Identification of the Problem and Scope of Work: Chapters 5 - 8

Key Terms and Questions

The intended use of an appraisal is:

• The type of value estimate to be made

• The size of the appraisal report

• The stated goal of the client when ordering the appraisal

• The appraiser’s understanding of the manner in which the client will employ the information contained in an appraisal report

The appraiser’s understanding of the manner in which the client will employ the information contained in an appraisal report

An appraiser from Smallburg was asked to do an appraisal of an improved, now-vacant industrial property in Bigville. This property has significant environmental problems that were reported several times in the local newspaper and on the local TV news. The client is a lender who agreed to use this appraiser because he was reported to have specific knowledge about industrial properties. The appraiser drove 75 miles from Smallburg to Bigville to do the inspection. He spent one hour viewing and measuring the buildings. The appraiser contacted a local appraiser for comparable sales and leases in the industrial market in Bigville. He prepared an appraisal report without acknowledging or compensating for the environmental problems, and the value was overstated by plus or minus $2 million. Which of the following statements is correct?

• This appraiser was competent but simply made a mistake.

• This appraiser was not competent because competency includes geographic and market knowledge and understanding, which the appraiser apparently did not have.

• This appraiser was probably protected by his limiting conditions in the report.

• It is the client’s fault that the report is misleading because the client probably knew the property was troubled.

This appraiser was not competent because competency includes geographic and market knowledge and understanding, which the appraiser apparently did not have.

A lender asked an appraiser to prepare an appraisal report on a 2.2-acre site with a proposed single-tenant industrial building. The lender requested a value estimate as of today, which the appraiser provided via comparison with vacant land sales. The lender also requested a value opinion as if the structure were completed. This is an example of

• An extraordinary or special assumption if the date of appraisal is today

• A hypothetical condition if the date of appraisal is one year from now

• An unethical appraisal because the building is not in place

• A hypothetical condition if the “as completed” value is dated as of today

A hypothetical condition if the “as completed” value is dated as of today

Which type of value is the focus of most real property appraisal assignments?

• Use value

• Liquidation value

• Investment value

• Market value

Market Value

Use value is

• The value a property has within its highest and best use

• The value a property has within the current zoning requirements

• The value a specific property has for a specific use

• The value a property has assuming there are no mortgages or easements

The value a specific property has for a specific use

Which of the following is a requirement of most market value appraisals?

• Well-informed brokers

• Special financing arrangements or seller concessions

• A sale must occur within 90 to 120 days

• Typically motivated sellers

Typically motivated sellers

Which type of value reflects the subjective relationship between a particular investor and a given investment?

• Use value

• Market Value

• Investment Value

• Fair Value

Investment Value

Assessed value is used in

• The determination of market value

• The calculation of the real property tax burden

• The determination of the real property interests valued

• The calculation of the land value as vacant

The calculation of the real property tax burden

Which type of value applies in ad valorem taxation and refers to the value of a property according to the tax rolls?

• Use value

• Assessed value

• Market value

• Investment value

Assessed value

Which of the following statements about the use of the term value in appraisal is correct?

• The term value should be used with a modifier to indicate the specific type of value being discussed, such as market value, use value, investment value, etc.

• Everybody knows what the term value means, so an appraiser should assume that it means “market value.”

• Value is always an opinion, and the appraiser should always use the term an opinion of value when referring to market value.

• It is commonly understood that the term value always means “use value,” so further descriptions are not needed.

The term value should be used with a modifier to indicate the specific type of value being discussed, such as market value, use value, investment value, etc.

An appraiser is asked to prepare a market value appraisal report of the local publicly owned library facility. The client specifically stated that the value opinion must be of the market value as of today. The appraiser spent a great deal of time researching comparables and found no comparable sales of public library facilities. Which of the following statements is correct?

• The appraiser must use only the cost approach for this assignment because it is a reasonable option in this case.

• The appraiser should develop an income capitalization approach based on the net income from the book rental charges.

• The appraiser cannot do this appraisal because there are no comparable sales of library facilities.

• The appraiser must develop an opinion of highest and best use considering the subject’s place in the market, such as the office market or retail market, where buyers are available and other highest and best use constraints are met.

The appraiser must develop an opinion of highest and best use considering the subject’s place in the market, such as the office market or retail market, where buyers are available and other highest and best use constraints are met.

Which type of value reflects how much a specific component of a property contributes to the property’s overall value?

• Disposition value

• Contributory value

• Assessed value

• Use value

Contributory Value

If a property is bound by a lease agreement, what property interest would represent the marketable interest?

• The fee simple estate

• The leased fee

• The easement estate

• The life estate

The leased fee

An ownership interest held by a landlord with the right of use and occupancy conveyed by lease to others is a(n)

• Appurtenance

• Leased fee

• Sublease

• Unlimited bundle of rights

Leased fee

The right to use, occupy, and control real estate that is limited by the life of a designated party is referred to as a

• Leased fee life interest

• Leased fee

• Leased fee absolute

• Life estate

Life estate

Which party does the landlord look to for payment of rent in a sublease arrangement that does not have any other agreement in place?

• The sublessee

• The grantor

• The lessee

• The government

The lessee

Which term describes the landlord in a lease arrangement?

• Lessee

• Lessor

• Occupant

• Mortgagor

Lessor

The leasehold refers to

• The rights of the owner of a property that has been leased

• The rights of the lessee

• Obligations of the sublessee to the owner’s position

• The owner’s rights in a property that is not leased

The rights of the lessee

The right to use land owned by another can be called a(n)

• Co-op

• Easement

• Life estate

• Profit

Easement

The identification of the property rights appraised includes

• Identifying the age of the improvement

• Identifying the lot size and legal description of the site

• Researching capitalization rates and lease factors

• Recognizing interests created by leases

Recognizing interests created by leases

The owner of a “condominium” owns

• A unit in the building and a parking space in the parking lot

• A three-dimensional defined unit and an undivided interest in the project

• A leased fee in a unit in the building

• A leasehold in a unit in the building

A three-dimensional defined unit and an undivided interest in the project

Condominium ownership is limited to which type(s) of property?

• Commercial

• Only residential

• Industrial and residential, but not commercial

• There are no limitations

There are no limitations

A form of property ownership in which the buyer receives a proprietary lease and a share of stock in a corporation that owns the fee simple interest in the property is called

• A condominium

• A cooperative

• Fee simple defeasible

• A leased fee

A cooperative

Limited ownership in a property in which the owners’ rights in realty are defined as fee simple with a defined time window is known as

• A condominium

• A cooperative

• Timesharing

• Tenants in time

Timesharing

Absolute ownership that is unencumbered by any other interest or estate and subject only to the limitations imposed by governmental powers is known as the

• Fee simple easement

• Fee simple estate

• Economic interest

• Financial interest

Fee simple estate

The scope of work in an appraisal report is acceptable

• If the client approves it

• If the secondary market approves it

• If it meets or exceeds the expectations of parties who are regularly intended users for similar assignments and what the appraiser's peers' actions would be in performing the same or a similar assignment

• If the client approves, the appraiser thinks it is not misleading, and the state appraiser board has given explicit approval

If it meets or exceeds the expectations of parties who are regularly intended users for similar assignments and what the appraiser's peers' actions would be in performing the same or a similar assignment

The scope of work decision

• Is an ongoing process that can change as the appraisal process proceeds

• Is established and cannot be changed after the assignment is accepted

• Is established solely by the client

• Is established by the Appraisal Subcommittee (ASC)

Is an ongoing process that can change as the appraisal process proceeds.

The scope of work of an appraisal

• Must always include an inspection of the subject, at least on the exterior

• Must always include an inspection of the subject and all comparable sales

• Must always include an interior and exterior inspection of the subject property

• May or may not include an inspection of the subject or comparable sales

May or may not include an inspection of the subject or comparable sales

Scope of work

• Defines the extent of research and analyses of the appraisal process

• Is a term that is unique to the appraisal profession

• Defines the level of detail of the appraisal report

• Is not used in appraisal

Defines the extent of research and analyses of the appraisal process

An appraiser is asked to prepare an opinion of market value for a property without having access to the interior of the residence. This appraisal

• Has been limited by the definition of value

• Has been limited by the amount of the fee

• Is unethical and potentially misleading

• Is limited by the scope of work

Is limited by the scope of work

An appraiser was asked to prepare an appraisal report on a residential property located at Lot 44 in Greenwater Estates. When the appraiser was doing research, she found that the house improvement had been built on leased property 12 years before. The appraiser should

• Appraise the fee simple interest

• Appraise the leased fee

• Appraise the leasehold

• Reopen the scope of work discussion and ask the client what interest is to be appraised

Reopen the scope of work discussion and ask the client what interest is to be appraised

An appraiser was asked to review an appraisal report of a multitenant office building. The appraiser has never appraised this type of property before. Which of the following statements is correct?

• This appraiser can accept this review assignment. It will be an educational experience and the appraiser will learn a lot.

• This appraiser cannot accept a review appraisal assignment if he or she is not competent in terms of property type, valuation techniques, or geographic consideration. The appraiser can either become competent or should not accept the assignment

• This appraiser can accept this assignment provided that his or her incompetence is disclosed to the client because the client always determines the scope of work in an assignment.

• This appraiser cannot accept this assignment because he or she will have no idea how much to charge

This appraiser cannot accept a review appraisal assignment if he or she is not competent in terms of property type, valuation techniques, or geographic consideration. The appraiser can either become competent or should not accept the assignment.

The level of detail in the scope of work discussion

• Should be the same in all reports

• Depends on the intended use and intended users

• Is never the same from one report to the next

• Must be in a specific section of the report on a specific page with a title in bold type

Depends on the intended use and intended users