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Exam 7: Valuation Using the Sales Comparison and Cost Approaches

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Question 1

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Given the following information, determine the final appraisal value of the subject property. $\begin{array} { | l | c | } \hline & \text { Adjustrnents } \\\hline \text { Market Conditions }& - 0.50 \% ( p e r \text { month } ) \\\hline \text { Lot Size } \ & \$ 25,000 \text { (per acre) } \\\hline\text { EFfective Age (Years) } & \$ 1,000 ( \text { per year) } \\\hline\text { Living Area (Sq. Ft) } & \$ 45.00 ( \text { per sq. ft.) } \\\hline \text { Bath } & \$ 1,250 ( \text { per bath) } \\\hline\text { Bedroorrs }&\$3,000(per bedroom) \\\hline\end{array}$ $\begin{array} { | l | c | c | } \hline & \text { Subject Property } & \text { Comparable Property } \\\hline \text { Time Sold } & \text { Today } & 4 \text { Morths Apo } \\\hline \text { Lot Size (Acres) } & 0.83 & 0.80 \\\hline \text { Effective Ape (Years) } & 8 & 7 \\\hline \text { Living Area (Sq. Ft) } & 2,197 & 2,383 \\\hline \text { Bath } & 3.5 & 3.5 \\\hline \text { Bedroorns } & 4 & 4 \\\hline \text { Sale Price } & - & \$ 287,000 \\\hline\end{array}$

A) $271,140
B) $272,640
C) $284,120
D) $289,380

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Question 2

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Given the following information, what adjustment would need to be made to account for the living area difference between the Subject Property and Comparable Property? $\begin{array} { | l | c | } \hline & \text { Adjustrnents } \\\hline \text { Market Conditions }& - 0.50 \% ( p e r \text { month } ) \\\hline \text { Lot Size } \ & \$ 25,000 \text { (per acre) } \\\hline\text { EFfective Age (Years) } & \$ 1,000 ( \text { per year) } \\\hline\text { Living Area (Sq. Ft) } & \$ 45.00 ( \text { per sq. ft.) } \\\hline \text { Bath } & \$ 1,250 ( \text { per bath) } \\\hline\text { Bedroorrs }&\$3,000(per bedroom) \\\hline\end{array}$ $\begin{array} { | l | c | c | } \hline & \text { Subject Property } & \text { Comparable Property } \\\hline \text { Time Sold } & \text { Today } & 4 \text { Morths Apo } \\\hline \text { Lot Size (Acres) } & 0.83 & 0.80 \\\hline \text { Effective Ape (Years) } & 8 & 7 \\\hline \text { Living Area (Sq. Ft) } & 2,197 & 2,383 \\\hline \text { Bath } & 3.5 & 3.5 \\\hline \text { Bedroorns } & 4 & 4 \\\hline \text { Sale Price } & - & \$ 287,000 \\\hline\end{array}$

A) The price of the subject property must be adjusted upward by $8,370.
B) The price of the subject property must be adjusted downward by $8,370
C) The price of the comparable property must be adjusted upward by $8,370.
D) The price of the comparable property must be adjusted downward by $8,370.

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Question 3

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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?

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?

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?

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. $\begin{array}{l|c|c|c|c} & \text { Comparable 1 } & \text { Comparable 2 } & \text { Comparable 3 } & \text { Comparable 4 } \\\hline \text { Time Sold } & \text { Today } & \text { Year Ago } & \text { Today } & 1 \text { Year Ago } \\\hline \text { Bathrooms } & 2 & 2 & 2 & 3 \\\hline \text { Bedrooms } & 3 & 3 & 4 & 3 \\\hline \text { Sale Price } & \$ 375,000 & \$ 365,000 & \$ 380,000 & \$ 367,500\end{array}$

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:

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?

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:

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. $\begin{array} { | l | c | c | c | c | } \hline & \text { Comparable 1 } & \text { Comparable } 2 & \text { Comparable 3 } & \text { Comparable 4 } \\\hline \text { Time Sold } & \text { Today } & \text { Today } & 1 \text { Year Apo } & \text { Today } \\\hline \text { Bathrooms } & 1 & 1 & \mathbf { 2 } & \mathbf { 2 } \\\hline \text { Size } & 3500 \mathrm { sq } . \mathrm { ft } & \mathbf { 3 0 0 0 ~ s q . ~ f t . } & 3500 \mathrm { sq } . \mathrm { ft } & \mathbf { 3 0 0 0 } \mathrm { sq } . \mathrm { ft } \\\hline \text { Sale Price } & \$ 150,000 & 140,000 & \$ 160,000 & \$ 156,000 \\\hline\end{array}$

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?

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?

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?

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?

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:

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:

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)

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 applicable when considering the valuation of retail office space (i.e., which approach would receive the most weight in the valuation process) ?

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?

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: