Appraisal Methodology & Techniques Flashcards

In a market characterized by rapidly rising prices, time adjustments applied to comparable sales should generally be:

Answer: Positive, increasing the sale prices of older comparables to current market levels

In a rising market, older comparable sales are adjusted upward (positive time adjustment) to reflect the appreciation that has occurred between the sale date and the appraisal date.

Which of the following BEST describes 'economic life' of an improvement?

Answer: The total period over which the improvement contributes positively to the property's value

Economic life is the total estimated period during which an improvement contributes value to the total property, ending when the land value alone exceeds the improved property value.

The 'income residual' technique values land or building by capitalizing the income attributable to one component after satisfying the return requirements of the other. Which statement is correct?

Answer: All of the above are correct

All three statements accurately describe residual techniques: each residualizes income to one component after satisfying the other's return, and both use component-specific capitalization rates.

When a comparable sale includes personal property (e.g., furniture in a motel), the appraiser must:

Answer: Deduct the contributory value of personal property from the sale price before making adjustments

Personal property must be deducted from the sale price because real property appraisals value real property only, and including personal property would inflate the comparable's indicated value.

In appraisal, 'market rent' is defined as:

Answer: The rental income a property would most probably command in the open market as of the appraisal date

Market rent is the most probable rent a property would command in a competitive and open market under conditions requisite to a fair transaction, as of the appraisal date.

The 'depth factor' adjustment in land valuation is primarily used to account for:

Answer: The diminishing value contribution of additional lot depth beyond the standard depth

Depth factor tables recognize that additional lot depth beyond a standard depth adds value, but at a diminishing rate, so adjustments are made to normalize lots of varying depths.

Which condition must be met for a sale to be considered an 'arm's-length transaction' usable as a market comparable?

Answer: Both parties act in their own best interest with no undue pressure and adequate market exposure

An arm's-length transaction requires knowledgeable, willing parties acting in their own interests without compulsion, and adequate market exposure—conditions necessary for a sale to reflect market value.