PRINCIPLES OF REAL ESTATE 2
CORRECT 100%
appraisal - ANSWER -an appraiser's opinion of value
-lenders use this to determine market value of property being used to secure the loan
highest and best use - ANSWER legal use for property that gives greatest return in
money and/or amenities
principle of contribution - ANSWER property's value is equal to the sum of the
contributory value of each of its component parts
T/F: in a practical application of the concept of contribution, cost does NOT equal value.
- ANSWER true
principle of change - ANSWER forces of change can be specific or external to property,
always affecting value of the land
principle of anticipation - ANSWER purchase price is affected by expectation of future
appeal and benefits
principle of subsititution - ANSWER a commodity's value is influenced by hte cost of
acquiring a substitute or ocmprable item
principle of conformity - ANSWER value is maximized when there is a reasonable
degree of homogeneity, or sameness, in a neighborhood
principle of increasing and decreasing returns - ANSWER it is prudent to improve
property when the value added by the improvement exceeds cost of the improvement
principle of supply and demand - ANSWER high demand + short supply = increase
marketplace prices
low demand + high supply = decrease in price
principle of regression - ANSWER presence of lower-priced properties in the area will
cause a decline in the value of the subject property
principle of progression - ANSWER value of subject property is increased by value of
surrounding properties
principle of competition - ANSWER absence of competition = prices increase
increased competition = prices decrease
,principle of balance - ANSWER mixed land use should result in max value for all
properties involved
market value - ANSWER price a willing seller will sell for, and the price a willing buyer
will pay
sales comparison approach - ANSWER approach used as best indicator of value for
existing properties
Property Value must include - ANSWER D emand
U tility
S carcity
T ransferability
external obsolescence - ANSWER loss in value of property caused by factors outside of
the property itself
LTV ( loan-to-value ratio) - ANSWER percentage of value or sales price that a lender is
willing to finance
appraisal less than sales price = - ANSWER 1termination of transaction
2reduced sales price by seller to match appraised value
3payment of difference bw sales price/ appraised value by buyer/borrower
T/F: The seller is under no obligation to reduce sales price to match a low appraisal. -
ANSWER true
T/F: the buyer is obligated to pay excess if an appraisal comes in low. - ANSWER false
desk review - ANSWER type of appraisal review where appraisal must meet checklist of
items to verify completeness and acceptable conclusions by lender at desk
field review - ANSWER independent third-party appraiser reviews report and verifies
accuracy of data, elements, and procedures used by og appraiser
limited appraisal - ANSWER exterior-only or drive-by inspection used for low LTV (low
risk loans)
full appraisal report - ANSWER includes interior inspection
market value - ANSWER most probable price a property should bring in a competitive
and open market under all conditions requisite to a fair sail (guidelines by federal
lending institutions)
, Conditions of market value opinion - ANSWER 1= relationship, knowledge, motivation of
parties
2-terms of sale (cash)
3-conditions of sale (exposure to market)
price - ANSWER amount of money for which a particular property sold
T/F: Assessed value can be used as a reliable estimate for market value because ad
valorem taxes are based upon this value. - ANSWER false- assessed value should
never be used to estimate market value
Appraisers must follow - ANSWER USPAP, uniform standards of professional appraisal
practice
URAR (uniform residential appraisal report) is also know as - ANSWER Fannie Mae
Form 1004
Freddie Mac Form 70
sales comparison approach - ANSWER market data approach, appraiser focuses on
recent sales and "comparables," to determine value
Superior features and inferior features are relevant to what type of sale - ANSWER
comparable sale
superior feature = - ANSWER apply negative adjustment to sale
net adjustments - ANSWER absolute adjustments made to the comparable, considering
those that are positive and negative
gross adjustments - ANSWER sum of all adjustments, whether or not they are positive
or negative
cost approach - ANSWER considers how much a new structure of this size and type
would currently cost to build
Which approach is commonly used for unique properties for which there is little market
activity, like a church? - ANSWER the cost approach
depreciation - ANSWER reduction in value of a property due to deterioration or
obsolescence
new cost - depreciation + land value = - ANSWER total estimated value
physical deterioration - ANSWER loss of property's value due to daily wear and tear
CORRECT 100%
appraisal - ANSWER -an appraiser's opinion of value
-lenders use this to determine market value of property being used to secure the loan
highest and best use - ANSWER legal use for property that gives greatest return in
money and/or amenities
principle of contribution - ANSWER property's value is equal to the sum of the
contributory value of each of its component parts
T/F: in a practical application of the concept of contribution, cost does NOT equal value.
