Module 2: From Analysis to Solutions

Question 1

Step 5: Land Value Opinion

Unimproved land

Answer 1

raw land that may have development potential

Question 2

Step 5: Land Value Opinion

Improved Land

Answer 2

is considered as being prepared for development by grading, draining, installing streets and utilities

Question 3

Step 5: Land Value Opinion

Site

Answer 3

commonly refers to an improved parcel that does not require further land development or subdivision. It is ready for improvements suited to its highest and best use.

Question 4

Step 5: Land Value Opinion

Analytical methods that require land values separate from total property value

Answer 4

cost approach
income capitalization when residual techniques are used
highest and best use analysis as though vacant

Question 5

Step 5: Land Value Opinion

The appraiser can chooses among six procedures for analyzing land or site value. Four of them require improved sales.

Answer 5

1. Ground rent capitalization
2. Land residual technique
3. Allocation
4. Subdivision development
5. Extraction
6. Sales comparison

Question 6

Step 5: Land Value Opinion

GLADES

Answer 6

Ground rent capitalization
Land residual 
Allocation
Development (subdivision)
Extraction
Sales comparison

Question 7

Step 5: Land Value Opinion

GLADES

Answer 7

in the absences of sales of comparable properties, the 5 procedures GLADE can be used alone or in combination with each other to support land value

Question 8

Step 5: Land Value Opinion

Sales Comparison

Answer 8

most common and preffered method of valuing land because the data necessary to use this procedure is most often available. It is also most easily understood by users of appraisals including the courts and the general public.

Question 9

Step 5: Land Value Opinion

Extraction

Answer 9

Based on improved sales, and the depreciated cost (contributory value) of the improvements is subtracted from the sales price.

Sale price of comparable sale
— Depreciated cost of improvements
——————————————————–
Land value of comparable sale

The value of the land is extracted from the total value

Question 10

Step 5: Land Value Opinion

Allocation

Answer 10

Sale Price x Typical Ratio of Land Value to Improvement Vale = Land Value

Question 11

Step 5: Land Value Opinion

Allocation

Answer 11

can be used to establish land value when the number of vacant land sales is inadequate

Question 12

Step 5: Land Value Opinion

Land Residual Technique

Answer 12

Income approach based on the economic principle of surplus productivity.As the other three agents of production have been paid, land as the residual receives income, which is capitalized into land value.

• the appraiser separates the rent between the land and improvements
• the appraiser converts the net income to the land only through the capitalization process to develop a value opinion for the land

the basic formula for income capitalization is called IRV, Income ÷ Rate = Value

Question 13

Step 5: Land Value Opinion

Ground Rent Capitilization

Answer 13

an income approach to land value. This procedure can be used when the land rent is a known amount, as in a land lease.

Question 14

Step 5: Land Value Opinion

Ground Rent Capitilization

Answer 14

the appraiser divides the net amount estimated for the right to use and occupy the land by a capitalization rate (derived from the market) to form an opinion of land value.

Question 15

Step 5: Land Value Opinion

Ground Rent Capitilization

Answer 15

Land Rent
——————————- = Land Value
Capitalization Rate

Question 16

Step 5: Land Value Opinion

Subdivision development

Answer 16

an income approach to the valuation of tracts of land with subdivision potential. Valuing lots in a subdivision is a common assignment for real estate appraisers

Question 17

Step 6: Approaches to value

Answer 17

1. Cost approach
2. Sales comparison approach
3. Income capitalization approach

Question 18

Step 6: Approaches to value

Answer 18

An appraiser often employs more than one approach. The resulting value indications will likely differ from one another, and can either support or refute each other.

Question 19

Step 6: Application of the Approaches to Value:

Cost Approach

Answer 19

a summation approach to value. In this approach, the value of the site is first estimated using one of the six procedures for valuing land, then the value contribution of the building and site improvements are added to indicate the value of the overall property.

Question 20

Step 6: Application of the Approaches to Value:

Cost Approach

Answer 20

The cost approach reflects market thinking by recognizing that participants in the marketplace relate value to cost

Question 21

Step 6: Application of the Approaches to Value:

Cost Approach

Answer 21

A buyer will not pay more for a property than the cost to acquire a similar site and construct improvements of equivalent desirability and utility without undue delay

Question 22

Step 6: Application of the Approaches to Value:

Cost Approach

Answer 22

This is also true of building components such as decks, porches, added plumbing fixtures, and fireplaces in the case of residential properties or expanded open space and additional elevators in commercial properties

Question 23

Step 6: Application of the Approaches to Value:
Cost Approach

8 Step Procedure

Answer 23

1. Estimate the value of the land as though vacant and available to be put to its highest and best use
2. Estimate the direct and indirect costs of the improvements.
3. Estimate the entrepreneurial incentive.
4. Add steps 2 and 3 together to obtain the total current cost.
5. Estimate the accrued depreciation from three sources:
   a. Physical deterioration
   b. Functional obsolescence
   c. External obsilescence
6. Deduct the depreciation from the total cost to derive an estimate of the depreciated cost of improvements.
7. Add contributory (as is) value of any site improvements.
8. Add the alnd value to the total depreciated costs.

Question 24

Step 6: Application of the Approaches to Value:

Sales Comparison

Answer 24

The sales comparison approach is based on a comparison of the subject property to similar sales. This is the same procedure discussed previously as one of the six procedures for valuing land, except it will be applied to improved properties (with building improvements).

Question 25

Step 6: Application of the Approaches to Value: | Sales Comparison Approach (Adjustments)

Answer 25

If the comparable sale is Superior, Subtract. | If the comparable sale is Inferior, Increase.

