CHAPTER 1- THE APPRAISAL PROFESSION

Salespersons and Brokers

 REBBA 2002 prohibits registered salespersons and brokers from providing value opinions to clients or
customers when they do not have knowledge, skills, judgment, competence, education or experience.
 Registrants should refer clients and customers to obtain services from others; professional appraisers in this
case.
 RECO Errors and Omissions Insurance does not cover a registrant for appraisal assignments.

Professional Appraisers

 Appraisers are not required to be licensed by government in Ontario.

 A professional appraiser is a researcher who has mastered the techniques and procedures for evaluation of
any type of real property.
 Appraisers doing private practice are also called Fee Appraisers.
 Appraisals may be used for mortgage financing, tax assessments, investments decisions and/or
compensation for expropriation.

The Appraisal Institute of Canada (AIC)

 Appraisals done by members are respected by courts, banks real estate corporations, trust companies and all
levels of government.
 Members are governed by the Canadian Uniform statements of Professional Appraisal Practice.
 The Canadian Residential Appraiser (CRA) designattoll'at1ows members to evaluate individual,
undeveloped residential sites and housing containing up to four self -contained units (Fourplex).
 The Accredited Appraiser Canadian Institute (CAII) designation allows members to do valuations for all
types of real properties including residential, industrial, commercial and agricultural.
 P. App. Stands for Professional Appraiser
 Continued Professional Development is a re-certification program that requires all members to complete 60
credits of continuing education in every 5-year cycle.
 New members must also have bachelor's degree.

Canadian National Institute of Real Estate Appraisers (CNAREA)

 CNAREA is not for profit, independent association that certificates & regulates real property appraisers in
Canada.
 Members are governed by the Canadian Uniform Standards of Professional Appraisal Practice.
 Designated Appraiser Residential (DAR): these members can appraise residential properties consisting of
up to four housing units {Fourplex) and non-complex commercial properties that have a residential
component.
 Designated Appraiser Commercial (DAC): These members can do appraisals and consultations for all types
of properties.

Institute of Municipal Appraisers (IMA)

 Member practice in the field of Property Assessment and related Property Taxation functions.
 Designations are Member of Institute of Municipal Appraisers (MIMA) and Associate of Institute of
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 Municipal Appraisers (AIMA).

Real Estate Institute of Canada (REIC)

 REIC is the educational branch of Canadian Real Estate Association (CREA).

 The mission is to establish, maintain, promote and advance standards of practice in real estate and related
professions.
 Fellow of Real Estate Institutions (FRI) designation is awarded to licensed salesperson/ brokers who have
completed REIC education programs.
 FRI members who have minimum of five years of residential appraisal experience may get Appraisal
Specialist designation.

The MVA-Residential Designation

 MVA stands for Market Value Appraiser, a designation given by OREA (discontinued).
 MVA designated persons may perform appraisals for residential properties with up to two units (duplex)
and vacant residential land where the highest and best use would be a two unit residential building.
 MVAs cannot do any appraisals where the purpose is litigation or where they may be called as an expert
witness.

Automated Valuation Models (AVM)

 AVM is a software program that can estimate value which 1s mainly used for mortgage lending and
mortgage insurance purposes.
 They reduce the need to hire professional appraisers, they are quick and cost-effective, which has created
competition for residential appraisers.
 AVMs are typically driven by location-oriented data and creatively use the Geographic Information
Systems (GIS).
 AVMs work well when there is sufficient 1ntormation of the property, the area and a lot of sales of similar
properties are occurring.
 Lack of physical inspection is maj0r weakness and it does not work well with a variety of properties or
when the number of comparable is not sufficient.
 Increase use of AVM creates opportunities for mortgage fraud and this is why AVM is used for low risk
properties only.

Types of Appraisal Assignment

 Valuation: Business evaluation, expropriations, insurance cost estimating, mass appraisals.

 Review: Appraisal reviews, arbitration/mediation, assessment review/ appeal, due diligence and expert
witness.
 Consulting: Pre-purchase advice, pre-sale marketing, highest and best use studies, site selection and market
forecasting.
 Management: Property management, asset/ portfolio management and real property administration

Appraisal Reports

The Form Report

 Form report consists of mainly pre-printed information but provides systematic and precise analysis.
 Generally used for estimating market value of single family homes, duplexes, triplexes, and fourplexes.
 The purpose ls normally financing, relocation, capital gains tax, estate sales and matrimonial split ups
when there is out of court settlement.
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  OREA Form 700 is for single family residential and form 701 is for condominium unit.

The Narrative Report

 This report is used for evaluation of apartment buildings, office/commercial/ industrial buildings and
agricultural land.
 The purpose of appraisal may be financing, transfer of ownership, capital gains tax, etc.
 It can also be used for single family homes, duplexes, triplexes and fourplexes where the purpose
would be for legal/ court proceedings.
 Narrative Reports are generally lengthy, time consuming to prepare any/may be from 50 to 100 pages.

Letter of Opinion

 Letter of opinion is a brief, unsubstantiated statement of appraiser's opinion of value or a value range.
 It is not recommended as a method of appraisal reporting and provides limited information.
 If often tends to create confusion and problems between c1ients and appraisers due to its vagueness.
 Letters of opinions are not accepted by any lending institutions.

Residential Market Comparison Guide

 It is used to establish a reasonable listing price for a property.
 Also called Comparative Market Analysis (CMA).
 The seller is shown how his property tanks in comparison to similar properties that are- (i) now on sale
(ii) have sold in the past 12 months and (iii) listed but expired in past 12 months.
 Most salespersons would1prep-are a CMA for the seller instead of completing the Form Report.

Value Concepts

Value
 Value is the present worth of future benefits arising out of ownership to typical users or investors.
 Value of real property is usually measured in terms of money and depends on need and availability of the
(supply and demand).

Objective Value

 Objective Value is the Direct Cost of creating (Cost of land + Improvements) and is most commonly used
in Cost Approach to value.
 Reproduction cost is the cost of producing an exact replica with same materials.
 Replacement cost is the cost of replacing the property with one of equal quality, utility and using modern
materials.

Subjective Value
 Subject Value involves a perception of value (perceived value) that is created and exists only in the minds
of buyers and sellers.
 In estimating value, the primary consideration is the Present worth of future benefits that accrue from
ownership.

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  Most estimates of value rely on subjective value.
 It is used in both Direct Comparison Approach and Income Approach .

Value in Exchange

 The probable price at which a commodity trades in a free, competitive and open market.

 Value in exchange is synonymous with market value.

 It is a relative form of value since it is based on comparison of goods and services that an informed buyer
would offer in exchange for an economic good.

Value in Use
 Value in use is the value that is based on specific productivity to an individual or some unique
characteristics or improvements on the property.
 It represents market value plus the increment representing the extra value to the owner or a buyer.
 From owner's perspective, the value may be higher than the market value as it is related to
particular needs or satisfaction.
 From buyer's perspective, the property may have features that may be important to that buyer. For
example, the property may be close to buyer's work place or aging parents.
 The seller may only think in terms of value in use but the buyer may consider only Market Value.

Market Value
 Market Value is an estimate of value arising from many market prices.
 Also known as value in exchange.
 Estimate of Market Values done using both subjective and objective values.
 When selecting comparable to estimate market value, it is important to consider that there are no unusual
circumstances under which it was sold.
 In a reasonably effic1eF1t market, the difference between Market Value and Market price would be
negligible.

Assumptions of Market Value

 Highest Price: The property is sold for its highest and best use.
 Open market: the property is exposed in an open market. This factor is most commonly associated
with listing the property on MLS®.
 Reasonable time: A reasonable time is given for sale which is estimated by looking at average time it
takes to sell in the same neighborhood.
 Necessity/Compulsive nor Peculiar or Special Circumstances: There is no undue pressure on the buyer or
the seller.
 Knowledge: both the buyer and the seller are equally willing, acting prudently, informed and
knowledgeable.

Market Price
 Market Price is the sale price of an individual property and is historic in nature.
 It is driven by the forces of supply and demand.
 No assumptions are involved as it is establishes through negotiations between the buyer and the seller.
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Investment Value (Commercial Properties)
 Investment value refers to the value of a commercial property from the perspective of an individual
investor and is similar to Value in Use.
 Investment value is direct it related to cash flows, objectives of the investor, returns, etc.
 The difference between Investment Value and Market Value largely depends on assumptions made during
estimates.

Principles of Appraisal (Value

Anticipation

 Buyers usually think in terms of present worth of future benefits.

 Value is determined by anticipation of benefits arising from money or amenities that may be derived in
future.
 Example: A buyer considering a home may be looking at the benefit of having double garage as a definite
benefit while another buyer may think that it is wastage of space. Each of them is determining the value
based on his/ her anticipated benefits1of the property.

Balance
 Maximum value is maintained through balance.
 A loss in value occurs if the amount of services/ amenities in a particular location is too little or too
much.
 Example: if just one grocery store is sufficient for a community, having two or three will affect the
value as none of them will achieve desired profits. Similarly, a single car garage in a very big house
(should have been two or three) may affect its value.

Change
 Value today is valid only today.
 This principle states that economic and social forces are constantly changing and affect value.
 This principle is based on the law of cause and effect.
 Appraisers specify that their estimates are good for a specific date only.
 Example: an appraiser estimated the value of Judy's bungalow in March at $285,[Link] the following
months, two major factories in the area closed down and people started moving out of the area. This
negatively affected the property values. In August of the same year, the estimated value of Judy's bungalow
was reduced to $250,000.

