d. All of the above Explanation: Increasing population and employment, the availability of mortgage financing, and increases in purchasing power, may affect demand for real estate. The supply of real estate is most affected by an increase in the number of homes built. In a free-market economy, price is determined by the competitive interaction between market demand and supply.
a. Causes lower prices Explanation: When market supply is greater than market demand, there is excess supply, causing price to decrease. When market demand is greater than market supply there is excess demand, causing price to increase.
b. Increases slowly Explanation: Real estate improvements take a long time to build, which means supply will be slow to adjust.
d. Anticipation Explanation: The principle of anticipation holds that a person invests in property, real or personal, in anticipation of future benefits.
d. All of the above Explanation: A person invests in property, real or personal, in anticipation of future benefits. This principle is particularly relevant to real property because of the anticipated long life of most improvements. Future benefits can take the form of amenities, income, profits on resale, or a combination of these.
c. Land, Labor, Capital, and Entrepreneurship Explanation: The production of real estate requires the inputs of the four factors or agents of production: land, labor, capital, and entrepreneurship. The balance of these factors affects the productivity of the real estate asset.
a. True Explanation: The principle of increasing and decreasing returns holds that adding more of one of the agents of production, while holding the other agents of production constant, will eventually lead to diminishing returns.
a. Increasing and decreasing returns Explanation: In the terminology of economics, additional investment (of the agents of production) is economically justified as long as marginal benefits equal or exceed marginal costs. This principle has a practical application to decisions regarding property additions or remodeling.
a. True Explanation: The principle of contribution holds that the value of a component of property depends upon its contribution to the value of the total property. The cost of an improvement does not necessarily equal the value the component adds to the property.
c. Growth, stability, decline; and rehabilitation Explanation: Properties often follow a four-phase life cycle: growth, stability, decline, and rehabilitation. Local, regional, national, and even international trends have strong effects on property values.
b. Conformity Explanation: The fact that real estate is immobile causes it value to be influenced to a great degree by the surrounding area. The principle of conformity holds that maximum value accrues to a property when a reasonable degree of homogeneity is present in the neighborhood and surrounding land uses. This principle recognizes that economic benefits may arise from grouping similar land uses.
b. The lower-priced home will attract more demand Explanation: The principle of substitution states that the upper limit of value tends to be set by the cost of acquiring an equally desirable substitute.
d. Anticipation and Substitution Explanation: The Principle of Substitution states that value can be estimated by the investment necessary to acquire, without undue delay, a substitute property offering a comparable income stream. The Principle of Anticipation of Future Benefits states that property is valuable because of the future benefits, such as income, that it is expected (anticipated) to provide (earn).
d. All of the approaches Explanation: the principle of substitution is fundamental to the cost, comparative sales, and income approaches to value.
d. All of the above Explanation: In order to qualify, as a property’s highest and best use, the use must meet four criteria. The use must be: (1) legally permissible, (2) physically possible, (3) financially feasible, and (4) maximally productive.
c. Conform to current zoning Explanation: A property should not be appraised based on a use that is illegal.
b. Nonconforming use Explanation: A nonconforming use is an existing use not allowed under the current zoning ordinance but which either (1) preceded the current ordinance or (2) exists under a conditional use permit.
f. Deed Restrictions Explanation: Deed restrictions that restrict the use of a property are not the same thing as governmentally imposed restrictions discussed above. Deed restrictions are rights reserved by private persons as opposed to limitations imposed by government. In most cases, the property tax appraiser should not recognize deed restrictions when analyzing highest and best use. The rights to be assessed are the fee simple rights without encumbrances, subject only to the limitations imposed by government.
c. It may be different from the current use Explanation: The highest and best use of a parcel is subject to change over time. Properties are typically devoted to particular uses for long periods and economic change may render certain uses in specific locations either less profitable or obsolete. If the improvements no longer add value to the land, the utilization of the site should succeed to a higher use.
d. All of the above Explanation: The analysis of highest and best use attempts to answer these questions: What is the most productive use of the subject parcel? What type of development will produce the highest land value? Should existing use be expanded or changed? Should existing improvements be modified or demolished? |