Real Estate Principles A Value Approach 4th Edition By Ling and Archer - Test Bank

Real Estate Principles A Value Approach 4th Edition By Ling and Archer – Test Bank

 

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Sample Questions Are Posted Below

 

7
Student: ___________________________________________________________________________

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.

2.

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.

3.

In real estate markets, a transaction occurs only when the investment value of the buyer exceeds the
investment value of the seller. The buyer’s investment value is the ________ that he or she would be
willing to pay for a particular property, while the seller’s investment value is the _______ that he or she
would be willing to accept.
A. minimum; minimum
B. minimum; maximum
C. maximum; minimum
D. maximum; maximum

4.

While it is often sufficient to rely on informal methods of estimating the market value of real estate
assets, the complexity and large dollar value of many real 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

5.

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)

6.

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.

7.

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

8.

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)?
A. Income approach
B. Sales comparison approach
C. Cost approach
D. Investment approach

9.

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?
A. Sales comparison approach, cost approach, income approach
B. Income approach, Sales comparison approach, cost approach
C. Cost approach, income approach, sales comparison approach
D. Sales comparison approach, income approach, cost approach

10. 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?
A. One-family residential property
B. Retail office space
C. Education facility
D. High-rise apartments
11. 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
12. 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
13. While there is no specific number of comparables that is required for every appraisal assignment, how
many comparable sales are considered adequate as long as the properties are very similar to the subject
property?
A. One
B. Three
C. Five
D. Ten

14. 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:
A. Financing terms
B. Market conditions
C. Conditions of Sale
D. Location
15. 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)
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.
16. 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.
17. 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.
18. 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
19. 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

20. 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
21. 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
C. transaction value
D. replacement value
22. In using transaction data to determine the current value of the subject property, it is important to
recognize that general market conditions may have changed since a particular transaction occurred.
Property A sold 18 months ago for $235,000 and Property B sold 12 months ago for $215,000. If the two
properties are priced today at $239,500 and $222,300, respectively, what is the average monthly rate of
increase that can be used to adjust comparable prices for changes in market conditions?
A. 0.09%
B. 0.17%
C. 0.19%
D. 0.32%
23. A comparable property sold 15 months ago for $105,000. If the appropriate adjustment for market
conditions is 0.25% per month (without compounding), what would be the adjusted price of the
comparable property?
A. $105,262.50
B. $105,393.80
C. $108,937.50
D. $144,375
24. 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.
A.
B.
C.
D.

$4,000
$6,000
$10,000
$16,000

25. 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.
A.
B.
C.
D.

$5,000
$15,000
$20,000
$25,000

26. 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. 0.19%
B. 0.24%
C. 0.28%
D. 0.33%

27. 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.
B.
C.
D.

$270,000
$370,000
$430,000
$530,000

28. 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. $2,400,000
B. $3,700,000
C. $4,000,000
D. $4,500,000
29. 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 neighborhood, values of any remaining
residential properties in the area have fallen by $20,000. Due to the home’s age, we also notice that
there has been a significant amount of physical deterioration to the building, amounting to an estimate
of $50,000 in lost value. Since the home was built over 100 years ago, the floor plan is quite obsolete
relative to current preferences. This has a detrimental effect on the value of the property that is estimated
to be approximately $15,000. Given this information, determine the appraised value of the home using
the cost approach.
A. $265,000
B. $290,000
C. $350,000
D. $460,000
30. Suppose that an appraiser has come to the following conclusions in evaluating the subject property. Due
to the dramatic shift in the perceived safety of the neighborhood, values of any residential properties in
the area of the subject property have fallen by $10,000, on average. Due to the subject property’s age,
physical deterioration to the building accounts for an estimate of $50,000 in lost value. An evaluation
of the floor plan reveals that it is quite obsolete relative to current homebuyer preferences. This has a
detrimental effect on the value of the property that is estimated to be approximately $15,000. Based on
your understanding of adjustments related to accrued depreciation, which of the following pertains to the
adjustment for external obsolescence?
A. $10,000
B. $15,000
C. $50,000
D. $75,000

7 Key
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.
Difficulty: Intermediate
Learning Objective: 07-01 Explain why the sales comparison and cost approaches are important methods of property appraisal.
Ling – Chapter 07 #1

2.

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.
B.
C.
D.

It is an estimate of the most probable selling price of a property in a competitive market.
It is the value a particular investor places on a property.
It is the price we observe when a property is sold.
It is the maximum amount that a seller would be willing to accept.
Difficulty: Basic
Learning Objective: 07-01 Explain why the sales comparison and cost approaches are important methods of property appraisal.
Ling – Chapter 07 #2

3.

