REE 4103 EXAM 2 QUESTIONS WITH
REVISED ANSWERS – UPDATED
Bldg with a total cost of $700,000. It is 35 years old. Total useful life expectancy of 100
years. The cost of deferred maintenance is $10,000. Short-lived components include
the boiler, roof cover, and floor covering. The cost to replace the boiler is $40,000, the
cost to replace the roof covering is $60,000, and the cost to replace the floor finish is
$20,000. There are no other short-lived items.
What is the cost new of all the long-lived items? - Answer-$570,000
Residence:
2,000 square feet $100/sf cost to build
Basement:
1,000 square feet $50/sf cost to build
Garage:
750 square feet $75/sf cost to build
Screened porch:
400 square feet $25/sf cost to buid
Short-lived items:
HVAC $10,000 new effective age of 5 years life expectancy of 25 years Plumbing
Fixtures $20,000 new effective age of 5 years life expectancy of 30 yearsLighting
Fixtures $15,000 new effective age of 5 years life expectancy of 30 years
Roof covering $12,000 new effective age of 5 years life expectancy of 25
yearsCarpet/Vinyl $7,000 new effective age of 5 years life expectancy of 15 years
No Deferred MaintenanceLong-lived items - effective age of 5 years life expectancy of
70 years Functional obsolescence - $5,000 in depreciation resulting from bad floor
planExternal obsolescence - None.Market Value of Land = $75,000
The cost new to construct the residential space is: - Answer-$200,000
Cost Approach:
Residence:
2,000 square feet $100/sf cost to build
Basement:
1,000 square feet $50/sf cost to build
Garage:
750 square feet $75/sf cost to build
Screened porch:
400 square feet $25/sf cost to buid
Short-lived items:
HVAC $10,000 new effective age of 5 years life expectancy of 25 years Plumbing
Fixtures $20,000 new effective age of 5 years life expectancy of 30 yearsLighting
Fixtures $15,000 new effective age of 5 years life expectancy of 30 years
Roof covering $12,000 new effective age of 5 years life expectancy of 25
yearsCarpet/Vinyl $7,000 new effective age of 5 years life expectancy of 15 years
No Deferred MaintenanceLong-lived items - effective age of 5 years life expectancy of
70 years Functional obsolescence - $5,000 in depreciation resulting from bad floor
,planExternal obsolescence - None.Market Value of Land = $75,000
The amount of depreciation for the HVAC, Plumbing, Lighting Fixtures, Roof c - Answer-
20%, 16.7%, 20% and 33.3% respectively
Suppose the subject is a three-story officebuilding that has no elevator in a market that
demands an elevator. The cost of the elevator if installed new when built was $75,000,
but the cost to install it today is $210,000. Similar properties with the same problem in
this market generally sell for $200,000 less than properties with elevators. The
improvement is 14 years old, and the physical depreciation would be 2% per year.
What is the depreciation for functional obsolescence? - Answer-$125,000
When reconciling the adjusted sales price of comparables, the greatest emphasis
should be given to: - Answer-none of the above
You are analyzing a sale in which the mathematical calculation of cash equivalency
calls for a $10,000 downward adjustment. However, by use of several paired data sets,
you find that the market only recognizes a $4,000 downward adjustment. What is the
adjustment for financing? - Answer-$4,000
Valuation assignment for the subject property is for both the building and land.· A
Comparable Office Bldg owned and sold separately from its site (land), which is subject
to a 99-year ground lease.
· The comparable 80,000 sf bldg sold (separately from the land) for $4,000,000, or
$50/sf.· Assume the annual ground rent is $250,000, which is consistent with the market
· Market Land Capitalization rate is 11%. If no other adjustments were made except for
the value of the land, what would be the final adjusted sales price of this comparable? -
Answer-$6,272,727.27
A conditions of sale adjustment reflects - Answer-The differences between the
motivations of the seller and buyer on the date of sale of a comparable and the typical
motivation of buyers and sellers as described in the definition of value
Comparable sale sold for $142,562 with down payment of 7% Seller financed mortgage
for a 41-year term pmt @ 4% interest compounded monthly with a 12 year
balloon.Homes in area are typically held for 41 years
Market derived interest rate is 11%.What is the cash equivalency sale price of the
comparable? - Answer-
Consider a 10,000 sf strip shopping center that sold five years ago for $300,000 and
then sold again recently for $345,000.The indicated average annual appreciation of the
shopping center would be? - Answer-$9,000
Comparable sale sold for $150,000 with down payment of $30,000 · Seller financed
mortgage for a 30-year term @ 7% interest compounded monthly.
