A tax appeal assignment will commonly involve a ____ effective date.
retrospective
Intended use affects both appraisal ____ and reporting
development
A systematic procedure appraisers can employ to provide the answer to a client's question about the value of a property
Valuation Process
In ____ analysis, the appraiser analyzes the ideal improvement for the property.
highest/best use
The relevant characteristics of a property are part of ____ the problem.
identifying
T/F: Scope of work is the type and extent of research and analyses in an appraisal report review assignment.
True
T/F: Identifying characteristics of the subject property is specific data rather than general data.
True
T/F: The client and intended user are never the same.
False
T/F: A prospective appraisal has an effective date contemporaneous with the date of the report.
False
T/F: Developing an opinion of insurable value can be identified as the purpose of an appraisal assignment.
True
T/F: A hypothetical condition is contrary to what exists but is supposed for the purpose of analysis.
True
T/F: The valuation process provides a framework for deriving an opinion of market value as well as other types of value.
True
T/F: The first 2 elements of problem identification are identifying the real estate and the real property rights to be appraised.
False
T/F: Comparable sales having a different highest & best use than the subject should be used if similar in other characteristics.
False
T/F: Non-realty components of value are an element of comparison considered within the sales comparison approach.
True
T/F: Extraction is an improved land valuation procedure that can be used when a property sells and includes building improvements on the site.
True
T/F: The final step in the valuation process is the reconciliation of the value indications.
False
T/F: An appraiser must use all 3 approaches in every assignment.
False
T/F: The first step in the cost approach is to value the land as improved and ready for development it its highest and best use.
True
T/F: Purpose defines the intended use of the appraisal.
False
What does the purpose of an appraisal assignment define?
the type & definition of value used in the assignment
A value opinion of a proposed office building based on a current effective date would generally require what kind of assignment condition?
a hypothetical condition
the ratio of annual debt service to the principal amount of the mortgage loan is called the ____.
mortgage capitalization rate
NOI = $187,500. Overall Cap Rate of 7.5%. what is the indicated value using direct capitalization?
187,500 / .075 = $2,500,000
The 3 traditional approaches to value:
Sales Comparison, Income Capitalization, & Cost approaches
What is the indicated overall cap rate of a property that sold for $825,000 and has a NOI of $53,625?
53,625/825,000= 6.5%
What is the gross rent multiplier of a property sold for $174,000 and has a gross monthly rent of $1,500?
174000/1500 = 116
Gross Rent Multiplier = Sale Price / Gross Monthly Rent
The amount left after debt service has been deducted from NOI is called ____.
Pre-Tax Cash Flow
Method used to convert an estimate of a single year's income expectancy into an indication of value.
Direct Capitalization
Large tract of land that is being farmed for Ag use. The surrounding land is currently in transition from Ag to residential developments. What 2 procedures should be considered in analyzing the land value of the property?
sales comparison & subdivision development analysis
There are 2 common types of slab foundations. One is the slab on a perimeter stem wall, and the other is called a ____ slab.
monolithic
The 2 wall framing types are ____ and ____.
platform & balloon
A lender often requires a water test if a property has ____.
plumbing/well water
If an appraiser observes missing flashing, what construction system is the appraiser viewing?
the roof
Foundation walls are generally built on ____.
footings
The envelope envelope encompasses _____.
everything that separates unconditioned air from conditioned air (including ceiling/roof/foundation/walls/windows/doors)
T/F: Colonial style is an example of a 2-story design for a residence.
True
T/F: Foundations are sometimes constructed of specially prepared wood & referred to as a permanent wood foundation.
True
T/F: Tighter construction standards since the 1980s have proven to have little or no unfavorable side effects.
False
T/F: Drain tile is another term used in lieu of gutters on the roof.
False
Engineered trusses are sometimes used in lieu of hand framing a roofing support system.
True
Chandra is appraising a residential property, built in 1981 and of average condition. The appraiser is using a cost-service provider to develop the cost approach. What type of cost is she using in the appraisal?
Replacement Cost
The cost estimating method that considers all materials used and all categories of labor required to construct the improvement is called ____.
quantity survey method
The 3 types of accrued depreciation applicable to property improvement:
external obsolescence, functional obsolescence & physical deterioration
Labor and materials are an example of what kind of cost?
Direct cost
A buyer will not pay more for a property than the cost to construct one of equal desirability and utility without undue delay. What principle does this illustrate?