In real estate markets, a transaction occurs only when the investment value of the buyer exceeds the
investment value of the seller. The buyer’s investment value is the ________ that he or she would be
willing to pay for a particular property, while the seller’s investment value is the _______ that he or
she would be willing to accept.
A. minimum; minimum
B. minimum; maximum
C. maximum; minimum
D. maximum; maximum
Difficulty: Intermediate
Learning Objective: 07-01 Explain why the sales comparison and cost approaches are important methods of property appraisal.
Ling – Chapter 07 #3

4.

While it is often sufficient to rely on informal methods of estimating the market value of real estate
assets, the complexity and large dollar value of many real 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
Difficulty: Basic
Learning Objective: 07-01 Explain why the sales comparison and cost approaches are important methods of property appraisal.
Ling – Chapter 07 #4

5.

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)
Difficulty: Basic
Learning Objective: 07-01 Explain why the sales comparison and cost approaches are important methods of property appraisal.
Ling – Chapter 07 #5

6.

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.
Difficulty: Intermediate
Learning Objective: 07-01 Explain why the sales comparison and cost approaches are important methods of property appraisal.
Ling – Chapter 07 #6

7.

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
Difficulty: Intermediate
Learning Objective: 07-01 Explain why the sales comparison and cost approaches are important methods of property appraisal.
Ling – Chapter 07 #7

8.

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)?
A. Income approach
B. Sales comparison approach
C. Cost approach
D. Investment approach
Difficulty: Advanced
Learning Objective: 07-01 Explain why the sales comparison and cost approaches are important methods of property appraisal.
Ling – Chapter 07 #8

9.

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?
A. Sales comparison approach, cost approach, income approach
B. Income approach, Sales comparison approach, cost approach
C. Cost approach, income approach, sales comparison approach
D. Sales comparison approach, income approach, cost approach
Difficulty: Intermediate
Learning Objective: 07-01 Explain why the sales comparison and cost approaches are important methods of property appraisal.
Ling – Chapter 07 #9

10.

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?
A. One-family residential property
B. Retail office space
C. Education facility
D. High-rise apartments
Difficulty: Advanced
Learning Objective: 07-01 Explain why the sales comparison and cost approaches are important methods of property appraisal.
Ling – Chapter 07 #10

11.

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
Difficulty: Intermediate
Learning Objective: 07-01 Explain why the sales comparison and cost approaches are important methods of property appraisal.
Ling – Chapter 07 #11

12.

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
Difficulty: Advanced
Learning Objective: 07-01 Explain why the sales comparison and cost approaches are important methods of property appraisal.
Ling – Chapter 07 #12

13.

While there is no specific number of comparables that is required for every appraisal assignment,
how many comparable sales are considered adequate as long as the properties are very similar to the
subject property?
A. One
B. Three
C. Five
D. Ten
Difficulty: Basic
Learning Objective: 07-02 Explain the steps involved in applying the sales comparison approach to valuation.
Ling – Chapter 07 #13

14.

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:
A. Financing terms
B. Market conditions
C. Conditions of Sale
D. Location
Difficulty: Intermediate
Learning Objective: 07-03 Make adjustments in the proper sequence in the sales comparison approach.
Ling – Chapter 07 #14

15.

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)
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.
Difficulty: Advanced
Learning Objective: 07-03 Make adjustments in the proper sequence in the sales comparison approach.
Ling – Chapter 07 #15

16.

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.
Difficulty: Advanced
Learning Objective: 07-03 Make adjustments in the proper sequence in the sales comparison approach.
Ling – Chapter 07 #16

17.

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.
Difficulty: Intermediate
Learning Objective: 07-03 Make adjustments in the proper sequence in the sales comparison approach.
Ling – Chapter 07 #17

18.

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
Difficulty: Basic
Learning Objective: 07-04 Explain the steps involved in applying the cost approach to valuation.
Ling – Chapter 07 #18

19.

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
Difficulty: Basic
Learning Objective: 07-05 Define the three primary types of accrued depreciation.
Ling – Chapter 07 #19

20.

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
Difficulty: Intermediate
Learning Objective: 07-05 Define the three primary types of accrued depreciation.
Ling – Chapter 07 #20

21.

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
C. transaction value
D. replacement value

Difficulty: Basic
Learning Objective: 07-06 Reconcile three or more final adjusted sale prices in the sales comparison approach into an indicated value; or two or more indicated
values into a final estimate of value.
Ling – Chapter 07 #21

22.

