CHAPTER 4 SHORT-ANSWER QUESTIONS - … 4 – SHORT-ANSWER QUESTIONS 1. An appraisal is an ___ or _ of value. 2. The _ _ _, _ and ___ Act, also known as FIRREA,

CHAPTER 4 – SHORT-ANSWER QUESTIONS

1. An appraisal is an ___________ or ___________ of value.

2. The ___________ ___________ ___________, ___________ and ___________ Act, also

known as FIRREA, requires that states set ___________ standards for all appraisers.

3. Value in real estate is the "present ___________ of ___________ benefits arising from the

ownership of real property.

4. To have value, real property must have these four characteristics:

a) ___________;

b) ___________;

c) ___________;

d) ___________.

5. If title is flawed, the property may not be ___________.

6. The goal of appraiser is to estimate ___________ ___________.

7. To determine market value, an appraiser must consider properties that have sold in a

___________ time, and have a purchaser and seller who are both fully ___________.

8. a) Market value is the ___________ ___________ price a property will bring;

b) Payment must be made in ___________ or its equivalent;

c) Buyer and seller must be ___________ and acting without ___________

___________.

d) A ___________ length of time must be allowed for the property to be exposed in the

___________ ___________;

e) Both parties must be ___________ ___________ of the property's use and potential,

including its ___________ and ___________.

9. ___________ ___________ is what the property actually sold for.

10. Define subjective value: _____________________________________________

________________________________________________________________.

11. ___________ value has to do with property taxes, while ___________ value must leave

enough margin for lender security. Both are completely unrelated to Market Value.

12. List the four special influences that affect value:

a) _________________________________;

b) _________________________________;

c) _________________________________;

d) _________________________________.

MacIntosh Real Estate School Uniform Course - Chapter 4

Copyright 2018 - All Rights Reserved 1 Real Estate Law & Practice (48 credit hrs)

13. The three most important factors in determining value are ___________, ___________ and

___________.

14. The ___________ ___________ is more important in determining a property's value than the

national economy.

15. Real estate values tend to rise during periods of ___________, when the purchasing power of

the dollar ___________.

16. A neighborhood is an area characterized by ___________ ___________, which tends to

decline when it loses ___________ ___________.

17. Highest and Best Use is the most ___________ use for a property.

18. ___________ is the basis of the Sales Comparison approach.

19. Value will ___________ if supply decreases and demand increases or remains constant.

20. There should be ___________ in the types of real estate usages.

21. Maximum value is realized if the use of land ___________ to existing ___________

standards, a principle that ___________ use to ensure maximum future value.

22. A luxurious home in a modest neighborhood will tend to be valued in the same ___________

as other homes, while the principle of ___________ states that the lesser property will increase if

located among better properties.

23. The principle that states that the consolidation of adjacent lots into one large lot will produce

a higher value than the sum of the two sites is called ___________, while ___________ is the

process of merging the two lots.

24. According to Economics of Scale, a ___________ development can be built for a lower

price.

25. Competition ___________ profits.

26. Property goes through phases of development (___________,) stability (___________,) and

decline (___________.)

27. List the three basic approaches to determining value, and a fourth, which is used to check the

values derived by the others.

a) ___________ ___________;

b) ___________;

c) ___________ ___________;

d) ___________ ___________ ___________ ___________.



28. The ___________ ___________ Approach also known as the Market Data Approach,

compares the subject property to recently ___________ comparable properties. A simplified version

is called the ___________ ___________ ___________.

29. An appraiser must adjust the comparables for dissimilar features from these four categories:

a) _________________________________;

b) _________________________________;

c) _________________________________;

d) _________________________________.

30. The value of a feature present in the subject property, but not in the comparable is

___________ to the sales price of the comparable while a feature present in the comparable, but not

the subject is ___________ from the price of the comparable.

31. The ___________ Approach is sometimes called appraisal by summation. To determine

value, first estimate the value of the ___________, then add the cost of constructing the

___________, then deduct ___________

32. ___________ cost is the current cost of an exact duplicate of the subject property, while

___________ cost is the cost of improvements with similar utility or function.

33. List the four methods of determining cost:

a) _________________________________;

b) _________________________________;

c) _________________________________;

d) _________________________________.

34. ___________ is any condition that adversely affects the value of an improvement to real

property.

