Deck 7: Valuation Using the Sales Comparison and Cost Approaches

Question 1

Real estate appraisers generally distinguish among the concepts of market value,investment value,and transaction value.Which of the following statements best describes the concept of market value?

A)It is an estimate of the most probable selling price of a property in a competitive market.
B)It is the value a particular investor places on a property.
C)It is the price we observe when a property is sold.
D)It is the maximum amount that a seller would be willing to accept.

Answer 1

A

Question 2

In real estate markets,a transaction occurs only when the investment value of the buyer exceeds the investment value of the seller.The buyer's investment value is the ________ that he or she would be willing to pay for a particular property,while the seller's investment value is the _______ that he or she would be willing to accept.

A)minimum;minimum
B)minimum;maximum
C)maximum;minimum
D)maximum;maximum

Answer 2

C

Question 3

Which of the following would be categorized as a cause of external obsolescence?

A)Lack of adequate insulation
B)Deterioration of indoor carpets
C)Increased traffic flow due to more intensive use in the local area
D)Outdated fixtures

Answer 3

C

Question 4

Estimating the market value of real estate is complicated by the unique characteristics of real estate markets.In contrast to stock markets,real estate markets are characterized by all of the following EXCEPT:

A)No two assets are considered perfect substitutes for one another.
B)Market prices are revealed almost instantaneously and continuously to prospective buyers.
C)Transactions of similar assets occur infrequently.
D)The physical location of the asset being sold plays an important role in the pricing process.

Question 5

If all appraisal methods are appropriate for use in valuing a particular property,there is a clear order of preference that real estate professionals adhere to.Which of the following depicts the preferred order,with the most preferable approach being listed first and the least preferable listed last?

A)Sales comparison approach,cost approach,income approach
B)Income approach,Sales comparison approach,cost approach
C)Cost approach,income approach,sales comparison approach
D)Sales comparison approach,income approach,cost approach

Question 6

Adjustments for physical characteristics are intended to capture the dimensions in which a comparable property differs physically from the subject property.If the only physical difference between the subject property and the comparable is that the comparable does not have a fireplace,which of the following adjustments should take place?

A)The transaction price of the comparable property should be adjusted downward.
B)The transaction price of the comparable property should be adjusted upward.
C)The transaction price of the comparable property should not be adjusted.
D)There is no way to estimate the price of the subject property.

Question 7

While it is often sufficient to rely on informal methods of estimating the market value of real estate assets,the complexity and large dollar value of many real estate decisions dictate that formal estimates based on methodical collection and analysis of relevant market data should be utilized.The unbiased written estimate of the market value of a property is commonly referred to as a(n):

A)arm's length transaction
B)appraisal
C)property adjustment
D)reconciliation

Question 8

Real estate appraisal is often considered "more art than science," since identifying truly comparable properties is a subjective process.Therefore,it is essential that a comparable property transaction at least meets the requirement that it was fairly negotiated under typical market conditions.Which of the following types of transactions would be most appropriate for use in the sales comparison approach to valuation?

A)Commingled business transactions
B)Low-interest financing programs
C)Real estate auctions
D)Arm's-length transactions

Question 9

While there is no specific number of comparables that is right for every appraisal assignment,how many comparable sales are considered adequate as long as the properties are very similar to the subject property?

A)One
B)Three
C)Five
D)Ten

Question 10

Favorable mortgage financing may have a significant impact on the transaction price of the particular property.If the comparable property was known to have had favorable financing terms negotiated into the transaction price,which of the following adjustments should take place? (Note: Assume that the comparable property cannot be dropped from the analysis as there are already limited comparable sales transactions)

A)The transaction price of the comparable property should be adjusted downward.
B)The transaction price of the comparable property should be adjusted upward.
C)The transaction price of the comparable property should not be adjusted.
D)There is no way to estimate the price of the subject property.

Question 11

While there are several conventional approaches used to estimate the market value of real estate,which of the following is typically considered the most reliable approach?

A)Income approach
B)Sales comparison approach
C)Cost approach
D)Investment approach

Question 12

Most appraisers would say that report writing is one of the most important functions that they perform.Assume that an appraiser is putting together a report for a major income-producing property.Which of the following reporting options would be the most appropriate?

A)Self-contained appraisal report
B)Summary appraisal report
C)Restricted appraisal report
D)Oral appraisal report

Question 13

It may be appropriate for a real estate professional to utilize different approaches for estimating the market value of a property depending upon the particular property type and use.Which of the following approaches would be most appropriate when considering the valuation of retail office space?

A)Income approach
B)Sales comparison approach
C)Cost approach
D)Investment approach

Question 14

Real estate professionals have long supported strict standards of ethics and practice.Followed by all states and federal regulatory agencies,which of the following imposes ethical obligations and minimum standards that must be followed by all real estate professionals providing formal estimates of market value?

A)Uniform Standards of Professional Appraisal Practice (USPAP)
B)Multiple Listing Services (MLS)
C)Department of Housing and Urban Development (HUD)
D)Office of Federal Housing Enterprise Oversight (OFHEO)

Question 15

Several techniques can be used to obtain an indication of land value.The cost approach to valuation would most likely be used for which of the following properties?

A)One-family residential property
B)Retail office space
C)Education facility
D)High-rise apartments

Question 16

Accrued depreciation is the difference between the current market value of a building and the total cost to reproduce it new.One reason for this difference is related to changes in tastes,preferences,technical innovations,or market standards.This is commonly referred to as:

A)physical deterioration
B)functional obsolescence
C)external obsolescence
D)tax depreciation

Question 17

When employing the sales comparison approach,appraisers must consider numerous adjustments to convert each comparable sale transaction into an approximation of the subject property.Adjustments are divided into two groups: transactional adjustments and property adjustments.All of the following are transactional adjustments EXCEPT:

A)Financing terms
B)Market conditions
C)Conditions of Sale
D)Location

Question 18

The cost approach to valuation assumes the market value of a new building is similar to the cost of constructing it today.Which of the following terms refers to the expenditure required to construct a building of equal utility using modern construction techniques,materials,and design that eliminates outdated aspects of the structure?

A)Reproduction cost
B)Replacement cost
C)Fixed cost
D)Variable cost

Question 19

The sequence of adjustments to the transaction price of a comparable property would make no difference if all adjustments were either dollar adjustments or percentage adjustments,but with mixed adjustments the sequence matters.In making adjustments to a comparable property to arrive at a final adjusted sales price,the proper sequence for the following adjustments would be:

A)Financing terms,market conditions,location.
B)Location,market conditions,financing terms.
C)Market conditions,location,financing terms.
D)Location,financing terms,market conditions.

Question 20

As part of the data analysis step in the appraisal process,it is necessary to consider the highest and best use of the property in question.In regards to determining highest and best use,all of the following statements are true EXCEPT:

A)The proposed property use must be legally permissible.
B)It must be physically possible for the property to be used in the manner specified.
C)No financially limits are considered when determining the property's best use.
D)The property use must provide the greatest benefit to the owner.

Question 21

At the conclusion of the traditional sales comparison approach to valuation,the appraiser evaluates and reconciles the final adjusted sale prices into a single value for the subject property.This single value is commonly referred to as:

A)indicated value
B)investment value
C)transaction value
D)replacement value

Question 22

A comparable property sold 15 months ago for $105,000.If the appropriate adjustment for market conditions is 0.25% per month (without compounding),what would be the adjusted price of the comparable property?

A)$105,262.50
B)$105,393.80
C)$108,937.50
D)$144,375

Question 23

In using transaction data to determine the current value of the subject property,it is important to recognize that general market conditions may have changed since a particular transaction occurred.Property A sold 18 months ago for $235,000 and Property B sold 12 months ago for $215,000.If the two properties are priced today at $239,500 and $222,300,respectively,what is the average monthly rate of increase that can be used to adjust comparable prices for changes in market conditions?

A)0.09%
B)0.17%
C)0.19%
D)0.32%