In using transaction data to determine the current value of the subject property, it is important to
recognize that general market conditions may have changed since a particular transaction occurred.
Property A sold 18 months ago for $235,000 and Property B sold 12 months ago for $215,000. If the
two properties are priced today at $239,500 and $222,300, respectively, what is the average monthly
rate of increase that can be used to adjust comparable prices for changes in market conditions?
A. 0.09%
B. 0.17%
C. 0.19%
D. 0.32%
Difficulty: Intermediate
Learning Objective: 07-03 Make adjustments in the proper sequence in the sales comparison approach.
Ling – Chapter 07 #22

23.

A comparable property sold 15 months ago for $105,000. If the appropriate adjustment for market
conditions is 0.25% per month (without compounding), what would be the adjusted price of the
comparable property?
A. $105,262.50
B. $105,393.80
C. $108,937.50
D. $144,375
Difficulty: Basic
Learning Objective: 07-03 Make adjustments in the proper sequence in the sales comparison approach.
Ling – Chapter 07 #23

24.

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.
A.
B.
C.
D.

$4,000
$6,000
$10,000
$16,000
Difficulty: Intermediate
Learning Objective: 07-03 Make adjustments in the proper sequence in the sales comparison approach.
Ling – Chapter 07 #24

25.

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.
A.
B.
C.
D.

$5,000
$15,000
$20,000
$25,000
Difficulty: Intermediate
Learning Objective: 07-03 Make adjustments in the proper sequence in the sales comparison approach.
Ling – Chapter 07 #25

26.

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. 0.19%
B. 0.24%
C. 0.28%
D. 0.33%
Difficulty: Intermediate
Learning Objective: 07-03 Make adjustments in the proper sequence in the sales comparison approach.
Ling – Chapter 07 #26

27.

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. $270,000
B. $370,000
C. $430,000
D. $530,000
Difficulty: Intermediate
Learning Objective: 07-04 Explain the steps involved in applying the cost approach to valuation.
Ling – Chapter 07 #27

28.

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. $2,400,000
B. $3,700,000
C. $4,000,000
D. $4,500,000
Difficulty: Intermediate
Learning Objective: 07-04 Explain the steps involved in applying the cost approach to valuation.
Ling – Chapter 07 #28

29.

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 neighborhood, values of
any remaining residential properties in the area have fallen by $20,000. Due to the home’s age, we also
notice that there has been a significant amount of physical deterioration to the building, amounting
to an estimate of $50,000 in lost value. Since the home was built over 100 years ago, the floor plan is
quite obsolete relative to current preferences. This has a detrimental effect on the value of the property
that is estimated to be approximately $15,000. Given this information, determine the appraised value
of the home using the cost approach.
A. $265,000
B. $290,000
C. $350,000
D. $460,000
Difficulty: Advanced
Learning Objective: 07-04 Explain the steps involved in applying the cost approach to valuation.
Ling – Chapter 07 #29

30.

Suppose that an appraiser has come to the following conclusions in evaluating the subject property.
Due to the dramatic shift in the perceived safety of the neighborhood, values of any residential
properties in the area of the subject property have fallen by $10,000, on average. Due to the subject
property’s age, physical deterioration to the building accounts for an estimate of $50,000 in lost
value. An evaluation of the floor plan reveals that it is quite obsolete relative to current homebuyer
preferences. This has a detrimental effect on the value of the property that is estimated to be
approximately $15,000. Based on your understanding of adjustments related to accrued depreciation,
which of the following pertains to the adjustment for external obsolescence?
A. $10,000
B. $15,000
C. $50,000
D. $75,000
Difficulty: Advanced
Learning Objective: 07-04 Explain the steps involved in applying the cost approach to valuation.
Ling – Chapter 07 #30

7 Summary
Category
# of Questions
Difficulty: Advanced
7
Difficulty: Basic
8
Difficulty: Intermediate
15
Learning Objective: 07-01 Explain why the sales comparison and cost approaches are important methods of property appraisal.
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Learning Objective: 07-02 Explain the steps involved in applying the sales comparison approach to valuation.
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Learning Objective: 07-03 Make adjustments in the proper sequence in the sales comparison approach.
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Learning Objective: 07-04 Explain the steps involved in applying the cost approach to valuation.
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Learning Objective: 07-05 Define the three primary types of accrued depreciation.
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Learning Objective: 071
06 Reconcile three or more final adjusted sale prices in the sales comparison approach into an indicated value; or two or more indic
ated values into a final estimate of value.
Ling – Chapter 07
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