35. ___________ does not depreciate.

36. List the three classes of depreciation:

a) ___________ ___________;

b) ___________ ___________;

c) ___________ ___________.

37. ___________ ___________ is always incurable, because the devaluing is caused by factors

not on the subject property. There are two different forms, which are ___________ and

___________.

38. Curable Physical Deterioration simply requires ___________ that are economically

___________.

39. ___________ Functional Obsolescence contains physical or ___________ features that could

not be remedied easily.



40. ___________ ___________ depreciation is the easiest, but least precise way to determine

depreciation. It is also called the ___________ __________- __________ method.

41. The cost approach is most appropriate for ___________-___________ building such as

schools, churches and public buildings.

42. Accrued depreciation considers the ___________ ___________ of a structure, which is the

period during which the improvements contribute to net income. ___________ ___________ is the

structure's age for appraisal purposes.

43. The Income Capitalization Approach is also known as the ___________ ___________ , and

is based on the ______________ value of the rights to ___________ income. It is used for valuation

of ___________ ___________ properties like apartments, office buildings and shopping centers.

44. The steps for the Income Capitalization Approach are:

a) Estimate ___________ ___________ income;

b) Deduct vacancy and collection losses to arrive at __________ __________ income;

c) Deduct annual operating expenses to get __________ __________ income, or NOI;

d) Estimate the rate of return that an investor will demand, which is called the ___________

rate;

e) Apply the capitalization rate to the annual net income to get the estimate of ___________.

45. In order to provide for depreciation, the capitalization rate can be ___________.

46. Value goes up if the ___________ goes down, and value goes ___________ if the rate goes

up.

47. For certain properties, such as single-family homes, which aren't purchased primarily for

their ability to generate income, either the ___________ ___________ ___________ (GRM) or the

___________ ___________ ___________ (GIM) are used in the appraisal process.

48. Because single-family residences usually produce only rental income, the gross rent

multiplier relates the sales price to ___________ rental income. However, commercial and

industrial properties are valued using ___________ income.

49. The Property Residual, Inwood Annuity Method uses a market driven ___________ rate,

which consists of estimating future ___________ income over ownership and adding the

___________ sales price, discounted to an interest rate which would attract ___________

___________.

50. A discount table used to convert future income streams in today's present value, is called the

___________ ___________ table.

51. The ___________ ___________-___________-Analysis examines property by taking into

account effects of mortgage financing.



52. ___________ is the art of analyzing the findings of more than one of the three approaches are

used. It is more complicated than averaging, because certain approaches are more reliable with

some kinds of ___________.

53. The ___________ ___________ ___________ Analysis is a valuation technique which

indicates a ___________ of prices. It measures the relationship between ___________

___________ and ___________ ___________.

54. With S.L.R.A., after deriving the range, the ___________ ___________ are graphed to check

the relationship between the ___________ ___________ and ___________ ___________.

55. Multiple Regression Analysis uses many unknown ___________, and requires the use of a

programmed ___________.



CHAPTER 4 – QUIZ

1. A comparative market analysis is prepared by a real estate agent to estimate the likely sales

price of a property. This analysis is based on the:

a. market comparison approach

b. gross rent multiplier method.

c. cost approach

d. income approach

2. In appraising a home for a lender who wishes to make a purchase loan, the appraiser is

concerned with:

a. the amount of the loan requested.

b. unpaid special assessments.

c. the price to be paid by the purchaser.

d. economic changes in the area.

3. An example of economic obsolescence is:

a. numerous pillars supporting the ceiling in a store.

b. roof leaks making the premises unrentable.

c. an older building with massive cornices.

d. vacant and abandoned structures in the area.

4. An appraisal of property is the:

a. supported estimate of value.

b. utility value.

c. selling price.

d. cost plus improvements less depreciation.

5. An appraiser would need to determine accrued depreciation when using the:

a. gross rent multiplier method.

b. cost approach.

c. income approach.

d. market comparison approach.

6. An appraiser computes the replacement cost of a structure when using the:

a. market comparison approach.

b. cost approach.

c. capitalization approach.

d. gross rent multiplier method.

7. It would be unethical for an appraiser to:

a. refuse to make an appraisal that the appraiser feels is beyond his or her expertise.

b. appraise a property in which the appraiser has a disclosed interest.

c. accept an appraisal where the fee will be a percentage of the value derived.

d. request payment in advance.



