SAEE SAEE - Core Valuation Principles Questions and Answers 4 — Questions and Answers
Question 1: The principle of highest and best use requires that the use be all of the following EXCEPT:
- Legally permissible
- Physically possible
- Historically precedented (Correct answer)
- Financially feasible
Correct answer: Historically precedented
Highest and best use must be legally permissible, physically possible, financially feasible, and maximally productive — historical precedent is not a required criterion.
Question 2: An appraiser is valuing land as if vacant under the highest and best use analysis. This is done primarily to:
- Estimate the land value separately from improvements for the cost approach (Correct answer)
- Determine the income capitalization rate
- Calculate effective age of improvements
- Establish the gross rent multiplier
Correct answer: Estimate the land value separately from improvements for the cost approach
Land must be valued as if vacant and available for its highest and best use in order to isolate land value in the cost approach.
Question 3: Which of the following best describes 'effective demand' in real estate valuation?
- The total number of potential buyers in a market
- Desire for a property backed by purchasing power (Correct answer)
- The listed asking price of available properties
- Government-regulated housing need in a region
Correct answer: Desire for a property backed by purchasing power
Effective demand combines both the desire to purchase a property and the financial ability to do so.
Question 4: The principle of externalities recognizes that value can be affected by:
- Only interior features of the property
- Forces originating outside the property boundaries (Correct answer)
- The original purchase price paid by the owner
- The number of rooms within the dwelling
Correct answer: Forces originating outside the property boundaries
Externalities are positive or negative influences from outside the property — such as proximity to schools, highways, or nuisances — that affect value.
Question 5: A property's value is $300,000 as a single-family home but could be worth $450,000 if converted to a duplex under current zoning. The difference represents:
- Excess land value
- Plottage increment
- Conversion potential or interim use differential (Correct answer)
- Depreciation reserve
Correct answer: Conversion potential or interim use differential
When a property's current use does not represent its highest and best use, the value differential reflects its potential upon conversion to a more productive use.
Question 6: Under the substitution principle, a buyer would NOT pay more for a property than:
- Its assessed value for tax purposes
- The cost to acquire an equally desirable substitute property (Correct answer)
- Its original listing price
- The seller's asking price minus standard commissions
Correct answer: The cost to acquire an equally desirable substitute property
Substitution holds that a rational buyer will pay no more for a property than the cost of acquiring an equally desirable alternative in the market.
Question 7: Which economic concept explains why raw land at the edge of an expanding urban area tends to increase in value over time without any improvements?
- Depreciation
- Anticipation of future urban development and demand (Correct answer)
- Principle of regression
- Functional obsolescence
Correct answer: Anticipation of future urban development and demand
Anticipation drives land values upward as the market expects future demand and development to reach previously underutilized areas.
SAEE SAEE - Core Valuation Principles Questions and Answers 4
The principle of highest and best use requires that the use be all of the following EXCEPT: