2. A cash-equivalent price : a) Reflects what a seller would accept as if he or she received cash at the closing 3. A good’s capacity to satisfy human desires or needs is known as : b) Utility 4. The city planning department has indicated that a vacant residential lot located in a flood zone cannot be given a building permit. This site : a) Has lost nearly all utility 5. Demand for real estate may be affected by : a) Increasing population and employment / b) The availability of mortgage financing / c) Increases in purchasing power 6. The four agents of production are : b) Land, labor, capital, and entrepreneurship 7. Real property has value because it : d) Provides future benefits 8. The supply of one-unit residential properties is most affected by : d) An increase in the number of homes built 9. Two homes in the same addition have the same size, location, amenities, and features. One is priced at $200,000, and the other is priced at $210,000. Which of the following statements is the most accurate? : b) The lower-priced home will attract more demand. 10. When a property is put up for sale, the seller is forced to reduce the price when : d) The seller decides that a price reduction is needed to facilitate a sale 11. In a high-demand market, the cost of building a new property will increase substantially until : b) The supply increases because new builders get into the market 12. A one-unit homeowner who builds a new and unique structure will commonly find that… c) Generally, fewer people desire unique structures 13. Externalities are… a) Factors outside the property that can affect the property value 14. When demand for housing increases, the supply… b) Increases slowly 15. The overproduction of new homes… a) Causes oversupply and lower prices 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 17. As an agent of production, capital is… a)The necessary equipment, buildings, and infrastructure for development  18. The statement “property values are created and sustained when the characteristics of a property conform to the demand of its market” refers to… c) Conformity 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 seems to like homes as large as 3,000-sq.-ft. above grade. If homes are any larger than this, however, the price seems to increase at an increasingly lower rate. This is an example of… a) The law of diminishing returns Chapter 4: The Valuation Process 1. The three approaches to value are c) Sales comparison, cost, and income capitalization 2. Highest and best use c) Includes two parts when the property is improved: the highest and best use as though vacant and the highest and best use as improved 3. Land valuation techniques include c) Sales comparison approach, allocation, and extraction 4. The valuation technique in which land and building are valued separately is d) The cost approach 5. The valuation technique in which the income a property earns is considered is a) The income capitalization approach 6. In the parts of the valuation process, defining the value to be estimated is part of the a) Identification of the appraisal problem 7. One reason to estimate the highest and best use of a property “as though vacant” and “as improved” is d) To recognize when the improvements should be razed 8. Land value can be estimated using all of the following techniques except b) The cost method 9. There are three approaches to estimating market value because a) Purchasers have three alternative options available 10. One activity that is not part of defining the appraisal problem is a) Identifying the fee with the client 11. What is usually the final step of the valuation process? c) Completion of a report with the defined value Chapter 5: Elements Of The Assignment 1. The date of the value opinion is the c) The date stipulated by the client 2. An appraisal is made as of a specified date to c) Satisfy the requirements of the client 3. Data requirements for an appraisal assignment are determined by the c) Nature of the problem 4. The value to be estimated is determined by the b) Client’s problem 5. An appraiser found that the subject has a septic system in the front yard. The appraiser could not tell if the system was working, so she assumed it was operational. The appraiser has made a(n) a) Extraordinary or special assumption 6. An appraiser was asked to appraise the fee simple interest in a 0.24-acre site improved with a 24-year-old residence. The appraiser 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) b) Hypothetical condition 7. In an appraisal assignment, a jurisdictional exception is applicable when d) The state or local laws or regulations are contrary to a part or parts of USPAP 8. An appraiser inspected the subject property and found termite damage on the floor joists in the crawl space. The client told him to assume that it was repaired and condition the value on the repair. This is an example of a(n) b) Hypothetical condition 9. An appraiser was asked to appraise the fee simple interest in a 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 inches of snow. The appraiser stated in the report that “It is assumed that the roof covering is in marketable condition.” This would be an example of a) An extraordinary or special assumption 10. An appraiser states the following in an appraisal report: “This appraisal assumes that there are no negative subsurface conditions that will impact the market’s reaction to this property, such as subsidence or the existence of toxic waste or soft substrata that is incapable of supporting a building foundation.” This is an example of a(n) c) General assumption Chapter 6: Identifying the Type of Value and Its Definition 1. The value of a property to a particular user is known as c) Use value 2. Market value is c) The amount of money a property should sell for on the open market 3. 