CSLB General Building (B) — All Questions
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An appraiser valuing a single-family home in an active subdivision would rely most heavily on the:
- a.Cost approach
- b.Income approach
- c.Sales comparison approach✓
- d.Gross rent multiplier
The sales comparison approach values property by analyzing recent sales of comparable homes and adjusting for differences. It is the most reliable method for single-family residences where ample comparable sales exist. The income and cost approaches are more suited to investment or special-purpose properties.
The cost approach to value is most appropriate for appraising:
- a.A newly built school or church✓
- b.A tract home with many comparable sales
- c.An apartment building generating rent
- d.Bare farmland
The cost approach estimates value as land value plus the depreciated cost to reproduce or replace the improvements. It works best for new or special-purpose properties like schools, churches, and public buildings that rarely sell. Because such properties lack comparable sales and income, the other approaches are less reliable.
A rental property earns $2,000 per month in gross rent and recently sold for $360,000. Its gross rent multiplier (GRM) is:
- a.12
- b.15✓
- c.18
- d.24
The monthly GRM equals sale price divided by monthly gross rent, so $360,000 divided by $2,000 equals 180 monthly, or expressed as an annual GRM using $24,000 yearly rent it is 15. Using annual rent, $360,000 / $24,000 = 15. The GRM is a quick screening tool relating price to gross income.
The appraisal principle stating that a buyer will pay no more for a property than the cost of an equally desirable substitute is the principle of:
- a.Conformity
- b.Anticipation
- c.Contribution
- d.Substitution✓
The principle of substitution holds that value is set by the cost of acquiring an equally desirable substitute property. It underlies the sales comparison approach, since a buyer will not pay more than comparable alternatives cost. This principle links all three appraisal approaches.
The legally permissible and most profitable use that produces the greatest value for a parcel is its:
- a.Highest and best use✓
- b.Assessed use
- c.Deferred use
- d.Nonconforming use
Highest and best use is the reasonably probable, legal, physically possible, and financially feasible use that yields the highest value. Appraisers analyze it before applying valuation approaches. A property is valued according to this optimal use, not necessarily its current use.
An outdated floor plan that reduces a home's value is an example of:
- a.Physical deterioration
- b.Economic obsolescence
- c.Functional obsolescence✓
- d.Land depreciation
Functional obsolescence is a loss in value due to outdated or undesirable features within the property itself, such as a poor floor plan or one-car garage. Physical deterioration involves wear and tear, while economic obsolescence stems from external factors. Each type is analyzed in the cost approach.
A comparative market analysis (CMA) prepared by a licensee to help price a listing is:
- a.A federally certified appraisal
- b.An estimate of value based on comparable sales, not a formal appraisal✓
- c.A binding valuation
- d.Required to use the income approach
A CMA is a licensee's informal pricing tool comparing similar recently sold, active, and expired listings. It is not a certified appraisal and does not meet formal appraisal standards. Agents use it to help sellers set a competitive list price.
The principle that value is maximized when properties in an area are reasonably similar in style and use is the principle of:
- a.Anticipation
- b.Substitution
- c.Contribution
- d.Conformity✓
The principle of conformity states that value is enhanced when a property is in harmony with surrounding properties in use, style, and size. Reasonable uniformity in a neighborhood supports stable values. Marked non-conformity can depress value.
A modest home located among larger, more expensive homes tends to be worth more because of the principle of:
- a.Progression✓
- b.Regression
- c.Contribution
- d.Substitution
The principle of progression holds that a lesser-valued property gains value from proximity to higher-valued properties. Its value is pulled upward by the superior surroundings. The opposite effect is described by the principle of regression.
A large luxury home surrounded by smaller modest homes is worth less than it would be elsewhere because of the principle of:
- a.Progression
- b.Regression✓
- c.Anticipation
- d.Conformity
The principle of regression holds that a higher-valued property loses value when surrounded by lower-valued properties. The inferior neighborhood drags its value downward. This is the counterpart to the principle of progression.
Market value is best defined as the:
- a.Price the seller paid originally
- b.Assessed value for taxes
- c.Most probable price a property should bring in a competitive, open market✓
- d.Replacement cost of improvements
Market value is the most probable price a property should sell for under normal conditions, assuming a willing buyer and seller, adequate market exposure, and no undue pressure. It differs from cost and from assessed value. Appraisals typically seek to estimate market value.
An investment property produces $60,000 in net operating income and the market capitalization rate is 8%. Using the income approach, its indicated value is:
- a.$750,000✓
- b.$480,000
- c.$600,000
- d.$540,000
Value equals net operating income divided by the capitalization rate, so $60,000 / 0.08 = $750,000. The income approach is central to valuing income-producing property. A lower cap rate produces a higher value for the same income.
The value a county assessor places on property to compute property taxes is the:
- a.Market value
- b.Insured value
- c.Replacement value
- d.Assessed value✓
Assessed value is the figure set by the county assessor as the basis for property taxation. Under Proposition 13, California generally bases it on the acquisition value with limited annual increases. It often differs from current market value.CA Revenue and Taxation Code
Combining two adjacent parcels to create a single, more valuable parcel is called assemblage, and the resulting increase in value is:
- a.Regression
- b.Plottage✓
- c.Contribution
- d.Accretion
Plottage is the added value created when combining, or assembling, adjacent parcels into one larger, more useful parcel. The merged property can be worth more than the sum of the separate lots. Developers use assemblage to unlock plottage value.
The principle of anticipation holds that value is created by the expectation of:
- a.Past sales prices
- b.Original construction cost
- c.Future benefits from the property✓
- d.Assessed tax value
The principle of anticipation states that value is based on the present worth of expected future benefits, such as income or appreciation. Investors buy property for what it will produce, not what it cost. This principle underlies the income approach.
In the cost approach, an estimate of the cost to build an exact duplicate of the improvements using the same materials is the:
- a.Reproduction cost✓
- b.Replacement cost
- c.Assessed cost
- d.Depreciated cost
Reproduction cost is the cost to construct an exact replica of the improvement using the same design and materials. Replacement cost, by contrast, is the cost to build a functionally equivalent structure using current materials and methods. Appraisers choose the appropriate measure for the cost approach.
A loss in property value caused by a new freeway built next to a residence is best classified as:
- a.Functional obsolescence
- b.Economic (external) obsolescence✓
- c.Physical deterioration
- d.Curable depreciation
Economic or external obsolescence is a loss in value caused by factors outside the property, such as nearby nuisances or negative neighborhood changes. It is generally incurable because the owner cannot control external conditions. A new freeway causing noise is a classic example.
Ordinary wear and tear, such as worn carpet and a leaking roof, is a form of:
- a.Functional obsolescence
- b.Economic obsolescence
- c.Plottage
- d.Physical deterioration✓
Physical deterioration is the loss in value from ordinary wear, tear, and age of the improvements. It may be curable, like worn carpet, or incurable if repair costs exceed the value added. It is one of the three forms of depreciation in the cost approach.