RE 101 Ch. 11: Lesson 11: Real Estate Appraisal - Quiz Qs

An appraisal is:

A.an objective determination of a property's value

B.an opinion of value of a property

C.the market value of a property

D.the sales price of a property

B.an opinion of value of a property

An appraisal is an opinion or estimate of a property's value as of a given date. Reasonable appraisers may disagree on what the value of a property is.

The term "fee appraiser" refers to:

A.an appraiser employed by the state government

B.a self-employed appraiser who charges a fee for appraisal services

C.an appraiser employed full-time by a broker

D.an appraiser employed full-time by a lender

B.a self-employed appraiser who charges a fee for appraisal services

A fee appraiser is a self-employed appraiser who appraises properties for a fee.

Which of the following would be considered ethical behavior for an appraiser?

A.Setting her compensation as a percentage of a property's appraised value

B.Paying referral fees or kickbacks

C.Accepting a job that is contingent on reporting a minimum property value

D.Appraising a property in which the appraiser has an interest but disclosing that interest to the principal before beginning work

D.Appraising a property in which the appraiser has an interest but disclosing that interest to the principal before beginning work

It is ethical for an appraiser to appraise a property in which she has an interest, as long as she first discloses this interest to the principal. (There's an exception, however, in transactions where the loan will be secured by the borrower's home; in that case, it's illegal for the appraiser to have an interest in the subject property.)

Which of the following can a home inspector NOT do?

A.Assess whether an added room conforms with building codes

B.Estimate the life span of the roof

C.Provide a report detailing necessary repairs

D.Provide an estimate of the property's value as of the inspection date

D.Provide an estimate of the property's value as of the inspection date

A home inspector may provide a detailed description of a property's condition. However, only an appraiser may estimate a property's value as of a given date--in other words, perform an appraisal.

In an attempt to influence an FDIC-insured lender, Appraiser Alison does not adhere to generally accepted appraisal standards. She could be guilty of:

A.a misdemeanor

B.a felony

C.violating the Bureau of Real Estate's (formerly Department of Real Estate) rules and regulations for brokers

D.None of the above

B.a felony

In federally related loan transactions, appraisers are required to follow the Uniform Standards of Professional Appraisal Practice (USPAP). Failure to fulfill that requirement in order to improperly influence or defraud a federally insured lender is a felony. In addition to facing criminal prosecution, Alison could also lose her appraiser's license.

What type of appraiser is qualified to appraise a commercial development valued at over $500,000?

A.Certified general appraiser

B.Master appraiser

C.Residential appraiser

D.Trainee appraiser

A.Certified general appraiser

A certified general appraiser may appraise any category of property. Residential appraisers may appraise nonresidential properties of up to a certain threshold (currently $250,000 in value). "Master appraiser" is not a level of licensure.

To an appraiser, the present worth of future benefits is equivalent to:

A.price

B.cost

C.value

D.utility

C.value

One definition of value is the present cost of all future benefits of ownership.

Of the following characteristics, which is not an essential element of value?

A.Scarcity

B.Expectation

C.Utility

D.Demand

B.Expectation

The four essential elements of value are utility, scarcity, demand, and transferability (not expectation).

Which of the following characteristics are referred to as the essential elements of value?

A.Scarcity, cost, transferability, and demand

B.Utility, demand, scarcity, and cost

C.Transferability, scarcity, demand, and utility

D.Cost, utility, demand, and transferability

The essential elements of value are transferability, scarcity, demand, and utility.

When appraising residential property, an appraiser's primary concern(s) is/are:

A.total and living square footage

B.assessed value

C.marketability and acceptability

D.functional utility

C.marketability and acceptability

Marketability and acceptability are considered to be the fundamental basis of a residential property's value.

Which of the following statements is correct?