8. To appraise a property involved in a federally related loan of $1 million or more, the

appraiser is required to:

a. be federally licensed.

b. be federally certified.

c. be state certified.

d. have the MAI designation

9. To be depreciated, real property must be:

a. owned in fee simple.

b. improved.

c. paid for.

d. rented.

10. The advisability of including a tennis court with a planned apartment building may be

determined by the principle of:

a. contribution.

b. progression.

c. substitution.

d. change.

11. An expensive home in an area of less expensive homes is considered:

a. economic obsolescence.

b. functional obsolescence.

c. progression.

d. plottage.

12. A property has a net income of $30,000. An appraiser decides to use a 12 percent

capitalization rate rather than a 10 percent rate. Use of the higher rate results in:

a. a 2 percent increase in appraised value.

b. a $50,000 increase in appraised value.

c. a $50,000 decrease in appraised value.

d. no change in appraised value.

13. Which of the following would be the most comprehensive appraisal report?

a. Short form report

b. Narrative report

c. Uniform Residential Appraisal Report

d. Certified appraisal report

14. Which of the following is a subjective value?

a. Market

b. Assessed

c. Use

d. Exchange



15. All of the following statements describe the capitalization rate EXCEPT:

a. the rate increases when risk increases.

b. the rate provides for the return on and the return of the investment.

c. the rate is divided into net income to determine value.

d. a decrease in rate results in a decrease in value.

16. The reason the gross rent multiplier is an inaccurate measurement of value is that it fails to

consider:

a. depreciation.

b. unusual expenses.

c. location.

d. amenity values.

17. According to the principle of conformity, the highest value is maintained by having a

residence:

a. adjoining a shopping area.

b. next to a church.

c. across from a school.

d. in the center of a residential development.

18. Several $150,000 homes were built in an area where the existing homes had been valued at

$400,000 to $500,000. The effect was that the value of the existing homes declined. Which

real estate principle applies to this situation?

a. Regression

b. Competition

c. Substitution

d. Integration

19. With an annual net income of $40,000 and a capitalization rate of 8 percent, the value of the

property using the income approach would be:

a. $400,000.

b. $440,000.

c. $500,000

d. $520,000.

20. The time period during which a structure shows income that is attributable to the structure

itself is known as its:

a. economic life.

b. effective age.

c. period for depreciation.

d. period of profitability.



21. The last lot in a subdivision sold for more than three times the price paid for the first lot sold.

This is an example of the principle of:

a. regression.

b. diminishing returns.

c. supply and demand.

d. conformity.

22. An owner has a property showing a monthly net income of $300. As an investor, you feel

that a 10 percent rate of return is proper for this type of investment. Therefore, you would

expect the property to be valued at:

a. $27,000.

b. $30,000.

c. $33,000.

d. $36,000.

23. Value is described as the:

a. price paid by the owner.

b. present worth of future benefits.

c. assessed valuation.

d. price offered by a prospective buyer.

24. Vacant, vandalized commercial buildings around your property would be an example of:

a. economic obsolescence.

b. functional obsolescence.

c. band of investments.

d. principle of contribution.

25. The highest and best use provides the greatest:

a. benefit to the community.

b. gross.

c. net.

d. capitalization rate.

26. Demand is not effective in determining the value of real property unless it is combined with:

a. scarcity.

b. a use.

c. purchasing power.

d. access.

27. An investor making extraordinary profits from a mini-warehouse is concerned with the

principle of:

a. substitution.

b. competition.

c. surplus productivity.

d. conformity.



28. The principle of supply and demand predicts:

a. increasing price when supply increases.

b. decreasing demand when supply increases.

c. increasing demand when price decreases.

d. decreasing price when demand increases.

29. An investor was able to buy a property at the capitalization rate she was using. She

computed the net income at $21,000 and paid a $300,000 purchase price. What was her

capitalization rate?

a. 6%

b. 7%

c. 8%

d. 9%

30. In appraising a ten-year-old, single-family home, the appraiser is interested in the:

a. capitalization rate for the property.

b. location of the home.

c. current gross rent multiplier.

d. owner's cost basis.