Competition
 Excess profits breeds' ruinous competition.
 This negatively affects profits and hence property values.
 Example: assume that two builders start new home projects in some town or two hardware stores open up
in a locality; none of them will achieve expected profits if the consumer demand does not change.

Conformity
 Reasonable conformance with existing standards protects value.
 Land must reasonably conform to existing neighborhood standards and zoning by-laws to protect value.
 Example: Variety in residential structures is an example of reasonable conformity. A row of identical
structures is an example of too much conformity, which may also be a negative factor.
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Consistent Use
 No double dipping when analyzing value.
 When land is being converted to a different use only one staoaarerrsh9uld be used to estimate value.
 Example: Consider an old residential property which is being conveyed to a commercial complex, which is
the highest and best use. The appraiser should estimate its value based on the converted highest and best
use only and should not add the value of existing residential structure.

Contribution (Principle of Marginal Productivity)

 Value is related to contribution not cost.

 The value of any component or feature of fl property is based on its contribution to value and not on its
cost.

 Example: Spending $35,000 to add a nice swimming pool may only add $25,000 to the value of the house.

External Factors
 Things nearby can influence use.
 Value may increase/decrease depending on changes in economy, government regulations and available
services/amenities.
 Example: Owner Michael's property is located in an area which is close to a big shopping mall. This has a
positive effect on his property. Owner Jordan's house is located is a different neighborhood known for a
high crime rate. This has a negative effect on the value of Jordan's property.

Highest and Best Use

 Focus on the use that produces the greatest returns.
 Appraisers base their estimates on the highest and best use of land.
 Permitted uses according to zoning by-laws, demand and financial feasibility are factors when determining
the highest and best use.
 Example: Consider a residential building where the zoning by-laws permit construction of a three story
commercial complex. If it is financial viable and demand exists, a commercial plaza will provide highest
and best use and, in turn, enhance the value of the property.

Increasing/ Decreasing Returns

 More is not necessarily better.
 Also known as Principle of Variable Proportions or the Principle of Diminishing Returns.
 Successive addition of one or more features may not keep on adding value to the property.
 Example: Provided that other factors are fixed, the returns of additional features reach a maximum value. If
having one garage in a house adds 15,000 to its value it is not necessary that have three garages would add
45,000 to the value.

Progression (extension of Principle of Conformity)

 The smallest house on the street may be the best buy.
 The value of a property tends to increase if other properties in the area are of higher value.
 Example: assume that owner Larson's house is a small 1500 square foot bungalow located in a
neighborhood where all other houses are more than 2,500 square foot. The value of Larson's house will
tend to be higher than its normal value if it were located among similar houses.
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Regression (extension of Principle Of Conformity)
 The largest house on the street may not be the best buy.
 The value of a property tends to decrease if other properties in the area are of lower value.
 Example: Value of a large property among small properties will tend to decrease. Consider Matheson's
large 3,500 square foot house located in a neighborhood where most properties are smaller 1,800 to 2,000
square foot. The value of Matheson's house .viii be lower than its value if it were located among similar
houses.

Substitution
 Buyers look for the best bang for the buck.
 Buyers will act prudently and look for available alternatives (comparable).
 They may substitute a property with another one if it is similar and available at a lower price.
 Example: Buyers normally consider other alternative properties and want the best bargain.

Supply and Demand

 Market forces are always at work.
 If supply increases and demand decreases, values tend to fall and vice-versa.
 Example: assume that two large factories close down in some township resulting in lost jobs for several
thousand employees. This may result in large scale exodus of people from the town and the market would
be flooded with properties. This will pull the value of real estate down in the town.

Surplus Productivity
 Net income flows to the land.
 The net income of a property after paying off the operating expenses and improvements, establishes the
value of land.
 The three levels of return (labor, co-ordination and capital) must be satisfied first.
 The residual income is allocated to the fourth level which is land.
 Example: When all costs are satisfied, the net income flows to land and establishes value of land.

CHAPTER 2 - ACCEPTING A REQUEST FOR AN APPRAISAL

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Defining the Problem

Identity of the Subject Property

 Complete and accurate description of property including municipal address and full legal description.

Property Rights
 The type of interest in land such as fee simple, future estate, leasehold estate or life estate.
 Fee simple (freehold) is the highest right (generally considered absolute right) in real property with most
rights and least limitations which may be subject to various restrictions by laws of governing bodies.

Purpose of Appraisal
 Transfer of Ownership: Buying, selling or exchange of real estate.
 Extension of Credit: Generally relates to mortgage financing.
 Compensation for Damage or Loss: Insurance claims or compassion for expropriation.
 Taxation: municipal assessment for property taxes and capital gain tax.
 Land use or Feasibility studies: for developers and inve,st$)rs [Link]:ested in a value for the highest and
best use of a parcel of land.