Substitution
What type of property is the GLA generally based on interior dimensions?
a) cluster home in a PUD
b) condominium
c) manufactured home
d) twin home
condominium
An appraiser is analyzing the soft costs in a building project. What might the appraiser consider in this category?
a) architectural fees
b) building permits
c) material storage facilities
d) security during construction
architectural fees
(indirect cost; necessary but not typically part of construction contract, like legal fees)
What is left when the total cost of development is deducted from the sale price of a property?
entrepreneurial profit or loss
T/F: GLA square footage includes finished basement area and an attached screen porch on the main level
FALSE
What kind of depreciation is to blame for a 40-year-old oak door or a broken screen door?
a) physical deterioration
b) functional obsolescence
c) external obsolescence
physical deterioration
What kind of depreciation is to blame for a warehouse not built well enough for the high winds in its area or a house with 6 BR & 1 Bath?
a) physical deterioration
b) functional obsolescence
c) external obsolescence
functional obsolescence
What kind of depreciation is to blame for a house with a 24-hour truck stop next door or a restaurant in a town where a major employer has just closed?
a) physical deterioration
b) functional obsolescence
c) external obsolescence
external obsolescence
What are the 3 methods for deriving applied depreciation?
Market Extraction, Age-Life, and Breakdown methods
Age-Life Method of Depreciation
-most widely used among appraisers
-doesn't break depreciation down into categories
-Effective Age+Remaining Economic Life =Economic Life
-Cost-Depreciation$ = Depreciated Cost (value)
-Effective Age/Econ Life = Depreciation Rate%
2 Types of Physical Deterioration
-Curable PD: minor items than can be fixed (deferred maintenance)
-Incurable PD: can't be practically/economically corrected
2 Types of Functional Obsolescence
-Curable FO: cost of replacing outmoded/unacceptable component must be <= anticipated value increase
-Incurable FO: cost of replacing outmoded/unacceptable component is > anticipated value increase
What type of wall enclosure for a porch is the most costly?
a)solid wall
b)open with post supports
c)knee wall with glass
d)solid wall
knee wall with glass
In the marketplace, a commercial broker might refer to a property as a "Class X" building. This rating refers to ______.
competitive ranking for leasing purposes
In the cost approach, an appraiser may categorize high interest rates as what type of depreciation accruing to the property?
external obsolescence
Estimating depreciation using the breakdown method. Useful life is 25 years. Actual age is 10 years. John believes the effective age is 15 years due to storm damage. What is the % of depreciation?
Actual Age / Useful Life
10 / 25 = 40%
-using breakdown method, effective age doesn't matter
Warehouse sold for $950,000. Land estimated at $250,000. Cost to replace the existing warehouse is $1.5 million. What's the depreciation in $?
950000-250000=700000
1,500,000 - 700,000 = $800,000
Effective age 30 years. Remaining economic life 20 years. What is the depreciation %?
Effective Age / Economic Life = % Depreciation
30 / (30 + 20) = 30/50 = 60% depreciated
Apartment building has plumbing & electrical that are deteriorated to the point of need complete replacement. This depreciation can be identified as _____.
a) external obsolescence
b) functional curable obsolescence
c) physical curable deterioration
d) ph
physical incurable deterioration
When using the economic age-life method of depreciation, what type of depreciation is actually measured?
All Types (external obs., functional obs., physical det.)
The ____ method is the most commonly used cost-estimating method.
a)unit in place method
b)quantity survey method
c)comparative unit method
d)cost-index trending
comparative unit method
-find replacement cost based on similar structures adjusted for market conditions (like for square footage)
What is the difference between reproduction costs and replacement costs?
Reproduction Costs - $ to produce an exact replica
Replacement Costs - $ to produce a substitutable equivalent of the same utility
If an appraisal assignment involves a proposed building and it's presumed that the proposed building is in place (as of the current appraisal date)...then for the purpose of analysis, what assignment condition should be addressed in the identification of
Hypothetical Condition
(because the the proposed building is no longer hypothetical...it's really there now, so a 'what if' now becomes part of the actual appraisal problem)
Referencing Marshall Valuation Service is an example of what method for the cost approach?
Comparative Unit Method
An appraiser has hired an experienced cost estimator in order to estimate the cost of a property. What cost method is this?
Quantity Survey Method
-most detailed
-most expensive
-quantity & quality of materials applied
T/F: When appraising an improved property, you should always conclude the HBU of the site as vacant before determining HBU of the site as improved.
TRUE
Replacement cost of $500,000. Remaining econ life of 38 years. Total econ life of 50 years. What % depreciation should be applied?
24% (12/50)
Building just sold for $1,000,000. Has a site value of $300,000. Replacement cost new is estimated at $925,000. Effective age is 10 years. what is the indicated depreciation expressed as % per year?
2.4%
Which land/site valuation procedure requires a cost estimate of the improvements for each of the comparable sales?
a) ground rent capitalization
b) extraction
c) land residual technique
d) sales comparison
extraction
-(extract land value by subtracting the improvement value; therefore you have to have improvement cost estimates)
Assemblage is the process of combing 2 or more sites in order to produce greater utility. The increment of value created from assemblage is called ____.
plottage
$ adjustment to a comp sale: +$5k, -$2k, -$6k. What's the gross adjustment?
+$13k
components into which a property may be divided for purposes of comparison are called____.
a) adjustment items
b) attribute characteristics
c) elements of comparison (property rights, financing terms, conditions of sale, etc.)
d) units of comparison
units of comparison
What's the preferred method of land/site valuation when adequate data is available?
sales comparison
All of the following data can be considered on sales comparable to the subject property, except _____.
a) active listings
b) closed sales
c) expired listings
d) fraudulent contracts
fraudulent contracts
What unit of comparison is appropriate in the appraisal of a hotel?
a) price per apartment
b) price per bed
c) price per cubic foot
d) price per guest room
price per guest room
Which type of market would provide the best market conditions for an appraiser to employ the sales comp approach?
a) active market
b) buyer's market
c) seller's market
d) slow market
Active Market
A buyer paid more for a property b/c he was uninformed about the cost to petition for a zoning change. What element of comparison would this fall under?
expenditure made immediately after purchase
Comp Sale: seller paid discount points to lower buyer's monthly mortgage payment.
Sale Price: $300,000
Buyer is paying 20% down.
Seller paid 5 discount points on the mortgage amount.
What is the cash-equivalent sale price?
$288,000
***State the 5 Transactional Adjustments (cumulative chain calculation)
1. Real property rights conveyed
2. Financing terms
3. Conditions of Sale
4. Expenditures made immediately after purchase
5. Market conditions
The 5 Property Adjustments are:
6. Location
7. Physical characteristics
8. Economic characteristics
9. Use/zoning
10. Non-realty components of value
These adjustments are not ____ or specifically ____.
not cumulative or sequential
(each % goes back to the adjusted sale price)
T/F: Transactional adjustments are the first to be performed over property adjustments. Transactional adjustments are carried out in sequence.
TRUE
The part of the valuation process that uses experienced judgement and results in a value of opinion is called the ____.
reconciliation
An appraiser used cost-related indicators to derive an adjustment, which is considered what type of adjustment technique?
quantitative
The location of a comp sale was superior by $25,000. But the smaller size was inferior by $50,000. What's the indicated value if the comp sale sold for $600,000.
600-25+50 = $625,000
Using the following %'s in the appropriate sequence of adjustments, what is the indicated value of a comp property that sold for $200,000?
-5% Property rights conveyed
+15% Location
+5% Economic
-5% Conditions of sale
-10% Financing
Transactional adjustments 1st, in order, then property adjustments together:
200,000
x .95 (-5% PRC)
x .9 (-10% F)
x .95 (-5% CoS)
x 1.2 (+15% L & +5% E)
=$194,940
Comp sales are adjusted to the subject property as the base, except financing, which is adjusted to what?
a) consumer price index
b) cash equivalency based on the market
c) nominal interest rate
d) the other comp sales
cash equivalency based on the market
An appraiser has selected 2 sales that are alike except for one feature. Comparing the 2 sales to derive a market adjustment for the feature is called ____.
paired data analysis
An appraiser adjusted a comp sale to the subject because it sold 12 months ago. In this instance, the adjustment is for ____.
a) conditions of sale
b) financing terms
c) market conditions
d) property rights conveyed
market conditions
PGI minus allowance for vacancy and collection losses
EGI
EGI minus operating expenses
NOI
NOI minus debt service
pretax cash flow
A contract calling for changes in the amount of rent at one or more points during the lease term:
Graduated Rental Lease
a lease in which some or all of the rent is based on the volume of business
Percentage Lease
The actual rent specified in a lease
Contract Rent
The amount by which contract rent exceeds market rent
Excess Rent
Percentage rent paid over and above the base rent
Overage Rent
Ratio of net operating income to annual debt service
Debt Coverage Ratio
ratio of operating expenses to effective gross income
Operating Expense Ratio
T/F: The client in an assignment is also an intended user
True
T/F: The last step of the valuation process is reconciliation
False
T/F: IRV formula is used to convert NOI into value
True
A ratio of income expectancy to the sale price (or value) of a property defines what type of rate?