- ANSWER true
principle of change - ANSWER forces of change can be specific or external to property,
always affecting value of the land
principle of anticipation - ANSWER purchase price is affected by expectation of future
appeal and benefits
principle of subsititution - ANSWER a commodity's value is influenced by hte cost of
acquiring a substitute or ocmprable item
principle of conformity - ANSWER value is maximized when there is a reasonable
degree of homogeneity, or sameness, in a neighborhood
principle of increasing and decreasing returns - ANSWER it is prudent to improve
property when the value added by the improvement exceeds cost of the improvement
principle of supply and demand - ANSWER high demand + short supply = increase
marketplace prices
low demand + high supply = decrease in price
principle of regression - ANSWER presence of lower-priced properties in the area will
cause a decline in the value of the subject property
principle of progression - ANSWER value of subject property is increased by value of
surrounding properties
principle of competition - ANSWER absence of competition = prices increase
increased competition = prices decrease
,principle of balance - ANSWER mixed land use should result in max value for all
properties involved
market value - ANSWER price a willing seller will sell for, and the price a willing buyer
will pay
sales comparison approach - ANSWER approach used as best indicator of value for
existing properties
Property Value must include - ANSWER D emand
U tility
S carcity
T ransferability
external obsolescence - ANSWER loss in value of property caused by factors outside of
the property itself
LTV ( loan-to-value ratio) - ANSWER percentage of value or sales price that a lender is
willing to finance
appraisal less than sales price = - ANSWER 1termination of transaction
2reduced sales price by seller to match appraised value
3payment of difference bw sales price/ appraised value by buyer/borrower
T/F: The seller is under no obligation to reduce sales price to match a low appraisal. -
ANSWER true
T/F: the buyer is obligated to pay excess if an appraisal comes in low. - ANSWER false
desk review - ANSWER type of appraisal review where appraisal must meet checklist of
items to verify completeness and acceptable conclusions by lender at desk
field review - ANSWER independent third-party appraiser reviews report and verifies
accuracy of data, elements, and procedures used by og appraiser
limited appraisal - ANSWER exterior-only or drive-by inspection used for low LTV (low
risk loans)
full appraisal report - ANSWER includes interior inspection
market value - ANSWER most probable price a property should bring in a competitive
and open market under all conditions requisite to a fair sail (guidelines by federal
lending institutions)
, Conditions of market value opinion - ANSWER 1= relationship, knowledge, motivation of
parties
2-terms of sale (cash)
3-conditions of sale (exposure to market)
price - ANSWER amount of money for which a particular property sold
T/F: Assessed value can be used as a reliable estimate for market value because ad
valorem taxes are based upon this value. - ANSWER false- assessed value should
never be used to estimate market value
Appraisers must follow - ANSWER USPAP, uniform standards of professional appraisal
practice
URAR (uniform residential appraisal report) is also know as - ANSWER Fannie Mae
Form 1004
Freddie Mac Form 70
sales comparison approach - ANSWER market data approach, appraiser focuses on
recent sales and "comparables," to determine value
Superior features and inferior features are relevant to what type of sale - ANSWER
comparable sale
superior feature = - ANSWER apply negative adjustment to sale
net adjustments - ANSWER absolute adjustments made to the comparable, considering
those that are positive and negative
gross adjustments - ANSWER sum of all adjustments, whether or not they are positive
or negative
cost approach - ANSWER considers how much a new structure of this size and type
would currently cost to build
Which approach is commonly used for unique properties for which there is little market
activity, like a church? - ANSWER the cost approach
depreciation - ANSWER reduction in value of a property due to deterioration or
obsolescence
new cost - depreciation + land value = - ANSWER total estimated value
physical deterioration - ANSWER loss of property's value due to daily wear and tear