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). Similar-sized, one-year-old commercial buildings in comparable locations are selling for $2 million. If you appraise this building for approximately $2.5 million, you probably have conveyed an opinion of c) Use value 4. Investment value is c) The value of a property to a specific buyer with specific investment criteria 5. Market value can be described as c) The present worth of future benefits 6. Which of the following is not a part of the definition of market value used by federal financial institutions? b) The property sells in 90 to 120 days 7. Investment value is best measured by d) The present worth of anticipated future benefits to a specific investor 8. Estimating market value for federal financial institutions requires identification of the desires and priorities of a) Well-informed buyers and sellers 9. Market value is b) An estimate of a price that would have been negotiated for a sale 10. Dennis hired an appraiser for an assignment involving a commercial property. Dennis asked the appraiser to provide an opinion of value for him using his investment criteria, which included an overall capitalization rate of 12%. The market capitalization rate for this type of investment would normally be 10%. The opinion of value that the appraiser provides would be the: a) Investment Value 11. The local government levies taxes based on a defined value of real estate. A local government official develops an opinion of value according to state regulations. The seller was under extreme compulsion to sell, the exposure time was short, and there was no special financing. This value is  best described as b) Liquidation Value 12. The local government levies taxes based on a defined value based on the assumptions that the real estate. A local government official develops an opinion of the value according to state regulations. The local government period official is developing the c) Assessed value Chapter 7: Identifying the Rights to Be Appraised 1. Life estates b) Represent the full bundle of rights limited by the life of a person 2. 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 previous marriage. To provide for your new stepson, you give him a life estate in the small house. When your stepson turns 18, he can a) Mortgage his interest / b) Rent the property out / C) Sell the life estate to someone else who will rent the property 3. A lease b) Conveys the right of occupancy to another 4. Air rights are b) The rights to use and control space above a specific parcel of land (as defined on the surface) 5. Suppose that you buy a single-story home that is attached on two sides and has the following characteristics: A slab floor, a common maintenance agreement for exterior repairs, 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 you were told by the broker that the property is a “condo.” The assessor says that you have a 4,000-sq.-ft. lot, and the legal description is “Lot 12 in the Calgary Addition.” You probably own a) An attached home on a small lot with a mandatory fee 6. Amalgamated Products holds d) A subleasehold 7. You hold a) The leased fee 8. What happens to the building at the end of the 99-year lease? a) Any buildings on this land belong to you and/or your successors.  9. A project with units that are limited both vertically and horizontally and have a percentage ownership in the common elements is a a) Condominium 10. A real property interest held by a lessee and conveying the right of use and occupancy for a stated term under certain conditions is called the a) Leasehold 11. Which of the following is not a way to hold title to realty? b) Tenancy at will 12. The highest and fullest estate in land is the b) Fee simple 13. Ownership of real property by two or more parties with an undivided interest is called d) Tenancy in common 14. TDRs are b) Transferable development rights 15. Suppose that you bought the fee simple interest in a parcel of real estate last year. Six months later, you leased the vacant land to John for 50 years, and he built a four-story office building on it. The salable rights are as follows: b) You have a leased fee, and John has a leasehold. 16. A leased fee is b) An ownership interest of the landlord when a lease is in effect 17. Bob owned a 100-acre farm in Hamilton County. When he died, he had no heirs, no friends, and no will. Which of the following statements is true? d) The state will take the property and sell it. Chapter 8: Scope Of Work 1. The scope of work in an appraisal report is acceptable c) If it meets or exceeds the expectations of parties who are regularly intended users for similar assignments and what the appraiser's peers’ actions would be in performing the same or a similar assignment 2. The scope of work decision b) Is an ongoing process that can change as the appraisal process proceeds 3. The scope of work of an appraisal d) May or may not include an inspection of the subject or comparable sales  4. Scope of work c) Defines the extent of research and analyses of the appraisal process Chapter 9: Data Collection 1. Improvement cost data can be obtained from: a) Builders / b) Marshall & Swift and other cost services / c) Sales of new homes 2. Demand for housing is affected when: b) A new factory opens and several hundred new employees are hired 3. Competitive supply sources for housing include: a) Rental units / b) Houses for sale / c) Houses that will be for sale 4. 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? a) $100,000 (comparable sale) x 1.10 (factor) = $110,000 (value of the subject) 5. If a comparable property is 10% superior to the subject property and the comparable sold for $100,000, what is the indicated value of the subject? d) $100,000 (comparable sale) / 1.10 (factor) = $90,909 (value of the comparable) 6. The assessment ratio is: a) The ratio of assessed value to market value 7. Ten mills equals: b) 0.0100 8. If a property has a market value of $56,000 in a city that charges a millage rate of 75 mills and applies an assessment ratio of 25%, what are the annual real estate taxes for this property? a) $1,050 56,000 x 0.25 = 14,000 14,000 x 0.075 = 1,050 9. If the assessment ratio is 25% and the millage rate is 120 mills, what is the tax rate? b) 3.0% 0.25 x 0.120 = 0.03 0.03 = 3% 10. In the appraisal of a one-unit residence, a significant attribute is: c) The size and age of the house 11. If a comparable sold for $100,000 and is identical to the subject property except that the subject has more living area:  d) The subject should be worth more than $100,000 if the extra area is recognized in the market as adding more value. 