Question 26

Commonly used elements of comparison

Answer 26

* Property rights conveyed * Financing * Conditions of sale * Expenditures made immediately after sale * Market conditions * Location * Physical characteristics * Economic characteristics * Use / zoning * Non-realty components

Question 27

Step 6: Application of the Approaches to Value: | Income Approach

Answer 27

measures the present value of future benefits derived from property ownership , such as collecting future rent payments and eventual resale of the property in the future. It is based on the conversion of the income producing capability of a property into value through the capitalization process.

Question 28

Step 6: Application of the Approaches to Value: | Income Approach

Answer 28

the anticipated benefits or potential of the property to produce income is used to assess its value.

Question 29

Step 6: Application of the Approaches to Value: | Income Approach

Answer 29

After income and expenses are estimated, the appropriate income stream(s) may be capitalized into a value opinion. This typically involves annual income, or income over a one-year period.

Question 30

Step 7: Reconciliation

Answer 30

the process of resolving the differences among the various value indications and arriving at a final opinion of value. The value opinion can be a single dollar figure or a range into which the value will most likely fall.

Question 31

Step 7: Reconciliation

Answer 31

Reconciliation is a disciplined process using reason and judgment based on the quality and quantity of data.

Question 32

Step 7: Reconciliation

Answer 32

the reconciliation process is not limited to just one step, but occurs throughout the valuation process

Question 33

Step 7: Reconciliation

Answer 33

Reconciliation requires individual judgments on the part of the appraiser. This is where the science blends with the art

Question 34

Step 8: Report of Defined Value

Answer 34

The valuation process is not complete until the appraiser states the value opinion in a report and presents it to the client in the form of either an oral or written report.

Question 35

Step 8: Report of Defined Value

Answer 35

The appraiser must ensure that the communication of the assignment results are carried out in a manner that is not misleading. The appraiser must ensure that the communication of the assignment results are carried out in a manner that is not misleading.

Question 36

1. When an appraiser resolves differences among several value indications, what is this called? A) Weighted average B) Estimation C) Reconciliation D) Correlation of value

Answer 36

C) Reconciliation Feedback: Reconciliation is the process of resolving various value indications into a single dollar figure or range into which the value will likely fall. Feedback: Link: Page 17

Question 37

``` If an appraiser uses a known rent amount for land and divides the rent by a land capitalization rate to form an opinion of value, which land valuation technique is the appraiser using? A) Extraction B) Allocation C) Ground rent capitalization D) Land residual ```

Answer 37

C) Ground rent capitalization Feedback: The appraiser is using ground rent capitalization, one of the six procedures of land valuation method where the appraiser divides the net amount estimated for the right to use and occupy the land by a land capitalization rate (derived from the market) to form an opinion of land value. Feedback: Link: Page 9

Question 38

``` 4. The approach that is based on the conversion of the income producing capability of a property into value through the capitalization process is called what? A) Cost approach B) Reconciliation approach C) Sales comparison approach D) Income approach ```

Answer 38

D) Income approach Feedback: Link: Page 16

Question 39

``` 5. Which of the following is not an element of comparison? A) Reconciliation B) Property rights conveyed C) Financing D) Conditions of sale ```

Answer 39

A) Reconciliation Feedback: Link: Page 15

Question 40

6.The allocation method of site valuation is based on which of the following? A) A ratio of building size to land size B) A ratio of net income to property value C) A ratio of the value of the land to the value of the property D) It is not based on a ratio at all

Answer 40

C) A ratio of the value of the land to the value of the property Feedback: Correct. Feedback: Link: Page 7

Question 41

``` 7. During reconciliation, the appraiser may develop an opinion of value that is: A) None of the above B) A single dollar amount C) All of these options D) Within a range of values ```

Answer 41

C) All of these options Feedback: An opinion of value can be a single dollar figure or a range into which the value will most likely fall. Feedback: Link: Page 17

Question 42

8. Which of the following statements about land valuation is true? A) The extraction method considers land value to total property value ratios. B) For estimating the market value of a residential site, the sales comparison method is preferable. C) Income capitalization is the most appropriate way to value a fee simple interest in a residential site. D) If land sales are readily available, allocation is the most appropriate method to use for valuing a site.

Answer 42

B) For estimating the market value of a residential site, the sales comparison method is preferable. Feedback: The sales comparison approach is the most common and preferred method of land valuation because the data necessary to use this procedure is most often available. Feedback: Link: Page 13

Question 43

9.Which of the following is NOT an accurate statement regarding the reconciliation process? A) Reconciliation is achieved through the application of a precise mathematical formula. B) Reconciliation occurs throughout the valuation process. C) Reconciliation is a disciplined process using reason and judgment. D) Reconciliation logically leads the reader of the appraisal report to a final opinion of value.

Answer 43

A) Reconciliation is achieved through the application of a precise mathematical formula. Feedback: There is no mathematical formula for the reconciliation process that an appraiser goes through, but instead it is a reasoned judgment based on the quality and the quantity of data.

Question 44

``` 10.In a land valuation assignment, an appraiser subtracts the depreciated cost of the improvements from the sale price to obtain the value of the land. Which land valuation technique is the appraiser using? A) Ground rent capitalization B) Allocation C) Extraction D) Land residual ```

Answer 44

C) Extraction Feedback: The estimated value (depreciated cost) of the improvements is subtracted from the sale price of an improved property. The remaining amount should reflect the value of the land. Extraction is a land valuation procedure that can be used when a sold property has improvements on the site. Feedback: Link: Page 17