BASIC APPRAISAL PROCEDURES FINAL EXAM QUESTIONS
WITH COMPLETE SOLUTION
Stacy is applying a capitalization rate to an income comparison of similar
properties to determine the impact on the subject property's overall value. What
method is she using to measure depreciation?
Capitalized value - With the capitalized value method, the appraiser calculates the loss
in income—due to depreciation—by comparing the income that similar properties
produce.
When identifying comparable sales, appraisers may apply the statistical concepts
of _____.
Sampling and bracketing
Of the following sources of information used in the sales comparison approach,
which one is more likely to set the upper limit when deriving an opinion of value
of the subject property?
Listings - List prices tend to be higher than the actual selling price. Therefore, these
prices typically set the upper limit on value.
An appraiser collects rental income information on a subject property at $1.24/sq.
ft., and three very similar properties which are renting for $1.20/sq. ft., $1.26/sq.
ft., and $1.29/sq. ft. What's the market rent that the appraiser will most likely use
to find a value for the subject property?
$1.25/sqft
When using the income approach, an appraiser determines the ______ using
market rents and does not deduct for losses or expenses.
Potential gross income - Potential gross income establishes how much income the
property could make under ideal conditions, before accounting for likely vacancy or
operating expenses.
The sales comparison approach to appraisal is based primarily on an assumption
of the principle of _____.
Substitution - The sales comparison approach assumes that similar properties have the
same desirability.
Discounted cash flow analysis is a form of what?
yield capitalization
(Discounted cash flow analysis is a form of yield capitalization. It discounts the value of
income expected to be received in the future to a present value.)
When is a manufactured home most likely to be classified as real property?
If it's located on a site owned by the homeowner.
Which principle of value is the basis of the income approach to appraisals?
Anticipation - The principle of anticipation is the basis of the income approach to
appraisals.
Tim, an appraiser, is using the cost approach to determine property value. Which
of the following property types is Tim most likely appraising?
, Newly built commercial property - The cost approach is most often used with newly
constructed properties, unique properties, and special purpose use properties. The
approach isn't used with condos or co-ops, and isn't used as often with older properties,
because it's difficult to accurately estimate depreciation.
How does the land residual method calculate land value?
By measuring the amount of income that is left after deducting the amount of income
that should be attributed to any buildings. - This method of estimating the value of the
land is based on the principle of surplus productivity. The land residual method
calculates land value by measuring the amount of income (either actual or potential)
that is left after deducting the amount of income that should be attributed to any
buildings.
When estimating vacancy and collection loss, an appraiser should obtain data
from _____.
Similar properties to the market - An appraiser should NOT simply use the vacancy and
collection loss data from the subject property only. Vacancy and rent losses from the
subject property can be affected by factors that are not typical for the market.
Which statement is a limitation of the age-life method?
The age-life method assumes that all buildings depreciate on a "straight line" basis -
This is a limitation of the method because a building's depreciation fluctuates based on
a neighborhood's economic cycles and market conditions.
A capitalization rate is the expected ______.
Rate of return on investment - A capitalization rate is the expected rate of return on an
investment and can be calculated using the formula of NOI ÷ V = R, or net operating
income ÷ value = rate.
What method of land valuation uses the following calculation? Total sales price -
cost of improvements less depreciation = land value
Abstraction - This the formula for the abstraction method, which is sometimes used for
large parcels of land when there are few or no comparable sales available. It's not
considered as accurate as the sales comparison method.
Iris is using the breakdown method to measure depreciation. By what other name
is this method known?
Observed Condition: The observed condition method is also known as the breakdown
method. This is because the appraiser analyzes each component of the structure in
terms of the three categories of depreciation.
The assumption that a buyer will not pay more for a property than it would cost to
purchase a comparable property is the principle of _____.
Substitution
What are the three methods used in the U.S. to legally describe land?
Metes and bounds systems, Rectangular Survey System, and lot and block system
All of the following improvements are included in the site valuation EXCEPT for
which one?
Building a pool
Which of the following would be considered variable expenses?
Maintenance and repairs
All of the following are common roof sheathing materials EXCEPT ______.