12. Macro-level data is: c) Items of information on value influences that derive from social, economic, governmental, and environmental forces and originate outside the property being appraised 13. In the sale of residential properties, the amount of property taxes is: 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 required payment, including taxes and insurance 14. For appraisal purposes, a household is best described as: d) All persons, related or unrelated, who occupy one housing unit Chapter 10: Economic Trends in Real Estate Markets and Capital Markets 1. You buy a one-unit home for $200,000 and put down 20% as equity on the deal. How much is the mortgage? c) $160,000 200,000 x 0.80 = $160,000 2. You purchase a one-unit home for $200,000 and put 25% down. The lender charges three points to get the mortgage. How much do the points cost you? b) $4,500 200,000 x 0.75 = 150,000 150,000 x 0.03 = 4,500 3. You have a first mortgage of $150,000 and a second mortgage of $70,000 on your home, and the property value is $200,000. What is your equity? d) -$20,000 150,000 + 70,000 = 220,000 200,000 — 220,000 = -$20,000 4. A contract for deed, also known as an installment sales contract or land contract, is: b) A sale of real estate with the seller financing the sale but retaining the deed until the loan is paid off 5. The US Federal Reserve System: b) Was established by Congress but is now independent of it 6. The secondary mortgage market: b) Has historically been dominated by investors like Fannie Mae and Freddie Mac who buy and sell mortgage loans 7. A mortgage is: c) Pledge of collateral for a real estate loan 8. If a 5% annual rate mortgage has quarterly payments, the effective interest rate is: c) 1.25% per quarter 5 / 4 = 1.25% 9. A deed of trust is: b) A document that gives a third party the deed until the mortgage loan is paid off 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? a) $4,284.68 Term is 4 x 25: 100 Interest rate Is 4.75 / 4: 1.1875 Amount loaned: $250,000 Balloon payment: 0 Solve for (PMT) = $4, 284.68 11. What is the periodic payment of a fully amortized mortgage with annual payments, an initial loan amount of $250,000, a loan term of 25 years, and an interest rate of 4.75% per year? c) $17,296.28 Term is one per year: 25 Interest rate is 4.75 / 1: 4.75 Amount loaned: $250,000 Balloon Payment: 0 Solve for (PMT): $17,296.28 12. 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 accounting. a) $1,210.00 Term: 2 Interest Rate is 10%: 10 Amount loaned: 1,000 Periodic Payment: 0 Solve for balloon payment: $1,210 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 accounting. b) $826.45 Term: 2 Interest Rate is 10%: 10 Future Payment: 1,000 Periodic Payment: 0 Solve for PV: -826.45 14. An appraiser doing market research found a comparable sale in which the seller took back a mortgage with a 20% down payment at 8% per year with monthly payments based on a 30-year amortization but with a five-year balloon payment. The sale price was $209,000. The current market rate for mortgages is 5% for 30 years. A week after the closing, the seller sold the mortgage for $150,000 to a local real estate broker. What is the cash-equivalent sale price of this comparable sale? b) $191,800 The cash equivalency of a sale can be obtained by adding together the amount of the equity to the value of the mortgage (Vm+Ve=V0). Therefore, if the down payment was $41,800 and the mortgage was worth $209,000 (assuming it sold for its value), then $41,800 + 150,000 = $191,800 15. What is the periodic payment of a fully amortized mortgage with monthly payments, an initial loan amount of $250,000, a loan term of 25 years, and an interest rate of 4.75% per year? b) $1,425.29 Term is 12*25 : 300 (months), or 25 (years) Interest Rate is 4.75/12: 0.3958 Amount Loaned: $250,000 Balloon Payment: 0 Solve for PMT: $1,425.29 16. What is the balance in five years of a mortgage with monthly payments, an initial loan amount of $250,000, a loan term of 25 years, and an interest rate of 4.75% per year? a) $220,557 Term is 12*25 : 300 (months), or 25 (years) Interest Rate is 4.75/12: 0.3958 Amount Loaned: $250,000 Balloon Payment: 0  Solve for PMT: $1,425.29 Change N to PMTS made: - (5*12) = 60 Solve for FV: 220,557.30 17. 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. b) $1,300 Term is 12*25 : 300 (months), or 25 (years) Interest Rate is 4.75/12: 0.3958 Amount Loaned: $250,000 Balloon Payment: 0 Solve for PMT: $1,425.29 Change N to PMTS made: - (5*12) = 60 Solve for FV: 220,557.30 Put balance in Year 5 in PV: (CHS) (PV) Change term to 20 years - (20*12): 240 Change the interest rate: - (3.75/12): 0.3125 Change future value to 0: 0 Solve for PMT: 1,307.66 Chapter 11: Neighborhoods, Districts, and Market Areas 1. A neighborhood is: c) A group of complementary land uses 2. A district is: b) A type of neighborhood that is characterized by one predominant land use 3. Neighborhood social influences include all of the following except d) Vacancy rates 4. Economic influences include all of the following except b) Crime levels  5. Governmental influences include all of the following except d) Vacancy rates 6. Economic influences include all of the following except: d) Changes in property use 7. The four forces that influence real estate values are: a) Social, economic, governmental, and environmental 8. Governmental influences include all of the following except: d) Changes in property use 9. The four forces that influence real estate values are a) Social, economic, governmental, and environmental 10. Market area life cycles include c) Growth, stability, decline, and revitalization 11. Which of the following can serve as evidence that a neighborhood is in the growth cycle? d) New construction of buildings Chapter 12 1. A site is: d) Land that is improved so that it is ready to be used for a specific purpose 2. Which of the following statements is correct? b) Sites can be created, but land is fixed in amount 3. An example of a rectangular survey legal description is: a) Part of the Northwest Quarter of Section 25, Township 17N, Range 3E 4. Which of the following statements about zoning is correct? a) Zoning controls land use 5. Plottage value is: d) An incremental increase in value that results when two or more sites are combined to produce greater utility 6. Excess land is: a) Land that is not needed to support the subject’s primary highest and best use or not needed to support existing improvements 7. A rectangular site measures 125 feet (frontage) by 256 feet (depth), of which 26 feet is in the public right of way. What is the gross and net site area? d) 32,000 square feet gross area and 28,750 square feet net area  8. An acre of land includes: a) 43,560 square feet 9. Flood maps are published by: c) The Federal Emergency Management Agency (FEMA) Chapter 13 1. Gross Leasable Area is a) Commonly used in retail centers 2. What is the size of the building shown here? b) 668 square feet 3. What is the size of the area shown here? b) 144 square feet 4. Gross living area is: b) Commonly used in residential properties 5. The term superstructure refers to a) The area of a building above grade 6. Short-lived items do not include d) Structural steel 7. Footings are b) Below the frost line in most buildings 8. Gutters are d) Designed to channel water away from the building’s foundation 9. Functional inutility is b) An impairment of the functional capacity of a property or building 10. A small building used to manufacture saw blades is an example of b) Industrial land use  11. A new residence would have a rating of c) C1 (The condition rating C1 is for new homes only.) 12. A property with improvements that have substantial damage or deferred maintenance with deficiencies or defects that are severe enough to affect the safety, soundness, or structural integrity of the improvements would have a rating of d) C6 (The property fits the definition of a C6 rating.) Chapter 14 1. Extreme values in a data set have the greatest effect on: a) The mean 2. A number that describes a characteristic of a population is a: c) Parameter 3. Which of the following is not a measure of central tendency? a) Variance 4. What is the mean, median, and mode for the following data set? (133 / 137 / 139 / 140 / 151 / 164 / 184 / 184 / 192) c) Mean: 158.22, Median: 151, Mode: 184 5. Which of the following series of property values represents an ordered array of data? a) $375,000; $355,000; $350,000; $325,000; $319,000; $310,000 b) $310,000; $319,000; $325,000; $350,000; $355,000; $375,000 6. Based on the sample data set of property prices, which of the following prices would be the mean? d) $339,000 7. Based on the same sample data set of property prices, which of the following would be the median? a) $337,500 8. The mode for the sample of property prices cannot be determined for which of the following reasons? b) No value occurs more than once in the array 9. The range for this data set of property prices is: c) $65,000 10. Which of the following is not an illustration of the distribution of a data set? c) Bell curve  11. A normally distributed population that shows no skewness would be represented best as a(n): a) Bell curve 12. Appraisers might use custom valuation models to apply statistics to each of the following situations except c) To produce and review descriptive statistics by user-defined property characteristics 13. What is the difference between descriptive statistics and inferential statistics? b) Inferential statistics support conclusions about the population data, while descriptive statistics only reflect the characteristics of the sample data set. * A two-bedroom condominium unit located in a large, established residential development is offered for sale on the open market. The two-bedroom units in this development are all similar and subject to the same common area charges. Recently, 14 two-bedroom units have either been resold or placed under agreement for resale, with prices ranging from $320,000 to $327,000. The sale prices, arranged in an array, are as follows: $320,000 $320,000 $320,000 $320,500 $322,500 $322,500 $322,500 $322,500 $324,000 $324,000 $326,000 $326,000 $326,500 $327,000 14. What are the mean, median, and mode of the data sample? b) Mean: $323,143 Median: $322,500 Mode: $322,500 15. What is the standard deviation of the sample? d) 2,515 16. Which measure of central tendency best represents the most probable selling price of the subject property? a) The mean (because there are no outliers) * In the Southern Hills market area, 12 small office properties sold in the past year. The sale prices are shown in the following table. Sale Price Date $335,400 9 months ago $357,200 3 months ago $338,000 12 months ago $329,990 10 months ago $358,500 4 months ago $342,500 8 months ago $346,000 7 months ago $336,400 9 months ago $361,200 2 months ago $354,300 4 months ago $348,500 5 months ago $338,000 7 months ago 17. What are the mean, median, and mode sale price? a) Mean: $345,499 Median: $344,250 Mode: $338,000 18. What is the sample standard deviation of sale price? a) 10,383 19. What is the range and interquartile range? c) Range: $31,210 interquartile range: $19,675 * A sample of 30 two-bedroom, two-bath apartment units in complexes containing 100 or more units shows the following monthly rents and unit living areas in square feet. Rent GLA in Sq Ft $1,650 800 $1,680 850 $338,000 12 months ago $329,990 10 months ago  $358,500 4 months ago $342,500 8 months ago $346,000 7 months ago $336,400 9 months ago $361,200 2 months ago $354,300 4 months ago $348,500 5 months ago $338,000 7 months ago 20. Using simple linear regression, what is the correct equation relating monthly rent to apartment living area in square feet for two-bedroom, two-bath units in complexes of 100 units or more? The Y-intercept is 686.51. The data graphs as follows: b) Y= 686.51 + 1.18 (x) 21. Using the regression model, what is the estimated monthly rent for an 840-sq.-ft. apartment in this market? a) $1,678 22. What are the mean and median monthly rents? a) Mean: $1,671 / Median: $1,670 23. What is the coefficient of variation of rent for this sample? d) 2.515 COV = [SD / Mean] x 100% = [21.01/835.33] x 100% = 2.51% 24. In statistical terminology, the term population refers to d)The complete data set from which the sample data set is derived 25. Among the factors that affect the accuracy of an inference are b) Sample size and the degree to which the sample reflects the population 26. The median is determined by b) Finding the middle value of the ordered array of data values 27. Of the three measures of central tendency, the least practical for making inferences is  c) The mode 28. Which measure of dispersion is the best indicator of which of two data sets is more variable? b) The coefficient of variation 29. In a normal distribution, which measures of central tendency are equal? a) The mean and median 30. When a data set is left skewed, a) The mean is less than the median 31. Automated valuation models (AVMs) are currently perceived as a technology designed to b) Help appraisers increase efficiency and cut costs Chapter 15 1. Market analysis is included in appraisals. b) To show support for the estimated highest and best use and the existence of a market 2. A real estate market is. c) A group of individuals or firms that are in contact with one another for the purpose of conducting real estate transactions 3. Which of the following has the most efficient market? a) One-unit residences 4. The residential real estate market is much more efficient than the nonresidential market in most cities because. c) There are more buyers and sellers in the residential market 5. Office demand is most