Which of the following approaches for calculating the market value of a property involves the projection of the propertys future expected cash flows?

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question.

1. 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 to prospective buyers. C) transactions occur infrequently.

D) the physical location of the asset being sold plays an important role in the pricing process.

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.

1. The value a particular investor places on a property is more commonly referred to as the property’s:

A) book value. B) market value.

C) investment

value. D) transaction value.

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.

1. 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)

1. 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 financial limits are considered when

determining the property’s best use. D) The property use must provide the greatest benefit to the owner.

1. Which of the following approaches for calculating the market value of a property involves estimating the dollar value associated with replacing the property new, as well as determining the loss in value due to physical, functional, and external obsolescence?

A) income approach B) sales comparison approach

C) cost approach D) investment approach

1. Which of the following approaches for calculating the market value of a property involves the projection of the property’s future expected cash flows?

A) income approach B) sales comparison approach

C) cost approach D) investment approach

1. 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

1. It may be appropriate for a real estate professional to utilize different approaches

2. The process in which an appraiser weighs the relative reliability of value indicators for the property being valued is more commonly referred to as:

A) depreciation. B) deterioration.

C) reproduction. D) reconciliation.

1. 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 single family home. Which of the following reporting options would be the most commonly used in this scenario?

A) self-contained appraisal report B) summary appraisal report C) restricted appraisal report

D) oral appraisal report

1. 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

1. While there is no specific number of comparables that is required for every

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 subject property

should be adjusted downward. D) The transaction price of the subject property should be adjusted upward.

1. 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 subject property

should be adjusted downward. D) The transaction price of the subject property should be adjusted upward.

1. The sequence of adjustments to the transaction price of a comparable property would make no difference if all adjustments were dollar adjustments. However, if percentage adjustments are involved then the sequence does matter. 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.

1. 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

1. 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.

1. 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

1. 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.

1. Given the following information, determine the value of having an additional bathroom. Assume that the comparable properties are similar in all other attributes

besides those listed in the table below.

Time Sold Bathrooms Size Sale Price

A) $4,

B) $6,

C) $10,

D) $16,

1. Given the following information, determine the value of having an additional bedroom. Assume that the comparable properties are similar in all other attributes besides those listed in the table below.

Time Sold Bathrooms Bedrooms Sale Price

A) $5,

B) $15,

C) $20,

D) $25,

1. Suppose that we observe two comparable properties that have each sold twice within the past two years. Property A sold 24 months ago for $350,000 and Property B sold 18 months ago for $325,000. If the two properties were sold today at $375,000 and $340,000, respectively, estimate the change in market conditions (percentage change in price) per month, assuming we equally weight the two properties in our analysis?

A) 0%

B) 0%

C) 0%

D) 0%

1. Suppose that an appraiser has just completed her analysis using the cost approach to valuation. She has determined that the market value of the subject property is $400,000. If the added value of the site was $80,000 and accrued depreciation amounted to $50,000, what was the reproduction cost of the building?

A) $270,

B) $370,

C) $430,

D) $530,

1. Assume you have been hired to appraise a local hospital. Your best estimate of the reproduction (or replacement) cost of the building is $3,700,000. However, upon evaluating the use of land in the local area, you have deemed the value of the site to be worth an additional $800,000. If the building has depreciated by $500,000 over its lifetime and there are no further depreciation losses due to external or functional obsolescence, what is the indicated value of the hospital using the cost approach?

A) $2,400,

B) $3,700,

C) $4,000,

D) $4,500,

1. Let’s assume that we are about to appraise a house using the cost approach. The home was originally constructed in the early 1900s and is one of the last of its kind in this area. The cost of constructing an exact replica of this residence is estimated to be $350,000. On our trip to the actual property, we notice that this is the only residential unit located on this particular road. Based on the current usage of adjacent real

estate, we estimate that the property would be worth an additional $25,000 in its highest and best use. However, due to the dramatic shift in the perceived safety of the

A) $269,780.

B) $281,260.

C) $285,565.

D) $292,740.

1. Given the following information, determine the value of having an additional 500 square feet of living space. Assume that the comparable properties are similar in all other attributes besides those listed in the table below.

Time Sold Bathrooms Size Sale Price

A) $4,

B) $6,

C) $10,

D) $16,

1. Given the following information, determine the value of having an additional bedroom. Assume that the comparable properties are similar in all other attributes besides those listed in the table below.

Time Sold Bathrooms Bedrooms Sale Price

A) $2,

B) $5,

C) $7,

D) $10,

1. Suppose that we observe two comparable properties that have each sold twice within the past four years. Property A sold 24 months ago for $500,000 and Property B sold 48 months ago for $575,000. If the two properties were sold today at $425,000 and $465,000, respectively, estimate the change in market conditions (percentage change in price) per

month, assuming we equally weight the two properties in our analysis?

A) −0%

B) −0%

C) 0%

D) 0%

1. Suppose that an appraiser has just completed her analysis using the cost approach to valuation. She has determined that the reproduction cost of the subject property is $370,000. If the added value of the site was $80,000 and accrued depreciation amounted to $50,000, what was the estimated value of the building using the cost approach?

A) $320,

B) $370,

C) $400,

D) $500,

1. Given the following information, what adjustment would need to be made to account for the lot size difference between the Subject Property and Comparable Property?

Market Conditions Lot Size Effective Age (Years) Living Area (Sq. Ft) Bath Bedrooms

Time Sold Lot Size (Acres) Effective Age (Years) Living Area (Sq. Ft) Bath Bedrooms Sale Price

A) The price of the subject property must be adjusted upward by $750. B) The price of the subject property must be adjusted downward by $750. C) The price of the comparable property must be adjusted upward by $750. D) The price of the comparable property must be adjusted downward by $750.

Time Sold Lot Size (Acres) Effective Age (Years) Living Area (Sq. Ft) Bath Bedrooms Sale Price

A) $271,

B) $272,

C) $284,

D) $289,

Which of the following approaches for calculating the market value of a property involves the projection of the property's future expected cash flows?

What is income capitalization approach?

What is the income approach formula?

Which of the following approaches to value uses a capitalization rate?