A.Value in use is subjective; value in exchange is objective

B.Value in use is objective, value in exchange is subjective

C.Value in use and value in exchange are both objective

D.Value in use and value in exchange are both subjective

A.Value in use is subjective; value in exchange is objective

Value in use, or utility value, is a measure of how useful something is to its user. This is a subjective measure of value. Value in exchange, or market value, is a measure of what a property's price should be under ideal market conditions. This is an objective measure of value.

Market price is defined as:

A.the listing price of a property

B.the price offered for a property

C.the price actually paid for a property

D.the price that a property might bring on the open market

C.the price actually paid for a property

Market price is the amount of money actually paid for a property.

A self-employed appraiser.

Fee Appraiser

A fee appraiser is someone who performs appraisals for a fee, as opposed to an appraiser who works for an institutional lender or a government agency.

Also referred to as exchange value.

Market value

Market value is the most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale. It is also known as exchange value.

An opinion or estimate of value.

Appraisal

An appraisal is an opinion or estimate of value, not a determination of value. Buyers and sellers determine value.

The price actually paid for a property.

Market Price

Market price is the price actually paid for a property, regardless of whether the parties to the transaction were well informed and acting free of unusual pressure.

A sale between unrelated parties.

arm's length transaction

An arm's length transaction is one in which the parties don't have an existing personal or business relationship. The price paid in a sale that wasn't an arm's length transaction isn't a reliable indication of market value.

The value of property to its owner or user.

Utility Value

Also called value in use, utility value is the value placed on the property by a particular person, such as its owner.

When performing an appraisal, an appraiser takes into account:

A.the bundle of rights associated with the property

B.the land and its improvements

C.utility

D.All of the above

D.All of the above

In estimating the value of real property, an appraiser considers the physical components (the land and improvements), the utility of the property, and all of the ownership rights associated with the property.

An increase in property value due to an increase in population is referred to as:

A.depreciation

B.economic obsolescence

C.an unearned increment

D.a capital improvement

C.an unearned incremen

An increase in a property's value through no effort of the property owner (as a result of a population increase, for example) is referred to as an unearned increment.

Which of the following terms is included in the definition of "highest and best use"?

A.Gross income

B.Community interest

C.Net return

D.None of the above

C.Net return

A property's highest and best use is the use that produces the greatest net return on the investment over a period of time.

An appraisal is considered accurate:

A.for the year in which it was prepared

B.for the date for which it was prepared

C.until a newer appraisal is completed

D.until the beginning of the next tax year

B.for the date for which it was prepared

An appraisal is considered accurate only for the effective date of the appraisal.

"In-fill development" is a term for:

A.cleaning up old industrial sites and converting them to recreational areas

B.new commercial growth in suburban fringes

C.replacing low-density residences with higher-density properties

D.replacing vacant or dilapidated buildings with newer properties

C.replacing low-density residences with higher-density properties

In-fill development refers to increasing the density in close-in neighborhoods where the current improvements may not match the neighborhood's highest and best use. For instance, it might mean tearing down single-family residences and replacing them with multi-unit condominiums.

Which is usually longer, a property's economic life or physical life?

A.Economic life

B.Physical life

C.They are usually the same

D.It depends on the type of property

B.Physical life

The physical life of a property is usually longer than the economic life. A building will continue to exist even after it is no longer profitable.

Which is most likely to have an impact on the economic life of a property?

A.Its age and condition at the time of acquisition

B.The owner's maintenance of the property

C.Changes in the character of the surrounding neighborhood

D.The quality of the building's construction

C.Changes in the character of the surrounding neighborhood

Economic life is most likely to be affected by changes in neighborhood composition, rather than changes to the property itself. For instance, if a neighborhood changes so that the intended use of a building is no longer profitable, the property's economic life has ended even if its physical life is still ongoing.

When interest rates increase, property values will most likely:

A.decrease

B.increase

C.fluctuate unpredictably

D.not experience an immediate short-term effect

D.not experience an immediate short-term effect

Property values, for the most part, respond to supply of and demand for properties within a particular market. Significantly higher interest rates, as happened in the early 1980s, can reduce potential buyers' buying power and thus reduce demand, but in most periods in time, the effect of interest rates has not been that great.

Under normal market conditions, an apartment building's vacancy rate is determined by:

A.the building's operation costs

B.building size and total number of units

C.rent schedule

D.the area's housing availability

D.the area's housing availability

The supply of and demand for housing in that particular area will have a significant effect on the apartment building's vacancy rate.

What principle states that a prudent buyer will not pay more for a property than the price of a reasonably close alternative?

A.Substitution

B.Supply and demand

C.Conformity

D.Competition

A.Substitution

According to the principle of substitution, if two reasonably similar properties are available, a prudent buyer will choose the less expensive one.

The principle of substitution applies to what property characteristics?

A.Use

B.Income

C.Structural design

D.All of the above

D.All of the above

The principle of substitution refers to substituting one property for another that is equivalent in terms of use, income, or structural design.

The basic principle underlying the market data approach to appraisal is:

A.anticipation

B.conformity

C.supply and demand

D.substitution

D.substitution

According to the principle of substitution, a property's value is equivalent to the cost of obtaining an equally desirable property. This principle is the basis for all three of the main methods of real property appraisal, including the market data approach (also called the sales comparison approach).

What principle states that homogeneity in a neighborhood increases the value of an individual house?

A.Conformity

B.Substitution

C.Regression

D.Progression

A.Conformity

According to the principle of conformity, a reasonable degree of homogeneity within a neighborhood has a positive effect on property values.

What principle states that the value of the best property in a neighborhood will be lowered by the existence of less expensive homes?

A.Substitution

B.Competition

C.Progression

D.Regression

D.Regression

The principle of regression states that a property's value is lowered if it is surrounded by less valuable homes.

An apartment building owner is contemplating adding a swimming pool to the property. He consults an appraiser. The appraiser's opinion should be based on what principle?

A.Substitution

B.Contribution

C.Integration

D.Progression

B.Contribution

The appraiser will apply the principle of contribution and consider whether the value the swimming pool would add to the property is greater than the cost of construction.

Property values are in a state of flux, increasing and decreasing in response to social, economic, governmental, and environmental forces.

Principle of Change

The principle of change also recognizes that a property has a four-stage life cycle (integration, equilibrium, disintegration, and rejuvenation).

Profits tend to encourage competition, and excess profits tend to result in ruinous competition.

Principle of Competition

Competition may have a dramatic impact on the value of property, especially income property.

If two properties for sale are alike in every respect, the least expensive will be in greater demand.

Principle of Substitution

The principle of substitution states that no one will pay more for a piece of property than they would have to pay for an equally desirable substitute property.

Values tend to rise as demand increases and supply decreases, and diminish when supply increases and demand decreases.

Principle of Supply and Demand

Value varies directly with demand and inversely with supply. That is, the greater the demand, the greater the value; and the greater the supply, the lower the value.

That use which, at the time of the property's appraisal, is most likely to produce the greatest net return for the property owner.

Principle of Highest and Best Use

Highest and best use refers to the most profitable use of a property, the one that will provide the greatest net return over a period of time.

Value is the present worth of the rights to all prospective future benefits accruing to ownership and use of real property.

Principle of Anticipation

The principle of anticipation holds that value is created by the expectation of benefits to be received in the future.

Some improvements will add more value to a property than the expense of making them. Other improvements will cost more than they add to the property's value.

Principle of Contribution

The principle of contribution holds that the value of real property is greatest when the improvements produce the highest return commensurate with their cost.

Maximum value is realized when a reasonable degree of architectural similarity exists and land uses are compatible.

Principle of Comformity

According to the principle of conformity, the maximum value of land is achieved when there is an acceptable degree of social and economic conformity between neighboring properties.

In real estate appraisal, "improved value" refers to:

A.the value of a property in its highest and best use

B.the reproduction cost of the property minus any depreciation

C.the market value of a property and its improvements

D.the difference between economic rent and contract rent

C.the market value of a property and its improvements

Improved value is the combined value of the land and its improvements.