31. The annual gross rent (income) multiplier is calculated by:

a. capitalizing the annual gross income.

b. dividing the annual gross income by the price paid.

c. dividing the price paid by the annual gross income.

d. multiplying the monthly gross income by 12.

32. A seller agreed to sell a home with no down payment and below-market-rate seller financing.

The favorable financing could be expected to affect the:

a. price of the property.

b. value of the property.

c. utility of the property.

d. depreciation method.

33. A property owner would have the greatest difficulty in correcting depreciation caused by:

a. chronological age.

b. the built-in nature of the structure.

c. forces outside the structure.

d. wear and tear due to use.

34. An appraiser sets a replacement cost of a structure at $120,000 and appraises the land value

separately at $80,000. The appraiser places an economic life on the structure at 50 years and

states that it has an effective age of ten years. Using the cost approach, the appraiser would

appraise this property at:

a. $200,000.

b. $176,000.

c. $160,000.



d. $140,000.

35. During an inflationary period, a property's highest value is its:

a. book value.

b. market value.

c. loan value.

d. assessed value.

36. Each unit in a fourplex rents for $225 per month. With a sales price of $81,000, the annual

gross rent multiplier is:

a. 7.5.

b. 30.

c. 90.

d. 360.

37. All of the following items could be depreciated by an appraiser EXCEPT:

a. a vacant structure.

b. unimproved land leased for open storage.

c. a single-family house used for rental purposes.

d. a residence used for owner occupancy.

38. The oldest and easiest to learn method of appraisal is the:

a. cost approach.

b. market comparison approach.

c. capitalization of income approach.

d. abstractive method.

39. A separate value for the land is needed for the:

a. income approach.

b. gross rent multiplier method.

c. cost approach.

d. market comparison approach.

40. With fixed rents and a capitalization rate of 8 percent, an increase in taxes of $4,000 would

result in the value of a property:

a. decreasing by $5,000.

b. decreasing by $50,000.

c. remaining unchanged.

d. increasing.

41. An appraiser counting the number of electrical outlets in a structure is using the:

a. market comparison method.

b. income approach.

c. cost approach.

d. gross rent multiplier method.



42. The replacement cost approach is an effective method for appraising all of the following

EXCEPT a(n):

a. new apartment building.

b. old public library.

c. old residence.

d. new commercial structure.

43. Which appraisal principle indicates the economic effect an improvement has on property?

a. Progression

b. Substitution

c. Surplus

d. Contribution

44. The use of more than one appraisal method with different weights assigned to each method

describes:

a. reconciliation.

b. a certified appraisal.

c. the development method.

d. the quantity survey method.

45. In the market comparison method, amenities are balanced out:

a. to allow for appreciation.

b. because of the principle of competition.

c. because the market is not static.

d. because no two properties are identical

46. Which of the following is an example of economic obsolescence?

a. Leaking roof

b. Numerous small rooms

c. Four-bedroom home with one bath

d. Graffiti in the neighborhood

47. "The whole is worth more than the sum of its parts" refers to:

a. progression.

b. assemblage.

c. land residual.

d. depreciation.

48. Two adjacent residences in the center of a large development had similar values when they

were built 30 years ago. They have been maintained in similar condition, but one is now

worth far more than the other. The reason for this difference in value could be:

a. physical deterioration.

b. economic obsolescence.

c. functional obsolescence.

d. the principle of integration and disintegration.



49. S.L.R.A. is based on the proposition that there is a direct relationship between the:

a. sales price and appraised value.

b. sales price and square footage.

b. square footage and cubic yardage.

c. linear regression and spatial progression.

50. If properties were plotted on a Simple Linear Regression graph, and property A had 1000

square feet and valued at $90,000, and property B had 1500 square feet and was valued at

$140,000, what would be the most likely value for property X, having 1250 square feet?

a. $75,000. c. $115,000.

b. $95,000. d. $155,000.





Documents

CHAPTER 4 SHORT-ANSWER QUESTIONS - … 4 – SHORT-ANSWER QUESTIONS 1. An appraisal is an _____ or _____ of value. 2. The _____ _____ _____, _____ and _____ Act, also known as FIRREA,

CHAPTER 4 SHORT-ANSWER QUESTIONS - … 4 – SHORT-ANSWER QUESTIONS 1. An appraisal is an ___ or _ of value. 2. The _ _ _, _ and ___ Act, also known as FIRREA,