ALABAMA REAL ESTATE EVALUATION TEST
QUESTIONS AND ANSWERS SET A+
✔✔Conventional Qualifying Ratio - ✔✔28%/36%
✔✔Utility - ✔✔How useful a property is to the marketplace is a very big factor in
determining its value.
✔✔Scarcity - ✔✔If a property is useful to the marketplace and it is in scarce supply - it
will have greater value.
✔✔Demand - ✔✔Whether or not the marketplace views a particular type of property as
desirable.
✔✔Effective Demand - ✔✔Centers on whether people have the ABILITY to fulfill their
desires.
Example: High interest rates can restrict consumers' ability to purchase even though
they have the desire to purchase.
✔✔Transferability - ✔✔Whether or not ownership can easily be transferred.
✔✔Highest and Best Use - ✔✔The most realistic use that will produce highest present
value for a parcel of property (don't over-improve or under-improve a property).
✔✔Conformity - ✔✔Maximum property values are achieved when properties are similar
in STYLE and SIZE.
✔✔Regression - ✔✔Value of a superior property decreases when located in an area of
inferior properties.
, ✔✔Progression - ✔✔Value of an inferior property increases when located in an area of
superior properties.
✔✔Substitution - ✔✔The maximum price a property will sell for is set by the price of
another property of equal desirability.
A buyer would substitute the lower priced property for the higher priced.
✔✔Anticipation - ✔✔Purchasing property today with the expectation of some an
eventual benefit.
✔✔Increasing / Decreasing Returns (Cost-Benefit Analysis) - ✔✔The cost of making an
improvement compared to that increase or decrease in property value that it causes.
✔✔Contribution - ✔✔Similar to Increasing/Decreasing Returns, except it looks at one
element or component at a time and determines whether it adds or detracts from the
value of a property (ie adding a garage or another bathroom).
✔✔Constructive Notice - ✔✔Giving notice to the world of legal rights in a property via
public records.
Everyone has access to these documents so it is incumbent upon them to research
these documents.
✔✔Actual Notice - ✔✔What a person knows because they have actually seen or
experienced something.
Example: A person knows that a property was sold because they were present at the
closing.
✔✔Abstract of Title - ✔✔Summary report of what the title search found.
Does not include encroachments or any interests or conveyances that have not been
recorded.
✔✔Title Search - ✔✔Examination of all public records to determine whether any defects
exist in the chain of title.
✔✔Marketable Title - ✔✔Clear title that is reasonably free from the risk of litigation over
possible defects.
✔✔Certificate of Title - ✔✔Statement of opinion of title's status on date certificate is
issued.
Not a guarantee of ownership, just an opinion based on a title search.
QUESTIONS AND ANSWERS SET A+
✔✔Conventional Qualifying Ratio - ✔✔28%/36%
✔✔Utility - ✔✔How useful a property is to the marketplace is a very big factor in
determining its value.
✔✔Scarcity - ✔✔If a property is useful to the marketplace and it is in scarce supply - it
will have greater value.
✔✔Demand - ✔✔Whether or not the marketplace views a particular type of property as
desirable.
✔✔Effective Demand - ✔✔Centers on whether people have the ABILITY to fulfill their
desires.
Example: High interest rates can restrict consumers' ability to purchase even though
they have the desire to purchase.
✔✔Transferability - ✔✔Whether or not ownership can easily be transferred.
✔✔Highest and Best Use - ✔✔The most realistic use that will produce highest present
value for a parcel of property (don't over-improve or under-improve a property).
✔✔Conformity - ✔✔Maximum property values are achieved when properties are similar
in STYLE and SIZE.
✔✔Regression - ✔✔Value of a superior property decreases when located in an area of
inferior properties.
, ✔✔Progression - ✔✔Value of an inferior property increases when located in an area of
superior properties.
✔✔Substitution - ✔✔The maximum price a property will sell for is set by the price of
another property of equal desirability.
A buyer would substitute the lower priced property for the higher priced.
✔✔Anticipation - ✔✔Purchasing property today with the expectation of some an
eventual benefit.
✔✔Increasing / Decreasing Returns (Cost-Benefit Analysis) - ✔✔The cost of making an
improvement compared to that increase or decrease in property value that it causes.
✔✔Contribution - ✔✔Similar to Increasing/Decreasing Returns, except it looks at one
element or component at a time and determines whether it adds or detracts from the
value of a property (ie adding a garage or another bathroom).
✔✔Constructive Notice - ✔✔Giving notice to the world of legal rights in a property via
public records.
Everyone has access to these documents so it is incumbent upon them to research
these documents.
✔✔Actual Notice - ✔✔What a person knows because they have actually seen or
experienced something.
Example: A person knows that a property was sold because they were present at the
closing.
✔✔Abstract of Title - ✔✔Summary report of what the title search found.
Does not include encroachments or any interests or conveyances that have not been
recorded.
✔✔Title Search - ✔✔Examination of all public records to determine whether any defects
exist in the chain of title.
✔✔Marketable Title - ✔✔Clear title that is reasonably free from the risk of litigation over
possible defects.
✔✔Certificate of Title - ✔✔Statement of opinion of title's status on date certificate is
issued.
Not a guarantee of ownership, just an opinion based on a title search.