affected by. d) The expansion trends of local businesses 6. Office supply is most affected by. c) The conversion or new construction of office buildings 7. Retail space demand is affected by. a) Changes in employment opportunities / b) Changes in traffic patterns / c) Increases or decreases in disposable income 8. The economic base is. d) The economic activity that enables a community to attract income from outside its borders 9. Marketability analysis is. b) Another term for subject capture analysis, which is the last step of the market analysis process  10. Market analysis generally focuses on. b) The fundamental user market of those who use the physical space provided by real estate Chapter 16: Applications of Market Analysis 1. To analyze the market for a one-unit home and get an easy and reliable result, an appraiser can investigate. a) The number of listings and recent sales of homes that would appeal to the same buyer as the subject property 2. A small town (pop. 2,500) has only two homebuilders. What will most likely happen? b) The existing builders will gear up to handle some of the demand, but some subcontractors will become builders and some workers will become subcontractors. Prices will increase in the short run. 3. The current MLS system shows the following data for 5- to 10-year-old homes priced from $300,000 to $425,000 in the subject market during the last 12 months. Which of the following statements is correct? a) This market is oversupplied, and prices will be stable at best. 4. The subject real estate is a five-acre parcel improved with a 45,000-sq.-ft. industrial/warehouse building in a city with a 25% vacancy rate for similar warehousing properties. This is an example of. a) A Level A or B marketability analysis In this case, the appraiser did nothing but read somebody else’s reports. 5. If an appraiser reads market studies by large real estate firms that indicate that the market is oversupplied, the appraiser should. a) Look for corroborating evidence that will support that indication or find more evidence to the contrary In this case, the data may or may not be true, so an appraiser should look at other evidence to see if it is consistent with the broker's findings. The information does not need to be disregarded just because the agent is paid on commission. 6. Where can an appraiser find information about supply and demand for multi tenant office buildings in Bigville? b) Real estate firms in Bigville Large and sometimes small real estate firms keep information on supply and demand factors for different property types on file. Chapter 17: Highest and Best Use Analysis 1. Highest and best use analysis is required in. d) Market value appraisals 2. Highest and best use analysis requires an opinion of the use as though vacant and as improved to. a) Provide an opinion of the value of the improvements / b) Ensure that appraisers recognize that the property could be worth more without the buildings than with them / c) Provide an opinion of any functional obsolescence caused by inappropriate improvements 3. Highest and best use of the site as though vacant. a) Is required in all market value appraisals of real property / b) May require a change in zoning classification, If possible / c) Assumes the site is vacant or could be made vacant by demolishing the improvements 4. Which of the following is not a criterion for highest and best use? d) The maximum size improvement 5. A property use meets the criteria of legal permissibility if it complies with all of the following except. d) Supply and demand criteria 6. The concept of consistent use requires an improvement to be valued based on a use that is consistent with the site’s highest and best use. In other words. c) The improvement value must be adjusted down if the land’s highest and best use is different than the improved highest and best use 7. Land values are never penalized due to the functional problems in existing buildings because. a) Buildings can be removed or altered 8. To be considered the highest and best use, a use must be. a) Physically possible, legally permissible, financially feasible, and maximally productive 9. A property includes a one-unit residence on the southeast corner of a five-acre parcel with 467 feet of frontage on each of two roads. The house alone (without land) would be worth $200,000. It was never platted, and there are no deed restrictions. The local zoning ordinance only requires two acres with 200 feet of road frontage. The market for houses with up to five acres is good. Excess land, not required by zoning, sells for only $6,000 per acre. A buildable pad in this market is worth $60,000. The site is far enough from the northern property line to allow for an almost perfect split of the parcel in half. What is the highest and best use of the site as though vacant and as improved?  b) Highest and best use as though vacant = Two parcels with +2.5 acres each ($120,000 total land value) Highest and best use as improved = Leave the house and sell off the other site ($260,000 for the house on 2.5 acres and $60,000 for the other site) Chapter 18: The Application of Highest and Best Use Analysis 1. When a property's highest and best use is likely to change in the near future, the prevailing highest and best use is called a(n). c) Interim use 2. A common interim use for a property is use as a. a) Surface parking lot 3. A legally nonconforming use is. a) A use that was legally established and maintained but no longer conforms to existing zoning * The land value of a five-acre parcel in a prestigious residential area is estimated at $50,000 per acre based on comparable sales in the area. Improved comparable sales with homes like the subject property show that this property should be worth $225,000 if sold as a house. The demolition cost is $5,000. 