When appraising a property, the first step is to:

A.draft an appraisal plan

B.define the appraisal problem

C.organize the appraisal data

D.conduct a preliminary survey

B.define the appraisal problem

The first step in the appraisal process is to define the appraisal problem, which includes identifying the subject property and determining what function the appraisal will serve.

In appraising which of the following properties would an appraiser least need to consider the general state of the economy?

A.Shopping center

B.Large electronics factory

C.Multiple-tenant office building

D.Industrial park

B.Large electronics factory

An appraiser always needs to consider economic factors among other general data, but this will be of particular concern with a commercial or industrial property that has multiple tenants. A stand-alone factory is less likely to be affected by an economic downturn than properties that could be hurt by the departure of several tenants. Industrial firms tend to sign very long term leases. Further, their market is often national or international--so moving elsewhere won't help them much. The same isn't necessarily true of office tenants.

Which of the following would not contribute to the stability of neighborhood property values?

A.Similarity in residents' socioeconomic levels

B.Homogeneity in building uses

C.Increased density and high turnover in residents

D.Location in the direction of future population growth

C.Increased density and high turnover in residents

It helps stabilize and maximize property values if the residents of a neighborhood have similar socioeconomic status, if all of the properties are put to the same type of use, and if the neighborhood is in the direction of future growth. But high turnover and an increase in population density wouldn't have this same effect; in fact, those factors are more likely to be associated with a lack of stability in property values.

A site analysis is employed primarily to find out the:

A.land's topography

B.type of soil

C.private and public land use restrictions

D.highest and best use

D.highest and best use

An appraiser uses a site analysis to determine a property's highest and best use.

The value of warehouse space and other industrial space for rent is generally expressed using which unit of measurement?

A.Cubic foot

B.Square foot

C.Front foot

D.Square yard

B.Square foot

Industrial space is generally measured in square feet, although larger industrial properties are sometimes measured in acres. By contrast, retail property is often valued by the front foot.

A commercial acre is:

A.the portion of an acre remaining after the streets and sidewalks have been deducted

B.an acre located in a commercial use zone

C.any 43,560 square foot parcel

D.None of the above

A.the portion of an acre remaining after the streets and sidewalks have been deducted

A commercial acre is an acre minus the land used for streets, alleys, sidewalks, and curbs. It represents the buildable area of a particular acre of land.

Two properties, each worth $50,000, are combined into one larger parcel that has a value of $120,000. This increase in value is called:

A.blockage

B.appurtenance

C.plottage

D.appreciation

C.plottage

An increase in value that results when two or more contiguous properties are combined into one parcel under single ownership is called plottage. The extra value is due to improved usability. This often occurs where larger parcels are needed for industrial or commercial uses.

Four parties own a parcel of real estate as tenants in common. Two parties want to sell their interests. To find out what their interests are worth, they hire an appraiser who takes the fair market value of the parcel and divides it by four. What's wrong with this approach?

A.It does not account for the property's highest and best use

B.The principle of plottage suggests that each individual interest in the property will be worth more than the sum of the interests

C.The value of a quarter-interest of a tenancy in common is likely to be less than one-quarter of the fair market value of the property

D.Nothing; this approach is correct

C.The value of a quarter-interest of a tenancy in common is likely to be less than one-quarter of the fair market value of the property

A one-quarter interest in a property, co-owned by strangers, is not likely to be appealing to potential buyers; the lower demand for such an interest means that the value of such an interest will probably be less than one-quarter of the market value of the property.

What is the best way to determine the age of an older building?

A.Age of surrounding structures

B.Examination of condition of wood framing elements

C.Recorded subdivision plat

D.Tax assessor's records

D.Tax assessor's records

The local tax assessor's records are probably the best place to look for information about when an improvement was constructed. The plat map will be helpful for finding information about the site, but won't necessarily give information about the buildings on it.

When appraising a home located on a hill, the appraiser finds that some of the doors and windows do not close properly. He also sees several cracks in the foundation. What type of document should be ordered?

A.An earthquake insurance policy

B.A soil engineer's report

C.A structural pest control report

D.All of the above

B.A soil engineer's report

Foundation cracks and shifting in the house indicate movement in the soil.

When a home is constructed, consideration is given to the positioning of the building relative to its surroundings and the sun, wind, and other elements. This placement is called:

A.plottage

B.highest and best use

C.orientation

D.topography

C.orientation

Orientation, the positioning of the home on the land, requires the developer to consider sun, wind, noise, and other factors.

The first step in the appraisal process is to gather and verify the specific data.

Fasle

The first step in the appraisal process is to define the problem, which includes identifying the subject property and determining what function the appraisal is to serve.

Considerations in a building analysis would include the age and condition of the structure, its interior layout, and its energy efficiency.

True

The building analysis is an evaluation of the condition and functionality of any improvements to the site.

A lot with greater depth than the surrounding lots will always be worth more.

False

Greater depth can mean higher value, but it doesn't always.

A site analysis will usually include an investigation into the percentage of homeownership in the neighborhood.

False

The appraiser would gather information about the percentage of homeownership in the neighborhood when conducting a neighborhood analysis.

Plottage refers to how the improvements on a property are situated in relation to views, privacy, and exposure to wind and sunlight.

False

Orientation refers to how the building is situated on the site. Plottage refers to the increase in value that occurs when the value of several lots joined together is greater than the sum of the values of the individual lots.

Industrial land is usually valued in terms of frontage; that is, it is worth a certain number of dollars per front foot.

False

Commercial land is valued by front foot; industrial land is valued by square foot or acreage, depending on its size.

A retail store is often worth more if it is located on a corner, because it enjoys more exposure and its customers have access from two different sides.

True

This is sometimes called corner influence.

The appraisal method that is the most readily adaptable for real estate brokers and salespersons is the:

A.market approach

B.income approach

C.cost approach

D.capitalization approach

A.market approach

The market approach (sales comparison approach) is the method used most often for single-family properties and vacant land, and it's the method that the competitive market analysis used by real estate agents is modeled on.

For market data appraisal purposes, what date is most important to the appraiser?

A.When escrow closed

B.When the purchase agreement was signed

C.When financing was obtained

D.When the deed was signed

B.When the purchase agreement was signed

The date the purchase agreement was signed is the date that the sales price was determined. For market data (sales comparison) appraisal purposes, this is the most important date.

What factor would most limit the accuracy of the market data appraisal method?

A.Variations between the subject property and the comparables

B.Rapidly changing economic conditions

C.New financing regulations

D.Frequent turnover in ownership

B.Rapidly changing economic conditions

In rapidly changing economic conditions, the sales prices of comparable properties are less useful as indicators of current market values.

For an appraiser, the most difficult step in the market data approach is:

A.locating comparables

B.establishing the unit of comparison

C.averaging the data

D.adjusting the comparables to the subject

D.adjusting the comparables to the subject

The most difficult step in the market data approach (the sales comparison approach) is adjusting for the differences between the comparable properties and the subject property.

When using the market data approach, appraisers typically make numerous adjustments to the comparables' prices. This is because:

A.the subject property will eventually depreciate

B.the subject property's value will increase due to inflation

C.no two properties are exactly alike

D.two different appraisers rarely arrive at the exact same estimate amount for the same property

C.no two properties are exactly alike

When using the market data approach (sales comparison approach), an appraiser must adjust the comparables' prices to reflect the differences between the comparables and the subject property. No two properties are exactly alike.

A comparable property has a feature that the subject property lacks. Under the market data approach, how will an appraiser treat this feature?

