DAY 3 FUNDAMENTALS of REAL ESTATE APPRAISAL

1. This economic principle holds that a prudent purchaser would pay no more for a home than
it would cost him or her to build or buy another one.
A. Principle of conformity
B. Principle of balance
C. Principle of contribution
D. Principle of substitution

2. A valuation review that includes inspection of the exterior and sometimes the interior of the
subject property and possibly inspection of the comparable properties to confirm the data
provided in the report.
A. Technical review
B. Desk review
C. Administrative review
D. Field review

3. It is defined as that logical, legal, and most probable use which will yield the greatest net
income to the land over a sustained period of time.
A. Interim use
B. Actual use
C. Highest and best use
D. Existing use

4. An ______________ market is one that is characterized by goods or services that are easily
produced and readily transferable, with a large number of buyers and sellers.
A. Active
B. Calm
C. Inefficient
D. Efficient

5. This theory is based on the idea that the greater the volume of an item, the less each
incremental volume should cost.
A. Cheaper by the dozen
B. Economies of scale
C. Anticipation
D. Increasing returns

6. The surplus productivity principle recognizes the four agents of production, which are
A. Land, buildings, other land improvements and machinery
B. Plant, machinery, equipment and technology

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C. Land, labor, capital and entrepreneurship
D. Land, buildings, labor and capital

7. In any enterprise, labor must be paid first, with capital paid after that, entrepreneurship is
then paid. The residual income is attributed to the land (including buildings). This concept
applies in what economic principle affecting values?
A. Economies of scale
B. Contribution
C. Balance
D. Surplus productivity

8. This term means coordination or management.

A. Capital
B. Labor
C. Entrepreneurship
D. Production

9. This comparative approach considers the sales or offers of similar or substitute properties
and related market data, and establishes a value estimate by processes involving comparison.
A. Market data approach
B. Income approach
C. Cost approach
D. Development technique

10. The process of orchestrating land, labor, and capital to produce an item.
A. Conduction
B. Analysis
C. Entrepreneurship
D. Capitalization

11. The forces that impact real estate values are the following:
A. Physical, economical, sociological and physiological
B. Population, income level, skill levels and social environment
C. Social, economic, physical or environmental and governmental
D. Political, economical, governmental and physical

12. These forces relate to trends in society or culture, and sometimes these forces are imagined
while at other times they are based on actual facts and figures.
A. Environmental
B. Governmental
C. Physical

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D. Social

13. A / An ______________________ is a group of complementary land uses.

A. Zone
B. Area
C. Neighborhood
D. Municipality

14. In the application of this technique to estimate value, the building value is estimated as the
present value of the residual income attributable to the building of an income-producing
property.
A. Building residual technique
B. Land residual technique
C. Property residual technique
D. Development technique

15. The rent specified by a given lease arrangement.

A. Economic rent
B. Market rent
C. Contract rent
D. Rental rate

16. The following are standard tests for highest and best of real property, except
A. physically possible
B. politically permissible
C. financially feasible
D. maximally productive

17. Applicable to real estate improvements, the rate warranted by prudent investors that will
represent the return on investment (usually the interest rate or capitalization rate) and the
return of investment, for improvements, this is represented by the recapture rate.
A. Discounting rate
B. Overall rate
C. Internal rate of return
D. Recapture rate

18. Interest Rate + Recapture Rate equals

A. Discounting rate
B. Overall rate
C. Internal rate of return
D. Return on investment

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19. The initial stage in a neighborhood or zone’s life cycle. This refers to the period in which the
neighborhood or zone is expanding and developing.
A. Revitalization
B. Decline
C. Stability
D. Growth

20. When a neighborhood can no longer compete with other comparable neighborhoods, it
usually enters the _________________ stage of its life cycle.
A. Revitalization
B. Decline
C. Stability
D. Growth

21. The act of distinguishing or delineating markets that the appraiser should consider in his
data program is called
A. market segregation.
B. market analysis.
C. market segmentation.
D. market study.

22. In this type of market, goods and services are not readily produced or easily transferable,
with no readily identified group of buyers and sellers active in a particular marketplace.
A. Efficient market
B. Inefficient market
C. Buyer’s market
D. Seller’s market

23. The study of a specific market. It is the collection and dissection of data and the conversion
of that data to information that can be used for analysis and decision-making by an appraiser or
analyst.
A. Marketability study
B. Feasibility study
C. Market analysis
D. Investment analysis

24. A rate of return is used to convert a monetary sum, payable or receivable in the future, into
present value. Theoretically it should reflect the opportunity cost of capital, i.e., the rate of
return the capital can earn if put to other uses having similar risk.
A. Internal rate of return

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B. Discount rate
C. Overall rate
D. Investment rate

25. The three types of market analysis are:

A. Market study, marketability study and feasibility study
B. Market data approach, sales comparison approach and offers
C. Investment analysis, economic base analysis, monetary analysis
D. Statistical study, market study and demographics study

26. The analysis of an environment of buyers/sellers and/or landlords/tenants (lessors/lessees).

A. Marketability study
B. Feasibility study
C. Market study
D. Investment analysis

27. Type of market analysis that addresses the time required to absorb a particular product,
and the price or rent level at which that product would be accepted into the marketplace.
A. Marketability study
B. Feasibility study
C. Market study
D. Investment analysis