4. The value of the land is. c) $250,000 5. The market value of the fee simple rights for this parcel is. b)$245,000 6. The market value of the improvement is. d) -$5,000 7. If asked to appraise a municipal library, an appraiser. b) Must estimate an alternative use and then find comparables of buildings that are similar to alternative use  8. An improved residential property has the following characteristics: ‘ The land as if vacant is valued at $85,000 ‘ The value of the property as improved (with the house) is $75,000 ‘ The cost of removing the house would be $5,000. * What is the market value of the rights to this property? c) The property value is $80,000. Chapter 19: Vatemetate Site Valuation 1. A site is different from land because. b) A site is improved Jand that is ready to be built upon. 2. Land is always valued at. b) Its highest and best use as though vacant 3. Sites can be valued by. d) Extraction, allocation, and sales comparison 4. In sales comparison analysis, comparable sales are adjusted. d) To the subject property 5. When estimating the market value of a site, the appraisal should include. d) There is no set number of comparable site sales transactions 6. If market value is sought, the sales comparison approach to site valuation is based primarily on an analysis of the market behavior of. a) Buyers 7. Adjustments to the prices of comparable sites are measured by. d) The amount a typical buyer would pay more or less for the item 8. In the valuation of land by sales comparison, the order of adjustment should begin with. a) Property rights transferred 9. A comparable site sold six months ago for $4,000. The adjusted sale price of the comparable site (rounded to the nearest $100) is. b) $4,400 4,000 x 1.05 = 4,200 [market conditions adjustment] 4,200 x (1 + -0.10 + 0.15) [adjustments for physical differences] 4,200 x 1,05 = 4,410 10. A new and improved nonresidential property just sold for $235,000. What is the land value by extraction (rounded to the nearest $5,000)? b) $55,000 235,000 — (126,000 x 1.15 x 1.25) = 53,875  11. The valuation of land with the highest and best use as an industrial subdivision can be estimated using. b) The subdivision development method 12. Use the following instructions to determine the value of the subject property: Assume an appreciation rate of 3% per year. Assume that a rolling site is worth more than a level site. Assume that a wooded site is worth more than a non-wooded site. Assume that a larger site is worth more than a smaller one. Assume that a lot in a higher-priced addition is worth more than a less expensive one. Use percentage adjustments and subtotal after the market conditions adjustments are made. * The following is a suggested solution; there Is no absolute solution to this problem. 13. Use the following instructions to determine the value of the subject property: Calculate the price per square foot of land area and use that as the basis of the analysis. Do not use percentage or dollar adjustments. Use qualitative analysis to show if the comparable is superior or inferior to the subject. Assume that prices are increasing. Assume that the east side of town is inferior to the west side. Assume that more access points are better than less access points.  Assume that higher zoning numbers indicate that the owner has more latitude and greater utility of the site. Assume that in this market, larger parcel size means a lower price per square foot. * The following is a suggested solution; there is no absolute solution to this problem. Chapter 20: The Sales Comparison Approach 1. An opinion of market value via the sales comparison approach reflects the perspective of. a) Well-informed purchasers 2. A major requirement and limitation of the sales comparison approach is that it requires. b)An active market of competitive properties 3. Property sale prices. b) Are negotiated between buyers and sellers 4. If the appraisal assignment requires an opinion of market value. b) The sales comparison approach is usually applicable 5. In the application of the sales comparison approach in a market value appraisal. d) Closed sales, pending sales, current listings, options to purchase, and refusals can be used. as indications of market value  6. Current listings that have been exposed to the market for an extended period of time but have not sold. a) Tell the appraiser what the subject's market value cannot exceed 7. Which statement about units of comparison is the most accurate? c) Units of comparison represent a breakdown of the price based on a significant variable. 8. Which approach is usually the most applicable for appraising residences? b) Sales comparison Chapter 21: Comparative Analysis 1. Elements of comparison are. b) The characteristics that cause the prices paid for real estate to vary 2. Adjustments are made. b) To the comparables to make them like the subject 3. A technique for extracting adjustments directly from the sale prices of comparables based on the contribution of a single feature is called. b) Paired data analysis 4. Adjustments for real property rights conveyed reflect. b) The differences in the rights in realty transferred between the subject and comparables 5. Adjustments for financing terms reflect. d) The differences in sale prices of properties that sold for cash or market rate financing and the ones that sold with special financing that favors the buyer 6. A condition of sale adjustment reflects. c) The differences between the motivations of the seller and buyer on the date of sale of a comparable and the typical motivations of buyers and sellers as described in the definition of value 7. Graphic analysis is an example of. a) A quantitative adjustment technique 8. Expenditures made immediately after purchase. b) Reflect anything that the buyers knew they would have to correct and probably factored the cost of into the price paid 9. Comparative analysis is. a) A general term used to describe the process by which qualitative or quantitative techniques are used to derive a value opinion in the sales comparison approach 10. Use the price per square foot of gross building area, the price per square foot of land including building, and the price per front foot of land, and select the best unit of comparison for calculating the subject property's value given the comparable data shown. What is the value of the subject property based on the data? c) $1,000,000 11. Use the price per square foot of gross building area, the price per square foot of land including building, and the price per front foot of land, and select the best unit of comparison for calculating the subject property’s value given the comparable data shown. What is the value of the subject property based on the data? What is the value of the subject property based on the data? c) $150,000 12. A one-unit residential property was reported to have been listed for sale at $359,900 and reportedly sold for $364,500. The fine print of the contract says that the seller paid $13,000 of the buyer’s financing costs at the time of closing, which means that the seller agreed to pay a large portion, if not all, of the buyer’s costs to obtain a mortgage. What is the cash-equivalent sale price? $364,500 — $13,000 = $351,500 13. An office building sold for $1.25 