Lesson 2 Exercises – Basic Economic Principles of Real Property Value (The Income Approach to Value)

Appraisal Training: Self-Paced Online Learning Session

• Lesson 1
• Lesson 2
• Lesson 3
• Lesson 4
• Lesson 5
• Lesson 6
• Lesson 7
• Lesson 8
• Lesson 9
• Lesson 10
• Lesson 11
• Lesson 12
• Lesson 13
• Lesson 14
• Lesson 15
• Lesson 16
• Lesson 17
• Lesson 18
• Lesson 19
• Lesson 20
• Exam

Check Your Knowledge

1. The price of single-family residences may be affected by
   1. An increase in employment in the area
   2. A decrease in mortgage interest rates
   3. An increase in the number of homes built
   4. All of the above

Solution:

2. The overproduction of new homes
   1. Causes lower prices
   2. Increase the demand
   3. Causes higher prices
   4. Causes a state of equilibrium

Solution:

3. When demand for real estate rises quickly, the supply
   1. Increases quickly
   2. Increases slowly
   3. Does not change
   4. Decreases slowly

Solution:

4. A buyer invests in a hotel because she believes the property will net $100,000 per year. This is an example of
   1. Price
   2. Supply
   3. Demand
   4. Anticipation

Solution:

5. The principle of anticipation can be applied to
   1. An apartment building
   2. A commercial structure
   3. A single family residence
   4. All of the above

Solution:

6. The four agents of production are
   1. Utilities, Scarcity, Desire, and Effective purchasing power
   2. Price, Supply, Demand, and Value
   3. Land, Labor, Capital, and Entrepreneurship
   4. Social, Economic, Governmental, and Environmental

Solution:

7. The principle of increasing and decreasing returns says that too much of a good thing is bad.
   1. True
   2. False

Solution:

8. An industrial building has physical deterioration that can be corrected for $25,000. If the correction is made, the value added to the property will be $50,000. This would be an example of:
   1. Increasing and decreasing returns
   2. Progression and regression
   3. Contribution
   4. Externalities

Solution:

9. According to the principle of contribution, some components may add value equal with their costs, while others may fall short.
   1. True
   2. False

Solution:

10. A neighborhood's life cycle consists of which of the following stages?
    1. Growth, stability, decline and disintegration
    2. Acceptability, stability, decline and rehabilitation
    3. Growth, stability, decline; and rehabilitation
    4. Stability, decline, gentrification and revitalization

Solution:

11. What term is used to explain the appraisal principle that states that value is based on the concept that the more a property or its components are in harmony with the surrounding properties or components, the greater the contributory value?
    1. Substitution
    2. Conformity
    3. Anticipation
    4. Contribution

Solution:

12. If two homes in the same neighborhood are exactly the same except for the price, which of the following statements is most true?
    1. The higher-priced home will sell faster than the lower-priced home
    2. The lower-priced home will attract more demand
    3. The higher-priced home will attract more demand
    4. The lower-priced home will sell for more than the higher-price home

Solution:

13. The income approach to value is based primarily on which of the following economic principles?
    1. Change and Conformity
    2. Contribution and Variable Proportions
    3. Consistent Use and Decreasing Returns
    4. Anticipation and Substitution

Solution:

14. The principle of substitution can be applied to
    1. The comparative sales approach
    2. The cost approach
    3. The income approach
    4. All of the approaches

Solution:

15. In an analysis of highest and best use, the appraiser must consider which of the following?
    1. The legally permissible
    2. The physically possible
    3. The financially feasible
    4. All of the above

Solution:

16. To be considered the highest and best use of a site, the use must:
    1. Conform to the interim use
    2. Be the same as anticipated future uses
    3. Conform to current zoning
    4. Have no obsolescence

Solution:

17. A land use that existed before a certain zoning district was established and is currently not consistent with the restrictions imposed on land uses in that district is referred to as a:
    1. Variance
    2. Nonconforming use
    3. Transitional use
    4. Planned unit development

Solution:

18. Which of the following limitations is not a basic right of the government in privately owned real estate?
    1. Ad valorem Property Taxation
    2. Deed Restrictions
    3. Escheat
    4. Police Power

Solution:

19. An existing site has an improvement on it such as a building. Which of the following statements best describes the highest and best use?
    1. It cannot be determined
    2. It is automatically the current use since the site is improved
    3. It may be different from the current use
    4. If the improvement is a residence, then the land does not have a highest and best use

Solution:

20. Highest and best use analysis is used to determine which of the following?
    1. The type of improvements to put on a site
    2. The amount of capital to invest in a site for improvements
    3. Whether any existing building on a site should be demolished
    4. All of the above

Solution: