BUSI 330 EXAM REVIEW QUESTIONS
WITH 100% CORRECT DETAILED
ANSWERS
After analyzing the local market, an appraiser determines the sale price of a recent,
improved sale to
be $325,000. The depreciated value of the improvements is determined to be $125,000.
Based on the ______
technique, the land value is ________ .
(1) market extraction; $200,000
(2) direct comparison; $200,000
(3) land residual; $450,000
(4) allocation; impossible to determine - Answer- 16. Answer: 1
Option (1) is the correct answer. The extraction method subtracts the depreciated cost
of
improvements from the known sale price of an improved property to arrive at an
estimated value of
the land. In this example, land value = sale price - depreciated value of buildings =
$325,000 -
$125,000 = $200,000.
A subject property is approximately 21,400 square feet and land capitalization rates for
the area are
7.5%. The property recently sold for $2,250,000. Given the sale price and land
capitalization rate,
calculate the subject property's market annual ground rent.
(1) $5.55 per sq. ft.
(2) $13.48 per sq. ft.
(3) $7.89 per sq. ft.
(4) $10.70 per sq. ft. - Answer- 17. Answer: 3
Option (3) is the correct answer.
Ground rent = (Site value X Capitalization rate) / Land area
Ground rent = ($2,250,000 X 0.075) / 21,400 sq. ft. = 7.885514
Ground rent = $7.89/sq. ft.
Alice Brooks, a professional appraiser, based the value of a subject site on similarities
and
dissimilarities in comparison with two other similar parcels of land. This demonstrates
which land
valuation method?
(1) Income comparison
(2) Direct comparison
,(3) Indirect comparison
(4) Allocation - Answer- 18. Answer: 2
Option (2) is the correct answer because the direct comparison method collects,
analyzes, compares,
and adjusts data on sales of similar parcles to reflect the similarity and dissimilarity of
those parcels
to the subject property.
Frank Murphy completed an appraisal report on a vacant parcel of land, which had a
highest and
best use of retail development. Five comparables were analyzed according to their sale
price per
square foot. However, one significantly larger than the subject and two were
significantly smaller, so
Frank adjusted these three comparables for size. Which of the following statements is
TRUE?
(1) There is nothing suspect in the approach taken by the appraiser.
(2) The appraiser cannot adjust for size if price per square foot as the unit of
comparison; this is
double-counting.
(3) The appraiser must reject the three sales that had a significant size difference.
( Given the size issues, Frank should have applied an income-based approach instead.
- Answer- 19. Answer: 1
Option (1) is correct. When adjusting for size differences, and then using sale price per
square foot
as the unit of comparison, it must be clear that the use of sale price per square foot
does not
duplicate the size difference adjustment. There may be no issue if the size adjustment
considers the
fact the principle that smaller lots sell for a higher unit rate than larger lots, if this has
been
established by market evidence in the subject area. These three sales need not
necessarily be
rejected.
A property has improvements that will be continued to be rented out while awaiting
redevelopment.
This is called and must be considered against demolition and holding costs.
(1) highest and best use
(2) use value
(3) residential redevelopment use
(4) holding use - Answer- 20. Answer: 4
Option (4) is the correct answer. Holding use, or interim use, refers to improvments that
may
provide some rental revenue while awaiting redevelopment, and must be considered
against
,demolition cost and holding costs, such as financing and property taxes, to determine if
the
improvements add or detract from current value.
1. The principle of __________ holds that both the relationship between land and
improvements and
the relationship between a property and its environment must be in equilibrium for a
property to
achieve its optimum market value.
(1) supply and demand
(2) substitution
(3) balance
(4) externalities - Answer- 1. Answer: 3
The principle of balance holds that both the relationship between land and
improvements and the
relationship between a property and its environment must be in balance for a property to
achieve its
optimum market value.
2. Which of the following statements is FALSE according to generally accepted
appraisal practices for
making adjustments in the direct comparison approach?
(1) An adjustment for market conditions is made when general property values have
increased or
decreased since the transaction dates.
(2) An adjustment for an expenditure made immediately after purchase and material to
the sale
negotiations should be made before the time adjustment.
(3) Transactional adjustments are generally applied in no particular order.
(4) Economic characteristics will tend to directly affect the property's income. - Answer-
2. Answer: 3
Transactional adjustments are generally applied in a specific sequence: real property
rights
conveyed, financing terms, conditions of sale, expenditures made immediately after
purchase, and
market conditions (time). The other options are true.
3. Which of the following statements regarding reconciliation is FALSE?
(1) Reconciliation is inherent throughout the appraisal process.
(2) Reconciliation involves the appraiser asking several questions about the data and
techniques in
the various approaches applied.
(3) Reconciliation is done when the three approaches to value have been completed.
(4) Reconciliation is only used in the direct comparison approach. - Answer- 3. Answer:
4
Option (4) is false. In addition to reconciliation within the direct comparison approach,
, reconciliation is also required when value indications are derived using two or more
approaches to
value. Options (1), (2), and (3) are true.
4. Which of the following is a qualitative technique used to study comparable sales?
(1) Graphic analysis
(2) Grouped data analysis
(3) Statistical analysis
(4) Relative comparison analysis - Answer- 4. Answer: 4
Relative comparison analysis is a qualitative technique for analyzing comparable sales
to determine
whether the comparable properties' characteristics are inferior, superior, or similar to
those of the
subject property. Statistical analysis, grouped data analysis, and graphic analysis are all
quantitative
techniques.
5. Fred is an apprentice appraiser and has been asked to undertake a quantitative
analysis in support
of adjustments as part of a new assignment to estimate the market value of an
apartment building.
Which of the following would Fred NOT consider applying?
(1) Trend analysis
(2) Paired data analysis
(3) Secondary data analysis
(4) Scenario analysis - Answer- 5. Answer: 1
Fred would not apply a ranking analysis as this is considered a qualitative analysis.
Paired data
analysis, secondary data analysis, and graphic analysis are all considered to be
quantitative analyses.
6. Which of the following statements regarding the direct comparison approach is
TRUE?
(1) It must always be used for properties that possess latent value.
(2) It reflects market behaviour and uses a combination of qualitative and quantitative
approaches
to account for dissimilarities in comparables.
(3) It is reliable even in the absence of sufficient comparable sales.
(4) It is less reliable than the cost approach, given the clear market relationship between
cost and
market value at any particular time. - Answer- 6. Answer: 2
Option (2) is true. Option (1) is false because the direct comparison approach cannot be
used if a
property is not in its highest and best use; the residual method of appraisal should be
used if a
WITH 100% CORRECT DETAILED
ANSWERS
After analyzing the local market, an appraiser determines the sale price of a recent,
improved sale to
be $325,000. The depreciated value of the improvements is determined to be $125,000.
Based on the ______
technique, the land value is ________ .
(1) market extraction; $200,000
(2) direct comparison; $200,000
(3) land residual; $450,000
(4) allocation; impossible to determine - Answer- 16. Answer: 1
Option (1) is the correct answer. The extraction method subtracts the depreciated cost
of
improvements from the known sale price of an improved property to arrive at an
estimated value of
the land. In this example, land value = sale price - depreciated value of buildings =
$325,000 -
$125,000 = $200,000.
A subject property is approximately 21,400 square feet and land capitalization rates for
the area are
7.5%. The property recently sold for $2,250,000. Given the sale price and land
capitalization rate,
calculate the subject property's market annual ground rent.
(1) $5.55 per sq. ft.
(2) $13.48 per sq. ft.
(3) $7.89 per sq. ft.
(4) $10.70 per sq. ft. - Answer- 17. Answer: 3
Option (3) is the correct answer.
Ground rent = (Site value X Capitalization rate) / Land area
Ground rent = ($2,250,000 X 0.075) / 21,400 sq. ft. = 7.885514
Ground rent = $7.89/sq. ft.
Alice Brooks, a professional appraiser, based the value of a subject site on similarities
and
dissimilarities in comparison with two other similar parcels of land. This demonstrates
which land
valuation method?
(1) Income comparison
(2) Direct comparison
,(3) Indirect comparison
(4) Allocation - Answer- 18. Answer: 2
Option (2) is the correct answer because the direct comparison method collects,
analyzes, compares,
and adjusts data on sales of similar parcles to reflect the similarity and dissimilarity of
those parcels
to the subject property.
Frank Murphy completed an appraisal report on a vacant parcel of land, which had a
highest and
best use of retail development. Five comparables were analyzed according to their sale
price per
square foot. However, one significantly larger than the subject and two were
significantly smaller, so
Frank adjusted these three comparables for size. Which of the following statements is
TRUE?
(1) There is nothing suspect in the approach taken by the appraiser.
(2) The appraiser cannot adjust for size if price per square foot as the unit of
comparison; this is
double-counting.
(3) The appraiser must reject the three sales that had a significant size difference.
( Given the size issues, Frank should have applied an income-based approach instead.
- Answer- 19. Answer: 1
Option (1) is correct. When adjusting for size differences, and then using sale price per
square foot
as the unit of comparison, it must be clear that the use of sale price per square foot
does not
duplicate the size difference adjustment. There may be no issue if the size adjustment
considers the
fact the principle that smaller lots sell for a higher unit rate than larger lots, if this has
been
established by market evidence in the subject area. These three sales need not
necessarily be
rejected.
A property has improvements that will be continued to be rented out while awaiting
redevelopment.
This is called and must be considered against demolition and holding costs.
(1) highest and best use
(2) use value
(3) residential redevelopment use
(4) holding use - Answer- 20. Answer: 4
Option (4) is the correct answer. Holding use, or interim use, refers to improvments that
may
provide some rental revenue while awaiting redevelopment, and must be considered
against
,demolition cost and holding costs, such as financing and property taxes, to determine if
the
improvements add or detract from current value.
1. The principle of __________ holds that both the relationship between land and
improvements and
the relationship between a property and its environment must be in equilibrium for a
property to
achieve its optimum market value.
(1) supply and demand
(2) substitution
(3) balance
(4) externalities - Answer- 1. Answer: 3
The principle of balance holds that both the relationship between land and
improvements and the
relationship between a property and its environment must be in balance for a property to
achieve its
optimum market value.
2. Which of the following statements is FALSE according to generally accepted
appraisal practices for
making adjustments in the direct comparison approach?
(1) An adjustment for market conditions is made when general property values have
increased or
decreased since the transaction dates.
(2) An adjustment for an expenditure made immediately after purchase and material to
the sale
negotiations should be made before the time adjustment.
(3) Transactional adjustments are generally applied in no particular order.
(4) Economic characteristics will tend to directly affect the property's income. - Answer-
2. Answer: 3
Transactional adjustments are generally applied in a specific sequence: real property
rights
conveyed, financing terms, conditions of sale, expenditures made immediately after
purchase, and
market conditions (time). The other options are true.
3. Which of the following statements regarding reconciliation is FALSE?
(1) Reconciliation is inherent throughout the appraisal process.
(2) Reconciliation involves the appraiser asking several questions about the data and
techniques in
the various approaches applied.
(3) Reconciliation is done when the three approaches to value have been completed.
(4) Reconciliation is only used in the direct comparison approach. - Answer- 3. Answer:
4
Option (4) is false. In addition to reconciliation within the direct comparison approach,
, reconciliation is also required when value indications are derived using two or more
approaches to
value. Options (1), (2), and (3) are true.
4. Which of the following is a qualitative technique used to study comparable sales?
(1) Graphic analysis
(2) Grouped data analysis
(3) Statistical analysis
(4) Relative comparison analysis - Answer- 4. Answer: 4
Relative comparison analysis is a qualitative technique for analyzing comparable sales
to determine
whether the comparable properties' characteristics are inferior, superior, or similar to
those of the
subject property. Statistical analysis, grouped data analysis, and graphic analysis are all
quantitative
techniques.
5. Fred is an apprentice appraiser and has been asked to undertake a quantitative
analysis in support
of adjustments as part of a new assignment to estimate the market value of an
apartment building.
Which of the following would Fred NOT consider applying?
(1) Trend analysis
(2) Paired data analysis
(3) Secondary data analysis
(4) Scenario analysis - Answer- 5. Answer: 1
Fred would not apply a ranking analysis as this is considered a qualitative analysis.
Paired data
analysis, secondary data analysis, and graphic analysis are all considered to be
quantitative analyses.
6. Which of the following statements regarding the direct comparison approach is
TRUE?
(1) It must always be used for properties that possess latent value.
(2) It reflects market behaviour and uses a combination of qualitative and quantitative
approaches
to account for dissimilarities in comparables.
(3) It is reliable even in the absence of sufficient comparable sales.
(4) It is less reliable than the cost approach, given the clear market relationship between
cost and
market value at any particular time. - Answer- 6. Answer: 2
Option (2) is true. Option (1) is false because the direct comparison approach cannot be
used if a
property is not in its highest and best use; the residual method of appraisal should be
used if a
