Florida Real Estate Broker Exam — All Questions

A Florida broker who prepares a comparative market analysis for a prospective seller is:

• a.Performing an appraisal that must fully comply with USPAP
• b.Providing a brokerage service rather than an appraisal✓
• c.Performing an appraisal that requires a certified appraiser
• d.Providing a service that only a broker associate may perform

Section 475.01(1)(a), F.S., includes appraising within the definition of broker but specifically excludes those appraisal services that must be performed only by a state-licensed or state-certified appraiser. A comparative market analysis prepared to help an owner set a listing price is brokerage work incidental to seeking the listing, and it is an opinion of likely selling price rather than a formal opinion of value developed under the Uniform Standards of Professional Appraisal Practice. A licensee should not present a CMA as an appraisal or use appraisal terminology that implies one. Broker associates hold no special CMA privilege.

USPAP, the body of standards a Florida appraiser must follow, stands for:

• a.Uniform Statutes for Professional Appraisal Procedure
• b.United States Professional Appraisal Practice Standards
• c.Uniform Standards for Property Appraisal Purposes
• d.Uniform Standards of Professional Appraisal Practice✓

The Uniform Standards of Professional Appraisal Practice are promulgated by the Appraisal Standards Board of the Appraisal Foundation and set the ethical and performance requirements for appraisers, covering development of the appraisal and its reporting. They are standards adopted by reference into state law rather than statutes enacted by a legislature, which is why the second choice misdescribes them, and they are national in scope but not a federal agency product. Florida regulates appraisers under part II of chapter 475, F.S., a separate credential from the broker and sales associate licenses issued under part I.

In the sales comparison approach, when a comparable property has a desirable feature the subject property lacks, the appraiser:

• a.Adds value to the comparable's sale price
• b.Subtracts value from the comparable's sale price✓
• c.Subtracts value from the subject's indicated value
• d.Adds value to the subject's indicated value

The governing discipline of the sales comparison approach is that the appraiser always adjusts the comparable and never the subject, because the subject's value is the unknown being solved for. The comparable sold for a price that reflects its extra feature, so to estimate what it would have sold for had it been like the subject, the appraiser subtracts the contributory value of that feature. The mirror image applies when the subject has a feature the comparable lacks: value is added to the comparable's price. Adjusting the subject in either direction reverses the logic of the approach and produces a circular estimate.

The cost-depreciation approach estimates the value of a property as:

• a.Land value plus improvement cost new, plus accrued appreciation
• b.Land value plus improvement cost new, less accrued depreciation✓
• c.Improvement cost new, less accrued depreciation, less land value
• d.Land value plus the capitalized net income of the improvements

The cost approach reasons that an informed buyer will pay no more for a property than the cost of acquiring a comparable site and building an equally desirable substitute improvement. The appraiser estimates the site value as if vacant, adds the reproduction or replacement cost new of the improvements, then subtracts accrued depreciation from all causes, physical, functional, and external. Depreciation is subtracted rather than appreciation added, land value is added rather than subtracted, and capitalizing net income is the separate income approach. The cost approach is most reliable for new or special-purpose buildings with few comparable sales.

An office building produces net operating income of $96,000, and comparable buildings sell at an 8 percent capitalization rate. The indicated value is:

• a.$1,080,000
• b.$768,000
• c.$1,200,000✓
• d.$7,680

The income capitalization formula is value equals income divided by rate, so $96,000 divided by 0.08 gives $1,200,000. The $768,000 figure comes from multiplying by 8 percent instead of dividing, an easy slip that produces a value below the income it is supposed to capitalize many times over. The $7,680 figure is that same multiplication carried out and then misplaced by a decimal. Remember the relationship among the three variables: income equals value times rate, and rate equals income divided by value, so a higher capitalization rate always yields a lower value for the same income stream.

An appraiser attributes a Florida home's loss in value to a landfill newly opened across the road. This is:

• a.Physical deterioration, which is generally curable
• b.Functional obsolescence, which is generally incurable
• c.External obsolescence, which is generally incurable✓
• d.Functional obsolescence, which is generally curable

External obsolescence, sometimes called economic obsolescence, is a loss in value caused by forces outside the property's own boundaries, such as a nearby nuisance, a change in the neighborhood, or a downturn in the local economy. Because the owner cannot remove the landfill, external obsolescence is generally treated as incurable. Functional obsolescence arises from the design or utility of the improvement itself, such as an outdated floor plan or too few bathrooms, and may be curable or incurable depending on cost. Physical deterioration is ordinary wear and tear and deferred maintenance, most of which is curable.

A broker price opinion prepared by a Florida licensee differs from an appraisal chiefly because it is:

• a.An opinion of value given as a brokerage service, not an appraisal✓
• b.An appraisal that simply omits the cost approach to value
• c.An appraisal performed under a narrower scope of work
• d.An opinion that binds the broker to purchase at the stated price

A broker price opinion is a licensee's opinion of the probable selling price of a property, usually prepared for a lender, servicer, or asset manager considering a sale, short sale, or foreclosure. Like a comparative market analysis, it is a brokerage service falling within the definition of broker in s. 475.01(1)(a), F.S., rather than an appraisal developed under USPAP by a state-licensed or state-certified appraiser. It is not an appraisal with a reduced scope, and it is not an offer: nothing about giving a price opinion obligates the broker to buy the property or guarantees the owner that price.

An investor uses a gross rent multiplier to value a rental house. The multiplier is derived by dividing:

• a.Sale price by gross rent✓
• b.Gross rent by sale price
• c.Net operating income by sale price
• d.Sale price by net operating income

The gross rent multiplier is derived from comparable sales by dividing each comparable's sale price by its gross rent, and the resulting factor is then multiplied by the subject's gross rent to indicate value. It is a quick screening tool for small residential income properties precisely because it uses gross rent and therefore requires no expense data. Dividing rent by price inverts the factor. Net operating income divided by sale price produces the capitalization rate, and sale price divided by net operating income produces its reciprocal, both of which are income-approach measures rather than gross multipliers.

When a Florida broker values a going business along with its real estate, the intangible value of its reputation and customer base is:

• a.Goodwill✓
• b.Leasehold value
• c.Salvage value
• d.Chattel value

Goodwill is the intangible value of a going concern that exceeds the value of its identifiable tangible and separately identifiable intangible assets, arising from reputation, customer relationships, location advantage, and trained staff. It matters in Florida brokerage because s. 475.01(1)(i), F.S., defines real property to include any interest in business enterprises or business opportunities, so a licensee may broker a business sale. Chattel value refers to tangible personal property such as equipment and fixtures, leasehold value is the tenant's interest in a favorable lease, and salvage value is what an asset brings at the end of its useful life.