Capitalization Rate
T/F: Discount Rates and cap rates are NOT the same
True
3 major categories of expenses
1. fixed
2. variable
3. replacement allowance
How is reversion accounted for in direct cap?
It's included in the cap rate (or factor)
If the Net Income Ratio (NIR) is 40%, what is operating expense ratio (OER)?
60%
T/F: a lender would love a loan with a debt coverage ratio of 90%.
False
T/F: annual debt service is excluded from expenses when calculating NOI.
True
T/F: the higher the cap rate, the higher the value
False
T/F: discounting is the reverse of compounding
True
What type of income is utilized in direct cap that uses an overall cap rate?
NOI
Annual debt service divided by the mortgage amount is identified as what type of rate?
Mortgage Cap Rate (mortgage consant)
T/F: when annual debt service is added to pre-tax cash flow the result is NOI.
True
T/F: when using VIF on a commercial income property, the appraiser will analyze either PGI or EGI.
True
Property sold for $515,200. Market rent is $4,600. GRM?
sale price / total monthly rent = 112
Apartment building has 6 units at $700/mo & 8 units at $900/mo. Vacancy & collection loss is 3%. EGI?
6x700x12 + 8x900x12 = 136,800PGI x .97 = EGI = $132,696
T/F: Researched info about the subject is categorized as general data
False (it's specific data)
T/F: yield rate is also referred to as discount rate.
True
What 6 elements are recognized in identification of the problem?
1. Client & Intended Users
2. Intended Use
3. Purpose of the assignment
4. Effective Date
5. Relevant Characteristics
6. Assignment Conditions
T/F: an extraordinary/special assumption is based on the belief that uncertain conditions are presumed as fact.
True
T/F: Separate valuation of land & improvements is required in sale comp approach.
False
Sale of $320,000. monthly rent 2,600. GRM?
123
T/F: in a gross lease, the tenant pays op ex.
False (gross lease = landlord pays everything)
OER is 35%. EGI $120,000. NOI?
NIR = 1 - OER = 1-.35 = .65
NOI/NIR = EGI...NOI= EGI x NIR
120,000 x .65 = $78,000
T/F: all leases can be categorized as either flat rental or precentage.
False
T/F: wear & tear on a residential foundation is an example of incurable physical deterioration.
True
T/F: the difference btwn. the sale price of a new property & the total costs to produce it is called surplus productivity.
False (its entrepreneurial profit)
T/F: economic life is the period of time over which the improvements contribute value to the site.
True
T/F: the most preferred method of estimating cost new is the unit-in-place method.
False (its the Comparative-Unit method)
Useful life and actual age are utilized in the ___ method of estimating depreciation.
Breakdown Method
A leaking faucet is an example of ___ ___ obsolescence.
Physical Curable Obsolescence
Effective age of property is 15 years. Remaining economic life of 60 years. What is the % of depreciation?
15 / (15 + 60) = 15/75 = 60%
roof is 12 years old. Useful life of 30 years. % depreciation of roof?
12/30 = 40% (this is the breakdown method)
T/F: to qualify as a manufactured home the structure must be attached to a permanent foundation.
True
T/F: Paired sales is a quantitative analysis.
True
T/F: a location element of comparison known as "linkage" pertains to time/distance relationships.
True
The principle that a buyer will not pay more for a property than another that is equally desirable.
Substitution
THE SALE IS ALWAYS ADJUSTED TO THE SUBJECT.
THE SALE IS ALWAYS ADJUSTED TO THE SUBJECT.
An increase in value that occurs when 2 or more sites are combined
Plottage
The process of combining 2 parcels.
Assemblage
What 5 things are considered when reconciling the Sales Comparison Approach?
-# of adjustments
-gross adjustments
-net adjustments
-amount of data
-comparability to subject
T/F: the only signature required on an appraisal is on the certification
True
T/F: cost-related analysis used in deriving an adjustment is a qualitative technique
False