B. Although the form is the most common type of report for single-family homes, the narrative is the most comprehensive type of appraisal report and is commonly used for commercial buildings.
C. The capitalization rate is also a rate of return. If the rate of return goes down, and the income stays the same, you will spend more to buy the property (the investment).
A. Don’t be confused by the fact that this is a residential complex. It is primarily an investment property and, as such, would be appraised using the income approach.
C. This question requires you to remember the cost approach formula: Reproduction/Replacement Cost – Accrued Depreciation + Land Value = Property Value $280,000 – $60,000 + $70,000 = $290,000
D. Maintenance items that return more of their value than they cost are usually classified as physical deterioration curable. Painting is generally considered to increase the value of a building by more than its cost.
B. Increases in value over time are added to the comparable. This problem requires you to use only three months’ appreciation, which is half of the 5% appreciation over the past six months. 5% ÷ 2 = 2.5% $280,000 × 0.025 = $7,000 $280,000 + $7,000 = $287,000
D. Choices A and B are wrong because you never adjust the subject. If the comparable is better, which is the case here, the adjustment to the comparable is negative.
B. If you analyze this question carefully, you’ll see that choices A and D are essentially the same. Remember that the capitalization rate is a measure of the rate of return. Investors want a higher rate of return for high-risk investments.
D. This may be viewed as a trick question, since the FHA does not make purchase loans at all but rather insures loans made by primary lending institutions that are participating FHA-approved lenders.
B. Remember: The monthly payment on an amortized loan includes principal and interest. $165,000 (Loan Amount) × 0.065 (Annual Interest Rate) = $10,725 (First Year’s Interest) $10,725 (First Year’s Interest) ÷ 12 months = $893.75 (First Month’s Interest Payoff) $1,044.45 (First Month’s Principal and Interest Payment) – $893.75 (First Month’s Interest Payoff) = $150.70 (Principal Payoff) $165,000 (Loan Amount) – $150.70 (First Month’s Principal Payoff) = $164,849.30 balance
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