· Homes in area are typically held for 30 years
· Market derived interest rate is 9% compounded monthly. (Implicit in this method is the
assumption that the difference between the market interest rate and the contract rate
will remain constant for the entire 30 years)
What is the adjusted sale price after taking into consideration financing terms? -
Answer-$129,222.04
, Valuation assignment for the subject property is for both the building and land.· A
Comparable Office Bldg owned and sold separately from its site (land), which is subject
to a 99-year ground lease.
· The comparable 80,000 sf bldg sold (separately from the land) for $4,000,000, or
$50/sf.· Assume the annual ground rent is $150,000, which is consistent with the
market· Market Land Capitalization rate is 11%.
If no other adjustments were made except for the value of the land, what would be the
final adjusted sales price of this comparable? - Answer-$5,363,636.36
In a market value appraisal assignment, the appraiser found prices were increasing at
about 3% per year compounded annually. The appraiser found several comparable
sales but they were not very recent transactions. She decided to make an adjustment to
compensate for price increases in this market. These adjustments are called - Answer-
market conditions adjustments
Cost is: always the same as value, always the same as price or never exceeds value -
Answer-none of the above
Replacement cost new refers to the cost of: - Answer-constructing a building that would
have similar or equivalent utility
Depreciation is - Answer-The difference between the reproduction or replacement cost
and the market value of the improvements as of the effective date of appraisal
A building that is too large for the neighborhood is an example of functional
obsolescence in the form of overimprovement. Another example of functional
obsolescence is: - Answer-an awkwardly shaped floor plan in an office building
Book depreciation refers to - Answer-Losses in value from an accounting perspective on
the balance sheet of a business tax return
Which principle of value best affirms that the maximum value of property generally
cannot exceed the cost of its replacement - Answer-substitution
Direct costs are - Answer-Expenditures for the labor and material used in the
construction of the improvements
The cost approach is typically very effective when - Answer-The improvements are
newer and represent the highest and best use of the site
In the cost approach the site is valued as if it were - Answer-Vacant and available for
development to its highest and best use
Reproduction cost is: - Answer-the cost new of an exact replica of the subject
REVISED ANSWERS – UPDATED
Bldg with a total cost of $700,000. It is 35 years old. Total useful life expectancy of 100
years. The cost of deferred maintenance is $10,000. Short-lived components include
the boiler, roof cover, and floor covering. The cost to replace the boiler is $40,000, the
cost to replace the roof covering is $60,000, and the cost to replace the floor finish is
$20,000. There are no other short-lived items.
What is the cost new of all the long-lived items? - Answer-$570,000
Residence:
2,000 square feet $100/sf cost to build
Basement:
1,000 square feet $50/sf cost to build
Garage:
750 square feet $75/sf cost to build
Screened porch:
400 square feet $25/sf cost to buid
Short-lived items:
HVAC $10,000 new effective age of 5 years life expectancy of 25 years Plumbing
Fixtures $20,000 new effective age of 5 years life expectancy of 30 yearsLighting
Fixtures $15,000 new effective age of 5 years life expectancy of 30 years
Roof covering $12,000 new effective age of 5 years life expectancy of 25
yearsCarpet/Vinyl $7,000 new effective age of 5 years life expectancy of 15 years
No Deferred MaintenanceLong-lived items - effective age of 5 years life expectancy of
70 years Functional obsolescence - $5,000 in depreciation resulting from bad floor
planExternal obsolescence - None.Market Value of Land = $75,000
The cost new to construct the residential space is: - Answer-$200,000
Cost Approach:
Residence:
2,000 square feet $100/sf cost to build
Basement:
1,000 square feet $50/sf cost to build
Garage:
750 square feet $75/sf cost to build
Screened porch:
400 square feet $25/sf cost to buid
Short-lived items:
HVAC $10,000 new effective age of 5 years life expectancy of 25 years Plumbing
Fixtures $20,000 new effective age of 5 years life expectancy of 30 yearsLighting
Fixtures $15,000 new effective age of 5 years life expectancy of 30 years
Roof covering $12,000 new effective age of 5 years life expectancy of 25
yearsCarpet/Vinyl $7,000 new effective age of 5 years life expectancy of 15 years
No Deferred MaintenanceLong-lived items - effective age of 5 years life expectancy of
70 years Functional obsolescence - $5,000 in depreciation resulting from bad floor
,planExternal obsolescence - None.Market Value of Land = $75,000
The amount of depreciation for the HVAC, Plumbing, Lighting Fixtures, Roof c - Answer-
20%, 16.7%, 20% and 33.3% respectively
Suppose the subject is a three-story officebuilding that has no elevator in a market that
demands an elevator. The cost of the elevator if installed new when built was $75,000,
but the cost to install it today is $210,000. Similar properties with the same problem in
this market generally sell for $200,000 less than properties with elevators. The
improvement is 14 years old, and the physical depreciation would be 2% per year.
