Exam (elaborations)
REE5305 Midterm 1 - Conceptual (1)
REE5305 Midterm 1 - Conceptual (1)
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REE5305 Midterm 1 ~ ConceptualPopulation increases are usually associated with increases in demand and house price
appreciation. - ANS-TRUE
Increased populations mean that additional housing is needed, which results in increasing
house prices.
When using the cost approach to valuation, current market data for land values must be
obtained. - ANS-TRUE
Current market data is needed to determine the value of the land to be used in the cost
approach.
Which of the following statements best describes the "wealth effect"? - ANS-Expected
appreciation in assets, such as home equity, may increase spending on other goods and
services in the economy.
The so-called "wealth effect." This is the effect that expected appreciation in assets, including
home equity, may have on consumer spending on other goods and services in the economy.
The appraised value of a property usually represents the: - ANS-Actual opinion of appraiser
There is an element of subjectivity in the appraisal process, so the appraised value is the actual
opinion of the appraiser, but does not necessarily reflect the actual value, selling price, or
replacement value of the property.
When considering the federal income tax treatment for housing, which of the following is tax
deductible? - ANS-Mortgage interest paid
Mortgage interest is tax deductible. Mortgage principal and insurance premiums are not tax
deductible for primary residences.
Property taxes are also deductible.
An appraisal usually contains three approaches to valuation. Which of the following is NOT one
of those approaches? - ANS-The ratio approach
The market, cost, and income approaches are the common methods used to determine
valuation. Ratio analysis is not used to establish value in an appraisal.
Which approach to valuation is also called the market approach? - ANS-Sales Comparison
,Residential appraisers use only the sales comparison approach to determine value of the
homes they appraise. - ANS-FALSE
There are several common approaches that are used in practice including the cost and income
approaches.
Mortgage interest and property taxes are deductible for federal income tax purposes for
homeowners. - ANS-TRUE
Which of the following would NOT result in an increase in housing demand? - ANS-Higher
interest Rates
Factors that increase the demand for housing include increased employment opportunities in
the market, increased population size, and increased household incomes. Higher interest rates
result in higher mortgage costs and higher opportunity costs to borrowing, both of which
decrease the demand for housing.
The subject property of an appraisal has only two bedrooms, but one of the comparables used
in the appraisal has three bedrooms. If the adjustment for a third bedroom is $5,000, the
adjustment would be: - ANS-To ensure that dissimilarities are adjusted for, the value of the third
bedroom should be deducted from the price of the comparable property in order to appropriately
compare it to the subject property.
A region has a location quotient of 0.5 for manufacturing. This means that: - ANS-the region's
share of employment in manufacturing is half as large as the share of manufacturing
employment in the U.S.
The location quotient is equal to the region's share of employment in a given industry divided by
the U.S.'s share of employment in a given industry.
If the cost of rental housing increases relative to house prices, demand for purchased housing
tends to increase. - ANS-TRUE
An increase in the cost of rental housing lowers the relative cost of purchasing, so demand for
purchasing increases.
Potential investors, in analyzing the profit potential for a distressed property, generally consider
a financial framework including the acquisition phase, the holding period phase, and the
disposition phase. - ANS-TRUE
All of these elements should be considered by potential investors when determining whether it is
profitable to invest in a distressed property.
, Which of the following is NOT a factor in causing a property to become distressed? -
ANS-Delinquent homeowner's insurance bill
Some of the personal financial and/or legal situations affecting the owner that may explain why
properties become distressed are: borrower inability to make mortgage payments, market value
of the property below the mortgage balance, delinquent property taxes/property tax liens, IRS
tax liens, civil judgments/bankruptcy/divorce, mechanics and/or construction loan liens, personal
debts, estate settlements.
The capitalization effect: - ANS-relates the quality of public services that individuals receive
relative to the taxes that are paid for the services.
The capitalization effect relates to the quality of the public services that individuals receive
relative to the taxes (usually property tax and fees) that are paid for these services when they
choose to purchase housing in a particular neighborhood or municipality.
It is likely that two identical houses located in different school districts will sell for different prices.
- ANS-TRUE
The quality of the school district is a major factor that impacts the prices of homes in the district.
Use of construction costs is very important in the sales comparison approach to valuation. -
ANS-FALSE
The sales price is used in the sales comparison approach. Costs are not included.
A home sales transaction in which the seller was not under undue pressure to sell for a
discounted or inflated price (e.g., foreclosure, selling to family member, etc.) is referred to as
a(n): - ANS-Arm's Length Transaction
Arm's-length transactions are those that would have occurred in the fair market, so they are free
from undue pressures that may have resulted in differences to the sales price versus the fair
market value price.
Cluster analysis using location quotients and/or employment multipliers provides a snapshot of
employment at a point in time but does not provide a forecast of future employment in a specific
industry. - ANS-TRUE
When calculating taxes, the difference between the acquisition cost and selling price of a house
is called: - ANS-Capital Gain
When a homeowner improves some aspect of his property far in excess of comparable
properties in the neighborhood, he is said to have: - ANS-Overimproved the property
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