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FIN 4597 Spring 2015 Midterm Review

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FIN 4597 Spring 2015 Midterm Review
FIN 4597 Mid-Term Exam Review
1. What are the three approaches to value used by the appraisal profession? What types of property would be expected to generate the most reliable market value estimate for each approach?
The three approaches are the sales comparison approach, the cost approach, and the income approach. The sales comparison approach would generate the most reliable market value for single dwelling residential properties. The income approach would generate the most reliable market value for apartments, office buildings, and malls. . Cost approach would generate the most reliable market value for properties that have improvements that are new and there is adequate pricing information to value the property components.
2. Market value determinations are said to be only estimates. Why?
Market values are said to be estimates because there is no firm data.
3. What are the differences between market value and investment value?
Market value is a more generic value while investment value is a value adjusted to the requirements of a specific investment.
4. Real estate markets are said to be relatively inefficient. List three market characteristics that illustrate this inefficiency.
Three market characteristics that illustrate market inefficiency are few buyers and sellers, a lack of full information, and costly transactions.
5. What is a comparable property?
A comparable property is a similar property used to estimate value of a subject property.
6. You have been hired to estimate the value of a small office building for property insurance purposes. Which approach would most likely generate an acceptable value estimate and why?
I would use the income approach for a small office building. I would use this approach because an office building generates income and I would use the anticipated flow of income to estimate value.
7. What is the ‘reconciliation’ phase of an appraisal?
The reconciliation phase of an appraisal is the point at which the appraiser

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