What is the depreciation for functional obsolescence? - Answer-$125,000
When reconciling the adjusted sales price of comparables, the greatest emphasis
should be given to: - Answer-none of the above
You are analyzing a sale in which the mathematical calculation of cash equivalency
calls for a $10,000 downward adjustment. However, by use of several paired data sets,
you find that the market only recognizes a $4,000 downward adjustment. What is the
adjustment for financing? - Answer-$4,000
Valuation assignment for the subject property is for both the building and land.· A
Comparable Office Bldg owned and sold separately from its site (land), which is subject
to a 99-year ground lease.
· The comparable 80,000 sf bldg sold (separately from the land) for $4,000,000, or
$50/sf.· Assume the annual ground rent is $250,000, which is consistent with the market
· Market Land Capitalization rate is 11%. If no other adjustments were made except for
the value of the land, what would be the final adjusted sales price of this comparable? -
Answer-$6,272,727.27
A conditions of sale adjustment reflects - Answer-The differences between the
motivations of the seller and buyer on the date of sale of a comparable and the typical
motivation of buyers and sellers as described in the definition of value
Comparable sale sold for $142,562 with down payment of 7% Seller financed mortgage
for a 41-year term pmt @ 4% interest compounded monthly with a 12 year
balloon.Homes in area are typically held for 41 years
Market derived interest rate is 11%.What is the cash equivalency sale price of the
comparable? - Answer-
Consider a 10,000 sf strip shopping center that sold five years ago for $300,000 and
then sold again recently for $345,000.The indicated average annual appreciation of the
shopping center would be? - Answer-$9,000
Comparable sale sold for $150,000 with down payment of $30,000 · Seller financed
mortgage for a 30-year term @ 7% interest compounded monthly.
· Homes in area are typically held for 30 years
· Market derived interest rate is 9% compounded monthly. (Implicit in this method is the
assumption that the difference between the market interest rate and the contract rate
will remain constant for the entire 30 years)
What is the adjusted sale price after taking into consideration financing terms? -
Answer-$129,222.04
, Valuation assignment for the subject property is for both the building and land.· A
Comparable Office Bldg owned and sold separately from its site (land), which is subject
to a 99-year ground lease.
· The comparable 80,000 sf bldg sold (separately from the land) for $4,000,000, or
$50/sf.· Assume the annual ground rent is $150,000, which is consistent with the
market· Market Land Capitalization rate is 11%.
If no other adjustments were made except for the value of the land, what would be the
final adjusted sales price of this comparable? - Answer-$5,363,636.36
In a market value appraisal assignment, the appraiser found prices were increasing at
about 3% per year compounded annually. The appraiser found several comparable
sales but they were not very recent transactions. She decided to make an adjustment to
compensate for price increases in this market. These adjustments are called - Answer-
market conditions adjustments
Cost is: always the same as value, always the same as price or never exceeds value -
Answer-none of the above
Replacement cost new refers to the cost of: - Answer-constructing a building that would
have similar or equivalent utility
Depreciation is - Answer-The difference between the reproduction or replacement cost
and the market value of the improvements as of the effective date of appraisal
A building that is too large for the neighborhood is an example of functional
obsolescence in the form of overimprovement. Another example of functional
obsolescence is: - Answer-an awkwardly shaped floor plan in an office building
Book depreciation refers to - Answer-Losses in value from an accounting perspective on
the balance sheet of a business tax return
Which principle of value best affirms that the maximum value of property generally
cannot exceed the cost of its replacement - Answer-substitution
Direct costs are - Answer-Expenditures for the labor and material used in the
construction of the improvements
The cost approach is typically very effective when - Answer-The improvements are
newer and represent the highest and best use of the site
In the cost approach the site is valued as if it were - Answer-Vacant and available for
development to its highest and best use
Reproduction cost is: - Answer-the cost new of an exact replica of the subject
