Finance 4510 Exam #3

household

a number related or unrelated persons who live in one housing unit; all the persons occupying a group of rooms or a single room that constitutes one housing unit. A single person, couple, or more than one family living in a single housing unit may make up

listing

a written contract in which an owner employs a broker to sell his or her real estate

offering

a set of terms presented by the bidder, a prospective buyer or tenant, that are subject to negotiation. if the other party, a seller or landlord, accepts these terms, the offer will result in a contract

improvement cost data can be obtained from

builders, Marshall & Swift and other cost services, sales of new homes

demand for housing is affected when

a new factory opens and several hundred new employees are hired

competitive supply sources for housing include

rental units, houses for sale, houses that will be for sale

if the property is 10% superior to Comparable Sale 1 and the comparable sold for $100,000, what is the indicated value of the subject?

$100,000 x 1.10 = $110,000

if a comparable property is 10% superior to the subject property and the comparable sold for $100,000, what is the indicated value of the subject?

$100,000/1.10 = $90,909

the assessment ratio is

the ratio of assessed value to market value

ten mills equals

0.0100

if a property has a market value of $56,000 in a city that charges a millage rate of 75 mills and applies an assessment ratio of 25%, what are the annual real estate taxes for this property?

$1,050

if the assessment ratio is 25% and the millage rate is 120 miles, what is the tax rate?

3.0%

in the appraisal of a one-unit residence, a significant attribute is

the size and age of the house

if a comparable sold for $100,000 and is identical to the subject property except that the subject has more living area,

the subject should be worth more than $100,000 if the extra area is recognized in the market as adding more value

macro-level data is

items of information on value influences that derive from social, economic, governmental, and environmental forces and originate outside the property being appraised

in the sale of residential properties, the amount of property taxes is

important because the ability to qualify for a mortgage loan includes principal, interest, taxes, and insurance (PITI); lenders compare the buyers' income amounts with the required payment, including taxes and insurance

raw land

land on which no improvements have been made; land in its natural state before grading, construction, subdivision, or the installation of utilites

site

land that is improved so that it is ready to be used for a specific purpose

legal description

a description of land that identifies the real estate according to a system established or approved by law; an exact description that enables the real estate to be located and identified

metes and bounds system

a system for the legal description of land that refers to the parcel's boundaries, which are formed by the point of beginning (POB) and all intermediate points (bounds) and the courses or angular direction of each point (metes)

rectangular (government) survey system

a land survey system in Florida, Alabama, Mississippi, and all states north of the Ohio River or west of the Mississippi River except Texas; divides land into townships approximately six miles square, each normally containing 36 one-square-mile sections o

base line

in the government survey system of land description, a line running due east and west through the initial point of a principal meridian from which township lines are established

principal meridian

in land surveying, major north-south lines established as general reference points. there are about 25 principal meridians in the 48 contiguous states of the United States

lot and block system

a system for the legal description of land that refers to parcels' lot and block numbers, which appear on recorded maps and plats of subdivided land; may also be used for assessment maps

frontage

the measured length of a site that abuts a street, stream, railroad, or other feature

corner influence

the effect on value produced by a property's location at or near the intersection of two streets; the increment of value or loss in value resulting from this location or proximity

assemblage

the combining of two or more parcels, usually but not necessarily contiguous, into one ownership or use; the process that creates plottage value

plottage

the increment of value created when two or more sites are combined to produce greater utility

excess land

land that is not needed to serve or support the existing use. the highest and best use of the excess land may or may not be the same as the highest and best use of the improved parcel. excess land has the potential to be sold separately and must be valued

surplus land

land that is not currently needed to support the existing use but cannot be separated from the property and sold off for another use. surplus land does not have an independent highest and best use and may or may not contribute value to the improved parcel

floodplain

the flat surfaces along the courses of rivers, streams, and other bodies of water that are subject to flooding

stigma

adverse public perception regarding a property, commonly the identification of a property with a condition such as environmental contamination or a violent crime, that penalizes the marketability of the property and may also result in a diminution in valu

a site is

land that is improved so that it is ready to be used for a specific purpose

which of the following statements is correct?

sites can be created, but land is fixed in amount

an example of a rectangular survey legal description is

part of the Northwest Quarter of Section 25, Township 17N, Range 3E

which of the following statements about zoning is correct?

zoning controls land use

plottage is

an incremental increase in value that results when two or more sites are combined to produce greater utility

excess land is

land that is not needed to support the subject's primary highest and best use or not needed to support existing improvements

a rectangular site measures 125 feet (frontage) by 256 feet (depth), of which 26 feet is in the public right of way. what is the gross and net site area?