Asphalt shingles
WITH COMPLETE SOLUTION
Stacy is applying a capitalization rate to an income comparison of similar
properties to determine the impact on the subject property's overall value. What
method is she using to measure depreciation?
Capitalized value - With the capitalized value method, the appraiser calculates the loss
in income—due to depreciation—by comparing the income that similar properties
produce.
When identifying comparable sales, appraisers may apply the statistical concepts
of _____.
Sampling and bracketing
Of the following sources of information used in the sales comparison approach,
which one is more likely to set the upper limit when deriving an opinion of value
of the subject property?
Listings - List prices tend to be higher than the actual selling price. Therefore, these
prices typically set the upper limit on value.
An appraiser collects rental income information on a subject property at $1.24/sq.
ft., and three very similar properties which are renting for $1.20/sq. ft., $1.26/sq.
ft., and $1.29/sq. ft. What's the market rent that the appraiser will most likely use
to find a value for the subject property?
$1.25/sqft
When using the income approach, an appraiser determines the ______ using
market rents and does not deduct for losses or expenses.
Potential gross income - Potential gross income establishes how much income the
property could make under ideal conditions, before accounting for likely vacancy or
operating expenses.
The sales comparison approach to appraisal is based primarily on an assumption
of the principle of _____.
Substitution - The sales comparison approach assumes that similar properties have the
same desirability.
Discounted cash flow analysis is a form of what?
yield capitalization
(Discounted cash flow analysis is a form of yield capitalization. It discounts the value of
income expected to be received in the future to a present value.)
When is a manufactured home most likely to be classified as real property?
If it's located on a site owned by the homeowner.
Which principle of value is the basis of the income approach to appraisals?
Anticipation - The principle of anticipation is the basis of the income approach to
appraisals.
Tim, an appraiser, is using the cost approach to determine property value. Which
of the following property types is Tim most likely appraising?
, Newly built commercial property - The cost approach is most often used with newly
constructed properties, unique properties, and special purpose use properties. The
approach isn't used with condos or co-ops, and isn't used as often with older properties,
because it's difficult to accurately estimate depreciation.
How does the land residual method calculate land value?
By measuring the amount of income that is left after deducting the amount of income
that should be attributed to any buildings. - This method of estimating the value of the
land is based on the principle of surplus productivity. The land residual method
calculates land value by measuring the amount of income (either actual or potential)
that is left after deducting the amount of income that should be attributed to any
buildings.
When estimating vacancy and collection loss, an appraiser should obtain data
from _____.
Similar properties to the market - An appraiser should NOT simply use the vacancy and
collection loss data from the subject property only. Vacancy and rent losses from the
subject property can be affected by factors that are not typical for the market.
Which statement is a limitation of the age-life method?
The age-life method assumes that all buildings depreciate on a "straight line" basis -
This is a limitation of the method because a building's depreciation fluctuates based on
a neighborhood's economic cycles and market conditions.
A capitalization rate is the expected ______.
Rate of return on investment - A capitalization rate is the expected rate of return on an
investment and can be calculated using the formula of NOI ÷ V = R, or net operating
income ÷ value = rate.
What method of land valuation uses the following calculation? Total sales price -
cost of improvements less depreciation = land value
Abstraction - This the formula for the abstraction method, which is sometimes used for
large parcels of land when there are few or no comparable sales available. It's not
considered as accurate as the sales comparison method.
Iris is using the breakdown method to measure depreciation. By what other name
is this method known?
Observed Condition: The observed condition method is also known as the breakdown
method. This is because the appraiser analyzes each component of the structure in
terms of the three categories of depreciation.
The assumption that a buyer will not pay more for a property than it would cost to
purchase a comparable property is the principle of _____.
Substitution
What are the three methods used in the U.S. to legally describe land?
Metes and bounds systems, Rectangular Survey System, and lot and block system
All of the following improvements are included in the site valuation EXCEPT for
which one?
Building a pool
Which of the following would be considered variable expenses?
Maintenance and repairs
All of the following are common roof sheathing materials EXCEPT ______.
Asphalt shingles