A.The feature is identified in the appraisal report but disregarded in the valuation

B.The feature's value is added to the value of the subject

C.The feature's value is subtracted from the value of the comparable

D.The feature's value is subtracted from the value of the subject

C.The feature's value is subtracted from the value of the comparable

In the market data approach (the sales comparison approach), the value of a feature that the subject property lacks is subtracted from the comparable's sales price (the value of the comparable) so that the adjusted price more closely approximates the value of the subject.

Which of the following is of least importance to an appraiser?

A.Assessed value

B.Property identification

C.Highest and best use of property

D.Selling prices of comparables

A.Assessed value

A property's assessed value might have been calculated a long time ago, and thus have no relationship to the property's current value.

When a comparable property has a feature, such as a formal dining room, that the subject property lacks, the appraiser will subtract the value of that feature from the ultimate value estimate for the subject property.

False (Pay close attention to words)

The appraiser will subtract the value of the formal dining room from the comparable's sales price. The result will indicate what the comparable would have sold for without the dining room.

If a comparable property sold more than six months ago, the appraiser could not use it when applying the sales comparison method of appraisal.

False

If a particular market has been inactive in recent months, the appraiser could use comparables that sold more than six months ago. However, she would have to make adjustments for inflation or other economic developments that have affected prices in the area.

If a comparable sale involved seller financing, the appraiser would have to investigate the circumstances to determine if the noninstitutional financing had any impact on the price paid for the property.

True

In a seller-financed transaction, the seller may offer the buyer attractive financing terms, such as a small downpayment or below-market interest rate. The buyer may pay a higher price to get those terms, thus distorting the true value of the comparable property.

A property's location has a greater effect on its value than any other characteristic.

True

Location is the primary consideration when selecting comparables to be used in the sales comparison approach to value.

The sales comparison approach to value is the most reliable appraisal method when the property being appraised is vacant land or an older home.

Facts💯

The sales comparison method is the most accurate way to appraise an older house, and it's also the most commonly used method for appraising vacant land.

After carefully analyzing three comparable properties, the appraiser will average the prices paid for the comparables in order to arrive at a reliable estimate of value.

False

The appraiser will usually weight her value estimate in favor of the comparable most like the subject property (the one with the fewest adjustments). Averaging isn't part of the process.

An appraiser will be certain to research the assessed value of the subject property.

False

The appraiser won't be interested in the property's assessed value, since the assessed value may be an old figure that doesn't accurately indicate the market value. The appraiser will be more interested in the prices of recently sold comparable properties.

The sales comparison method is less reliable in a period where economic conditions are rapidly changing.

True

Rapidly fluctuating economic conditions make it more difficult to make adjustments to the prices of the comparable properties.

The cost approach to value is best suited for appraising:

A.new homes

B.middle-aged homes

C.old homes

D.multifamily structures

A.new homes

The cost approach is best suited for appraising new construction, since new structures have not had time to depreciate. Estimating depreciation can be the most difficult part of the cost approach.

Which approach to value typically sets the ceiling on value?

A.Income

B.Market data

C.Sales comparison

D.Cost

D.Cost

Because buyers are generally unwilling to pay more for a used property than it would cost to replace it with a new one that's essentially just like it, the cost approach tends to establish the upper limit for the property's value.

Which of the four appraisal terms below does not relate to the other terms?

A.Comparative

B.Sales

C.Summation

D.Comparable

C.Summation

"Sales," "comparative," and "comparable" are terms relating to the sales comparison approach (market data method). The summation approach is another name for the cost approach.

Which of the following is based on the cost of creating an exact replica of a building?

A.Depreciated cost

B.Quantity survey cost

C.Replacement cost

D.Reproduction cost

D.Reproduction cost

Reproduction cost is the cost of constructing an exact duplicate of the subject property. Replacement cost, by contrast, is the cost of constructing a building with the same utility.

Replacement cost, as opposed to reproduction cost, is:

A.the present cost of replacing a building with another of the same utility

B.the present cost of replacing a building with an exact replica

C.the cost of a building when originally built

D.the present cost of replacing a building with the structure consistent with the property's highest and best use

A.the present cost of replacing a building with another of the same utility

Replacement cost refers to the cost of replacing a building with another of equal utility. Reproduction cost refers to the cost of replacing a building with an exact replica.

For an appraiser, the easiest way to determine the present value of an improvement is to use:

A.the comparative unit/square foot approach

B.a quantity survey

C.the unit-in-place method

D.the land residual method

A.the comparative unit/square foot approach

The comparative unit method (also called the square foot method) is the simplest technique for estimating the replacement cost of an improvement. The appraiser considers the cost per square foot of comparable properties.

Which of the following is not a true statement regarding the cost approach to appraisal?

A.It requires extensive knowledge of economic factors

B.It is appropriate for new construction

C.It is appropriate for special-use properties

D.It tends to set the lower limit for property values

D.It tends to set the lower limit for property values

The cost approach generally sets the upper limit (not the lower limit) for a property's value, since buyers generally will not pay more for a property than it would cost to replace it with a new one that's essentially just like it. The cost approach requires knowledge of economic factors, mainly materials and labor costs. It is particularly suited to appraising new construction that has not yet depreciated significantly, and it is the only method suitable for appraising properties such as public buildings that are not regularly sold on the open market.

The quantity survey method, the comparative unit method, and the unit-in-place method are all used in what appraisal method?A.The market data approach

B.The sales comparison approach

C.The income approach

D.The cost approach

D.The cost approach

These three methods of estimating replacement cost are all used in the cost approach.

To an appraiser, the broadest definition of depreciation is:

A.loss in utility and value from any cause

B.loss in land value

C.physical deterioration of the property

D.functional obsolescence

A.loss in utility and value from any cause

Depreciation is a loss in property utility and value from any cause. Physical deterioration and functional obsolescence are two causes of depreciation.

Two homes were built at the same time on adjoining lots of equal size and value. The construction and maintenance costs associated with each were the same. One home is worth substantially more than the other. This is likely due to:

A.economic obsolescence in one property

B.functional obsolescence in one property

C.physical deterioration in one property

D.wear and tear in one property

B.functional obsolescence in one property

Since the properties are in the same location, are the same age, cost the same amount to build, and have been maintained equally well, it is unlikely that the value difference is due to physical deterioration or economic (external) obsolescence. It is more likely that one home suffers from functional obsolescence.

In appraisal, considerations such as economy of use and floor plan apply to:

A.economic obsolescence

B.functional utility

C.overall capitalization rate

D.physical deterioration

B.functional utility

Functional obsolescence occurs when a building lacks functional utility, which is the ability to fulfill the desires of its occupants and users. A building with a poor floor plan, for instance, would lack functional utility.

What is the ultimate test of a property's functional utility?

A.Marketability

B.Layout

C.Adequacy

D.Maintenance costs

A.Marketability

A property's functional utility is best shown by its marketability. If a property suffers from functional obsolescence to such an extent that it is unable to fulfill the desires of its users, it won't be marketable.

Which of the following would be an example of functional obsolescence?

A.A one-car garage

B.Adverse rezoning

C.A deteriorated driveway

D.Nearby land uses that are incompatible with local uses

A.A one-car garage

A one-car garage is due to outmoded design or poor planning, so it is an example of functional obsolescence. A deteriorated driveway would be an example of physical deterioration, while adverse rezoning and incompatible nearby land uses are examples of external obsolescence.

Which of the following would not contribute to functional obsolescence?

A.Eccentric floor plan

B.Outdated fixtures

C.Nearby nuisances

D.Insufficient number of bathrooms

C.Nearby nuisances

Nuisances external to the property are causes of external (economic) obsolescence. Problems caused by design inadequacies or outmoded appliances are causes of functional obsolescence.

A rental property is located on a street that the city decides to widen. As a result of the street construction, the property's rental income is lowered by 10%. What type of depreciation has occurred?

A.Physical deterioration

B.Deferred maintenance

C.Functional obsolescence

D.External obsolescence

D.External obsolescence

External obsolescence is caused by factors external to the property, such as city action. Functional obsolescence and physical deterioration (including deferred maintenance) are problems specific to the property.

Which of the following would not be a cause of external or economic obsolescence?

A.Location in the flight path of planes from a nearby airport

B.Low fixed income of neighborhood residents

C.Broken air conditioning system

D.Departure of major retail stores and service providers

C.Broken air conditioning system

A nonfunctioning air conditioning system is an example of physical deterioration. The other problems are all external to the property, and therefore are examples of economic or external obsolescence.

A large, expensive home is constructed in an area consisting entirely of much smaller and less valuable homes. Even before the larger home is sold by the developer, it has probably suffered a loss in value due to:

A.deferred maintenance

B.physical deterioration

C.functional obsolescence

D.economic (or external) obsolescence

D.economic (or external) obsolescence

The home's value is probably going to be lowered as a result of regression. This value loss, due to location, is an example of economic obsolescence (also called external obsolescence).

Which of the following would be an example of external obsolescence?

A.Unattractive floor plan

B.Outdated architectural style

C.Adverse rezoning

D.Lack of proper maintenance

C.Adverse rezoning

Adverse zoning changes would be an example of external obsolescence (also called economic obsolescence), which is caused by factors external to the property. An unattractive floor plan or an outdated architectural style would be functional obsolescence. Lack of proper maintenance would be physical deterioration.

Which of the following issues would have the largest impact on economic obsolescence?

A.Whether the other tenants in the neighborhood are prospering

B.When the elevator was last serviced

C.Whether the rents that were being charged for individual units were fair

D.Whether appliances were properly maintained

A.Whether the other tenants in the neighborhood are prospering

Economic obsolescence (also called external obsolescence) reflects a loss in value because of changes that are external to the property itself. If the economic conditions of the surrounding neighborhood are poor, then the value of the property might be hurt; this would be an example of economic obsolescence.

Which of the following causes the greatest loss of property value?

A.Wear and tear

B.Obsolescence

C.Lack of proper maintenance

D.Physical deterioration

B.Obsolescence

Functional and economic obsolescence cause much greater losses in property value than any type of physical deterioration.

Which of the three main causes of depreciation is associated with the saying "more buildings are torn down than fall down"?

A.Physical deterioration

B.Incurable functional obsolescence

C.Curable functional obsolescence

D.Economic obsolescence

D.Economic obsolescence

Over time, neighborhoods change, and structurally sound buildings are often torn down to make way for newer ones. This is an example of economic obsolescence, also called external obsolescence.

Of the following, which is an indirect method of estimating depreciation?

A.Straight-line

B.Engineering

C.Capitalized income

D.Breakdown

C.Capitalized income

Capitalized income is an indirect method of determining depreciation. The other choices refer to direct methods.

The replacement cost of a 14-year-old building is $89,000. The value of the improvements has depreciated 1.5% per year. The value of the land is $22,000. What is the property's current value?

A.$101,000

B.$94,027

C.$92,310

D.$67,000

B.$94,027

Start by subtracting 1.5% annual depreciation from $89,000 over 14 years. For the first year, subtract 1.5% of $89,000 from $89,000 to get $87,665. Then for the second year, subtract 1.5% of $87,665 from $87,665 to get $86,350. For the third year, subtract 1.5% of $86,350 from $86,350 to get $85,054, and so on. After 14 years, the building would be worth roughly $72,027. Add the value of the land to find that the value of the property is $94,027 ($72,027 + $22,000 = $94,027).

A 20-year-old residence has been well maintained. An appraiser determines its age to be nine years. This illustrates:

A.physical age

B.actual age

C.effective age

D.economic age

C.effective age

The effective age of a structure may be more or less than its actual age, depending on construction quality and maintenance.

The cost of building a replica of a property, using the same materials and construction methods that were originally used, but at current prices.

Reproduction Cost

The cost of building a replica of a property at current prices is the property's reproduction cost.