32,000 square feet gross area and 28,750 square feet net area

a full section of land usually

includes 27,878,400 square feet

an acre of land includes

43,560 square feet

flood maps are published by

the Federal Emergency Management Agency

building description

the analysis of a building's design, layout, construction details, size, condition, and other characteristics that provides the basis for comparing the subject property's improvements with the improvements typically accepted in the subject property's mark

green building

the practice of creating structures and using processes that are environmentally responsible and resource-efficient throughout a building's life cycle from sitting to design, construction, operation, maintenance, renovation, and demolition. this practice

architectural style

the character of a building's form and ornamentation

formal architecture

architecture identified by its conformity to aesthetic and functional criteria recognized by persons trained in architectural history

vernacular architecture

architecture designed and built by individuals according to custom and for its adaptive response to the environment and contemporary lifestyles, without reference to the aesthetic and functional criteria of architectural history

functional utility

the ability of a property or building to be useful and to perform the function for which it is intended according to current market tastes and standards; the efficiency of a building's use in terms or architectural style, design and layout, traffic patter

functional inutility

impairment of the functional capacity of a property or building according to market tastes and standards; equivalent to functional obsolescence when ongoing change makes layouts and features obsolete and impairs value

short-lived items

a building component with an expected remaining economic life that is shorter than the remaining economic life of the entire structure

long-lived items

building components with an expected remaining economic life that is the same as the remaining economic life of the entire structure

gross leasable area is

commonly used in retail centers

terra-cotta is

hard-burned unglazed clay, usually molded into shapes for the ornamentation of structures

gunite is

pneumatically placed concrete usually associated with in-ground pools

romex is

a type of wiring

a jalousie is

a type of window with several window panes

gross living area is

commonly used in residential properties

superstructure refers to

the area of a building above grade

short-lived items do not include

structural steel

footings are

below the frost line in most buildings

gutters are

designed to channel water away from the building's foundation

eaves are

the portion of a roof projecting beyond the vertical wall of the building

HVAC is an acronym for

heating, ventilation, and air-conditioning

functional inutility is

an impairment of the functional capacity of a property or building

a baluster

one of the closely spaced vertical members in a stairway or balcony

a casement window is

a vertically hinged window that opens like a door

ceiling joists are

the structural members that the ceiling is attached to

clapboard is

a type of wood siding

brick is

made of clay and baked

coping is

tha masonry cap put on a wall to provide for watershed

a small building used to manufacture saw blades is an example of

industrial land use

market analysis

a process for examining the demand for and supply of a property type and the geographic market area for that property type

market study

a macroeconomic analysis that examines the general market conditions of supply, demand, and pricing or the demographics of demand for a specific area or property type

marketability study

a microeconomic study that examines that marketability of a given property or class of properties, usually focusing on the market segment (or segments) in which the property is likely to generate demand

market equilibrium

the theoretical balance where the demand for and supply of a property, good, or service are equal. over the long run, most markets move toward equilibrium, but a balance is seldom achieved for any significant period of time

market disequilibrium

a general characteristic of real estate markets over the short term in which the supply of and demand for real estate are out of balance

active market

a market characterized by numerous transactions

depressed market

a market in which a drop in demand is accompanied by a relative oversupply and a decline in prices

buyer's market

a market in which buyers have the advantage; exists when market prices are relatively low due to an oversupply of property or reduced buyer demand

seller's market

an active market in which the sellers of available properties can obtain higher prices than those obtainable in the immediately preceding period; a market in which a few available properties are demanded at prevailing prices by many users and potential us

weak market

a market characterized by low demand and declining price levels; also called a soft market

inferred demand

demand projected on the basis of current market conditions, historical rates of change, and absorption patterns

fundamental demand

demand projected on the basis of underlying factors that affect the economic well-being of real estate such as employment; population; household income, expenditure amounts, and preferences; and spatial growth patterns. in real estate appraisal, these fac

frictional vacany

the amount of vacant space needed in a market for its orderly operation. in a stabilized market, where supply and demand are in balance, frictional vacancy allows for move-ins and move-outs. in markets for income-producing property, frictional vacancy mea

which of the following has the most efficient market?

one-unit residences

A small town (pop. 2,500) has only two home builders. these two companies have each been building about five houses per year for the last 15 years. the subcontractors they all used came from neighboring towns, but occasionally they would need to import a

the existing buildings will gear up to handle some of the demand, but some subcontractors will become builders and some workers will become subcontractors. prices will increase in the short run.

the residential real estate market is much more efficient than the nonresidential real estate market in most cities because

there are more buyers and sellers and the MLS system organizes data

the current MLS system shows the following data for 5- to 10-year-old homes priced from $100,000 to $125,000: 13 current listings, 4 pending sales (offer accepted but not closed), and 12 sales within the last 12 months. over the last five years, that same

this market is oversupplied and prices will be stable at best

market analysis is included in appraisals

to show support for the estimated highest and best use and the existence of a market

a real estate market is

a group of individuals or firms that are in contact with one another for the purpose of conducting real estate transactions

office demand is most affected by

the expansion trends of local businesses

office supply is most affected by

the conversion or new construction of office buildings

retail space demand is affected by

changes in employment opportunities, changes in traffic patterns, and increases or decreases in disposable income

to analyze the market for a one-unit home, an appraiser should investigate

the number of listings and recent sales of homes that would appeal to the same buyer as the subject property

the economic base is

the economic activity that enables a community to attract income from outside its borders

financial feasibility

the capacity of a physically possible and legal use of property to produce a positive return to the land after considering risk and all costs to create and maintain the use

feasibility rent

the rent necessary to justify new construction. this concept helps the analyst determine the timing of development, as well as the difference between the required rent and market rent based on known costs and expected returns to the investor. feasibility

consistent use

the concept that land cannot be valued on the basis of one use while the improvements are valued on the basis of another use

legally nonconforming use

a use that was lawfully established and maintained, but no longer conforms to the use regulations of the current zoning in the zone where it is located; also known as grandfathered use

interim use

the temporary use to which a site or improved property is put until a different use becomes maximally productive

highest and best use analysis is required in

market value appraisals

highest and best use analysis requires an estimate of the use as though vacant and as improved to

estimate the value of the improvements, ensure that appraisers recognize that the property could be worth more without the buildings than with them, and estimate any functional obsolescence caused by inappropriate improvements

highest and best use of the site as though vacant

is required in all market value appraisals of real property, may require a change in zoning classification if possible, and assumes the site is vacant or could be made vacant by demolishing the improvements

which of the following are criterion for highest and best use?

legally permissible, physically possible, and financially feasible

the test of legal permissibility includes which of the following requirements?

deed and plat restrictions, zoning requirements, building codes, historic district controls, and compliance with lease provisions

common interim uses include

surface parking lots

the concept of consistent use requires an improvement to be valued based on a use that is consistent with the site's highest and best use. in other words, this means that

the improvement value must be adjusted down if the land's highest and best use is different than the improved highest and best use

a property includes a one-unit residence on the southeast corner of a five-acre parcel with 467 feet of frontage on each of two roads. the house alone (without land) would be worth $100,000. it was never platted, and there are no deed restrictions. the lo

highest and best use as though vacant = two parcels with +-2.5 acres each. highest and best use as though improved = leave the house and sell off the other site

when a property's highest and best use is likely to change in the near future, the prevailing highest and best use is called an

interim use

land values are never penalized due to functional problems in existing buildings because

buildings can be removed or altered

a legally nonconforming use is

a use that was legally established and maintained but no longer conforms to existing zoning

the land value of a 5-acre parcel in a prestigious residential area is estimated at $50,000 per acre based on comparable sales right in the area. improved comparable sales with homes like the subject property show that this property should be worth $225,0

$250,000

the market value of the fee simple rights for this parcel is

$245,000

the market value of the improvement is

-$5,000

if asked to appraise a municipal library, an appraiser

must estimate an alternative use and then find comparables of buildings that are similar to the alternative use

an improved residential property has the following characteristics: the land if it were vacant is valued at $85,000, the value of the property as it is improved (with the house) is $75,000, the cost of removing the house would be $5,000. what is the marke

the property value is $80,000

to be considered the highest and best use, a use must be

physically possible, legally permissible, financially feasible, and maximally productive

a site is different than land because

a site is improved land that is ready to be built upon

land is always valued at

its highest and best use as though vacant

sites can be valued by

extraction, allocation, and sales comparison

in sales comparison analysis, comparable sales are adjusted

to the subject property

when estimating the market value of a site, the appraisal should include

there is no set number of comparable site sales transactions

if market value is sought, the sales comparison approach to site valuation is based primarily on an analysis of the market behavior of

buyers

adjustments to the prices of comparable sits are measured by

the amount a typical buyer will pay more or less for the item

in the valuation of land by sales comparison, the order of adjustment should begin with

property rights transferred

a comparable site sold six months ago for $4,000. it was 10% superior to the subject site with respect to location and 15% inferior to the subject with respect to frontage and shape. the market conditions adjustment is 10% per year. the adjusted sale pric

$4,400

a new and improved non-residential property just sold for $235,000. direct construction costs were $126,000, and indirect costs were 15% of direct costs. builder's overhead and profit were 25% of total costs. what is the land value by extraction (rounded

$55,000

the valuation of land with a highest and best use as an industrial subdivision can be estimated using

the subdivision development method