28. A ____________ study is simply a comparison of cost versus the value if the project is
undertaken.
A. Marketability study
B. Feasibility study
C. Market study
D. Investment analysis

29. A study undertaken for the purposes of development and investment, the evaluation of
investment performance, or the analysis of a transaction involving investment properties.
A. Economic base study
B. Market study
C. Feasibility study
D. Investment analysis

30. A mortgage secured by a group of properties or a number of lots.

A. Blanket mortgage
B. Simple mortgage
C. Lien

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D. Mechanic’s lien
31. If the contract rent and the market rent are equal, the Leasehold or Lessee’s Interest is
_______________, assuming there is no leasehold improvement.
A. Positive lease
B. Negative lease
C. Zero
D. Balanced

32. This comparative approach to value involves the cost of acquiring equivalent land and
constructing an equivalent new structure.
A. Market data approach
B. Cost approach
C. Income approach
D. Builder’s method

33. In an operating lease, the value of the Lessee’s Interest is estimated as the present value
A. of rental payment for remaining life of the lease agreement
B. of rental gain or loss and the value of the leasehold improvement, if any
C. of rental payment plus reversion value of the property at the end of the lease agreement
D. of rental gain or loss plus reversion value of the leasehold improvement, if any

34. A _____________________ leasehold interest is created when the contract rent is higher
than the current market rent.
A. Positive
B. Equal
C. Zero
D. Negative

35. A group of homogenous land uses.

A. District
B. Neighborhood
C. City
D. Municipality

36. Typically, a factor produced by two components, which reflects precise differences between
properties and facilitates analysis in the three approaches to value, e.g., price per square meter
or square foot, or the ratio of a property’s sale price to its net income (net income
multiplier/years’ purchase).
A. Comparable data
B. Elements of comparison
C. Units of comparison

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D. Physical characteristics
37. The cost to create a virtual replica of the existing structure, employing the same design and
similar building materials.
A. Replacement cost, new
B. Unit-cost-in-place method
C. Quantity survey method
D. Reproduction cost, new

38. The current cost of a similar new item has the nearest equivalent utility as the item being
appraised.
A. Replacement cost, new
B. Unit-cost-in-place method
C. Quantity survey method
D. Reproduction cost, new

39. An asset that has a similar function and equivalent productive capacity to the asset being
valued, but of a current design and constructed or made using current materials and
techniques.
A. Replacement asset
B. Reproduced asset
C. Modern equivalent asset
D. Public sector asset

40. The process of adjusting the replacement cost to reflect that an asset may be technically
obsolete or over-engineered, or the asset may have a greater capacity than that required.
A. Reproduction cost, new
B. Capitalization
C. Value engineering
D. Optimization

41. A real estate mall developer purchases a site with the intent of building a regional mall
because the immediate area has a significant number of households and the income level of
those households is affluent. What type of force is the neighborhood going through?
A. Social
B. Governmental
C. Economic
D. Environmental

42. Specific characteristics of properties and transactions that cause the prices paid for real
estate to vary.
A. Comparable data

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B. Units of comparison
C. Elements of comparison
D. Comparable sale prices

43. Method of estimating the reproduction cost or replacement cost that combines the direct
and indirect costs into a single unit-in-place amount, which when multiplied by the unit
measure of the improvement’s component will yield the cost of the component.
A. Unit-in-place
B. Comparative
C. Quantity survey
D. Index or trending

44. The cost of replacing an asset with an equally satisfactory substitute asset; normally derived
from the current acquisition cost of a similar asset, new or used, or of an equivalent productive
capacity or service potential.
A. Replacement cost
B. Unit-cost-in place
C. Reproduction cost
D. Builder’s method

45. The Subic Freeport Zone is one of the largest developments in Central Luzon. What force
does this represent?
A. Social
B. Governmental
C. Economic
D. Environmental

46. The process by which a least cost replacement option is determined for the remaining
service potential of an asset.
A. Reproduction cost, new
B. Capitalization
C. Value engineering
D. Optimization

47. Method of estimating the reproduction cost or replacement cost that involves the
adjustment of the original costs to current costs by a multiplier derived from published cost
indexes.
A. Unit-in-place
B. Comparative
C. Quantity survey
D. Index or trending

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48. Type of lease which involves the transfer ownership from lessor to lessee.
A. Operating lease
B. Financing lease
C. Leased fee
D. Leasehold fee

49. Lose in property value are caused by deterioration or obsolescence

A. Depreciation
B. Deferred maintenance
C. Cost to cure
D. Replacement cost

84. The rights and privileges granted to the owner of intangible assets.
A. Bundle of rights
B. Intangible property
C. Tangible property
D. Personal property

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 Day 3 Multiple Choice Answers
1. D 26. C
2. D 27. A
3. C 28. B
4. D 29. D
5. B 30. A
6. C 31. C
7. D 32. B
8. C 33. B
9. A 34. D
10. C 35. A
11. C 36. C
12. D 37. D
13. C 38. A
14. A 39. C
15. C 40. D
16. B 41. A
17. B 42. C
18. B 43. A
19. D 44. A
20. B 45. C
21. C 46. D
22. B 47. D
23. C 48. B
24. B 49. A
25. A 50. B

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