million. The seller took back a conditional sales contract for five years with monthly payments at 6% in a market where the interest rate was 8%. The face amount of the contract was $1 million. The buyer indicated that she thought the financing  package available for this property, which was not available for any others, added $25,000 to the price. The seller confirmed that this was a realistic estimate of the cost of financing. What is the cash-equivalent sale price? $1,250,000 — $25,000 = $1,225,000 14. The buyers of a new home in a platted subdivision paid $425,000 for the property. This home was speculatively built and the builder was having trouble selling it. It was listed in the MLS system for six months at a price of $409,900. To close the sale, the builder agreed to take back a “forgivable second mortgage” from the buyers for $25,000 at 0% interest with the stipulation that the buyers never had to pay it back. What is the cash-equivalent sale price? The cash-equivalent price had to be at or less than $400,000. However, it could be argued that these buyers may have paid a premium for this property because the financing package was probably not available from any other seller. In other words, the cash-equivalent price could have been less than $400,000 because the buyer had few choices and paid a premium. 15. The buyer of a small farm (100 acres) reportedly paid $700,000 for the property. The seller took back a purchase-money mortgage for $600,000 at 5% in a market where local banks were quoting 8%. The amortization was based on a loan term of 20 years, but there was a Year 5 balloon payment of $500,729. The seller and buyer are not revealing the details of the sale and would not estimate the contribution of the financing. There have been no sales in this area of properties that are similar in size, features, and location, so the appraiser needs to use this comparable sale. What is the contribution of the financing? Chapter 22: Applications of the Sales Comparison Approach 1. The sales comparison approach requires how many comparisons? d) No set minimum number 2. What should be the respective magnitude and sign of the adjustments to Comparables 1, 2, and 3 for financing? a) 0,0,0 3. What should be the respective magnitude and sign of the adjustments to Comparables 1, 2, and 3 for the basement? b)0,+6,000, 0 4. What are the indicated values of the comparable sales in the following table? Use any technique considered reasonable. The following is one solution, not the only possible solution. Your rationale for an adjustment could be different from that of another appraiser in a different market. 5. A residential property recently sold for $567,000, with the buyer's employer paying all the closing costs for the buyer. Should this be adjusted out of the sale price? b) it is not a concession because it did not impact the price paid. The seller did not have to pay this. 6. The owner of a two-acre commercial site insists that her property has appreciated by at least 5% per year since she bought it four years ago. As the appraiser, you are asked to factor this into the appraisal or refute her contention. Research in this market revealed the following sales and resales of comparable properties:  * What is the annualized reconciled appreciation rate on a straight-line basis? Use annual calculations. In this situation, the calculations are straightforward, but the reconciliation is not. Think about when the appreciation occurred, what the dates of the sales data are, and where this information will be applied. While it is customary to apply one rate to the comparable sales, changes in the market are dynamic. There may be a 5% annual rate for the first three months, a 2% annual rate for the next three months, and then a 8.2% annual rate for the next six months. 7. The subject property has approximately 6,000 square feet of gross living area, a three-car garage, and a 2,000-sq.-ft. basement with 1,500 square feet finished. The lot is five acres with a creek and small pond on the site. This five-year-old house is probably of better quality than 95% of the existing homes in the market and is in similar condition to most houses of this quality in most competing markets. A carefully prepared application of the cost approach with a physical depreciation deduction of 7% resulted in an indication of value of $1,100,000 (including land). In this market, the highest residential sale price was $675,000 paid five years ago for a one-year-old home that the local bank president built and one of the two car dealers in the area bought. A review of local professionals reveals that only 10 other people in the market could afford the payments for this home (with a 20% down payment). None of the people who qualify to buy a home of this quality are currently looking in the market. The highest-priced sales in the area last year are listed on the following grid as Comparables 1 and 2, Comparable 3 is located in another small town in the next county to the north. This other town has similar economic conditions, but most area residents think it has a better school system. Comparable 3 is of similar quality and generally very comparable to the subject despite the fact that it is in another town. The rate of appreciation is 2% per year. The land value is $135,000 for Comparable 1 and $100,000 for Comparable 2. Sale 3 has a very similar overall land value, but the value is a little lower because the subject's backyard includes a pond. The subject property's land sold five years ago (when the house was new) for $145,000 and is probably worth $160,000 today. What are the indicated  adjusted values of the comparable properties? Keep in mind that there are no absolute solutions to this exercise. Demonstrate logical analysis in making adjustments and drawing conclusions. The subject property has over improvements that must be adjusted for. Note that the price per square foot of GLA and the basement adjustments were very small. These low rates give some consideration to the lack of a deep market for this very large home in a small town. The adjustment rates provided assume the market will not pay a high price for this over improvement. 8. The subject is a 0.3 acre platted residential lot improved with a bilevel house with 1,000 square feet on the upper floor and 1,000 square feet of finished space on the lower level. It has a two-car attached garage and a 500-sq.-ft. wood deck in the back of the house. The 32-year old home is of average quality for this market and is in average condition. Details of this property are listed in the adjustment grid. Research in this market did not reveal any bilevel homes that had sold in the last five years. Two sales of homes of different designs were found and are described below. Use these sales to value the subject. Comparable 1 has a traditional home design with an unfinished basement. The basement is almost completely underground. Comparable 2 is a standard 2,000-sq.-ft. residence without a basement. All of the living area of the two-story home is above grade. Use a 3% appreciation rate in this market. Make the correct adjustments to arrive at indicated values for the comparable sale properties.  This problem is much simpler than the previous problem, with fewer adjustments, but the solution will still vary from market to market depending on local practice. The critical issue in this situation is the treatment of the subject property's bilevel or “raised ranch” design. If, for the purposes of comparison, this property is considered a ranch with a finished basement, the analysis is consistent; if it is considered a two-story house, the adjustments would be different. 9. The subject property is a 2,000-sq.-ft., one-unit home built on 27 acres on a two-lane road in a remote exurban area. The land in this area is rolling, wooded, and generally not reliable because of the topography. Although there is a diverse population in this county, most properties in the immediate area of the subject are remote. They appeal to outdoorsy buyers seeking privacy and limited interaction with neighbors. The following data applies to the subject and comparable properties:  The solution below is not the only possible answer. Many of the adjustments are based on percentages rather than dollar amounts from matched pair extractions. The site adjustments are based on the site values. Note that in rural markets it is common to find comparable sales with very large lots and no utilities that have the same or less overall site value as much smaller parcels with utilities. The age adjustment is based on an estimate of $6,000 per year. Chapter 29: The Cost Approach 1. Reproduction cost is defined as the cost of: c) Building the improvements exactly as they would appear if they were new on the effective date of appraisal 2. Replacement cost is defined as the cost of: d) Building the improvements with a structure of like utility but new as of the effective date of valuation 3. Indirect construction costs do not include: b) Builder’s overhead 4. Site improvements may be valued at: d) Depreciated reproduction cost 5. Replacement cost is best used: a) To eliminate some functional obsolescence from the cost approach 6. The cost approach is based on the: a) Theory of substitution 7. The cost approach is: c) Most applicable when the subject improvements represent the highest and best use of the site as though vacant and are relatively new Chapter 30: Building Cost Estimates 1. What is the total reproduction cost of the entire structure? b) $500,000 2. The most detailed method of estimating the cost new of a structure is the: a) Quantity survey method 3. The unit-in-place cost-estimating method is: c) Based on the cost of each component of the building, including all labor and materials 4. A cost-estimating method in which appraisers estimate the current cost of construction based on the amount paid for the building when it was built is called: a) Cost index trending 5. When appraising an improved property with substantial functional losses, you should: b) Accurately estimate the cost and deal with the obsolescence in the depreciation estimate 6. The subject residence is shown in the accompanying photo and has the following characteristics and features:  * The sample solution provided is just one of many possible conclusions. 7. The subject office building is shown in the photo on the following page and has the following characteristics and features: 60,000 square feet of gross area with 51,026 square feet of rentable area Three floors with about 17,000 square feet of rentable space on each floor; nine-foot ceilings on each floor with a total floor height of 12 feet Flat roof with rubberized covering  Steel frame with concrete block curtain walls and brick veneer Fixed and lightly tinted windows Built in 1978 20 rooftop package heating and air-conditioning units that service the entire building; these units have standard sheet metal ducts leading to sections of the building; six units serve the first floor, another six serve the second floor, and eight units serve the third floor because of the heat load present there One elevator in the center of the building and two staircases—one on each end of the building Wet fire suppression system that services each floor * The sample solution provided is just one of many possible conclusions. Chapter 31: Depreciation Estimates 1. An incurable functional problem is best defined as: b) An item that will not return as much in value as it costs to fix 2. If a window has an effective age of 10 years and a remaining economic life of 25 years, what is the percentage of depreciation? b) 30% 10/35 = 0.286 3. A property has an overhead garage door that is 13 years old and costs $1,900 to replace. What is the amount of value left in this item? b) $912 12/25 x 1,900 = 912 Note that the numerator is 12 rather than 13 because the garage door has a remaining life of 12 (25 — 13). 4. Effective age is: b) Total economic life minus remaining economic life 5. An item of depreciation is curable if: a) The cost to cure is less than the expected increase in value 6. This problem is best identified as: b) Functional curable obsolescence * Assume you are appraising a 10-year-old residence. You estimate reproduction cost at $514,800. Your inspection of the property found only one item needing immediate repair. The garage door opener is broken, which would cost $450 to repair. The short-lived items are scheduled as follows: 7. Estimate the depreciation for curable physical deterioration. $450 for the garage door opener 8. Estimate the depreciation for functional obsolescence. $2,000 for the excess cost to cure the floor plan problem 9. Estimate the depreciation for short-lived items. $54,289 10. Estimate the depreciation for long-lived items. * The garage door opener problem was not in the overall depreciation extraction. Therefore, the cost to repair it should not be subtracted from the short-lived items cost estimate. The bathroom problem was included in the cost estimate, and the cost of the shower should be subtracted.