Type of Value
 It is important to know the type of value estimate required e.g. Market value, Assessment Value, Value in
Use, Lending Value, insured value, investment value, etc.

Effective Date of Appraisal

 Effective Date is the date on which the value estimate applies and is also called 'As of Date’.
 Since value is impacted by force of supply and demand, when these forces change, the value estimate
will also change.
 Effective date is the current date (date of inspection) for:
 Transfer of ownership, d
 Extension of credit
 A past date may be used for purposes such as:
 Capital gains tax,
 For probating a will and sending an estate (date of death),
 For expropriation (date of registration of survey),
 For settling a fire insurance claim (date when the fire occurred), or
 For a marriage separation (date of separation).
 If the appraisal date (effective date) is a past date, the appraisal is also called Retroactive Appraisal.

Assumptions and Limiting Conditions

 The purpose is that every client needs to know what the appraiser did or did not do; is responsible for or not
responsible for; and is assuming or not assuming in connection with the valuation of their property.
 These are a series of qualifying statements and assumptions which the appraisers set out to define,
limit or restrict the scope of appraisal.
 Limiting Conditions relate to issues such as:
 Legal title (no warranty by the appraiser concerning validity of title),
 The appraiser' s reliance on information provided by other is deemed to be correct,
 The improvements on the property are assumed to be confined within property boundaries,
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  A disclaimer that the appraiser does not have expertise concern ing existence of hazardous material or
their impact on value.

Agreement
Preliminary Work
 This includes inspection of the neighborhood, subject property and comparable.
 When the property was last sold or listed for sale.
 Tax assessment and zoning.
 The highest and best use of the property.
 The demand and supply.
 The accuracy of appraisal will depend on finding good comparable(s) (sold or listed) that need
few adjustments.

MLS History of the Property

 The sale history of the property can be obtained from MLS® and is useful if there are no comparable(s).

Tax Assessment Information

 Comparison of taxes of the subject with comparable(s).
 Lower taxes are on attraction to buyers.
 Local taxation offices provide this information.

Zoning and Municipal information

 Zoning and presence or lack of building permits can impact value.
 Appraiser needs to know if the property conforms to zoning or is a legal non-conforming.
 If non-conforming a requisite assumption and limiting condition should be added to report.
 Only a lawyer can provide an opinion whether or not the property conform to zoning.

Highest and Best Use

• All appraisers are based on highest and best use of property which may be the current use or
a different use.
• The amount of money a buyer would pay is based on the use and enjoyment (income or profit) that
he/ she would derive from the property.

Vacant Site
 Zoning Conformance: What is or not allowed to be built on the site? The highest and best use should
conform to zoning.
 Physical Characteristics: Is the proposed use physically possible depending on size and shape of site?
 Economic Feasibility: Is there a demand for proposed use and would it be economically feasible?

Improved Site

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  Current Use: The current use may be the highest and best use if
 The improvements conform to zoning,

 Conform to other homes in the neighborhood, and,

 They add value to land.

 Other Use: If the current use is not the highest and best use the appraiser would look at an alternative use.

CHAPTER 3 - NEIGHBOURHOOD ANALYSIS

Boundaries of a Neighborhood
 Natural: Rivers, hills, mountains and ravines.
 Political: Municipal or city limits, land use or zoning changes and school areas.
 Man-made: Railway tracks, major highways or roads, and rights-of way for public utilities.

Neighborhood Factors
 Physical: Location in relation to services and amenities such as proximity to public transportation, parks,
schools, churches, retail and service outlets, topography landscaping and availability of utilities.
 Economic: Includes factors such as stability of uses, property values, vacancies, new construct ion, income
levels, degree of maintenance (pride of ownership), mortgage interest rates, stage of neighborhood life
cycle, etc.
 Political: Impact of legal factors such as taxation, local improvement taxes, zoning regulations, building
codes, official plan restrictions, site plan restrictions, deed restrictions, etc.
 Social: Population growth/ decline, crime rates, age grouping, population, densities, etc.

Trend Analysis

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  A trend is a series of related changes brought by a chant of causes and effects.
 Ignoring neighborhood trends may result in unde(A@luin.g or over valuing a property.

 4 features: Time, Direction, Cause and Effect.

 Example: Over the past few years {time), mortgage, rates have declined (direction) due to low inflation
(cause), resulting in more buyers that pushed property prices up (effect).

Neighborhood Life Cycle Phases

 Growth: When the subdivision is first developed and amenities such as schools, plazas, parks, etc. are being
added or have just been added.
 Stability: When the neighborhood is completely built-up, has reached the height of popularity and the value
are at their highest.
 Declining: When the neighborhood is losing appeal and popularity, the properties look poorly maintained,
retail/commercial business are closing, higher than usual vacancies and the property values are declining.
 Renewal: When the neighborhood is rebounding after a period of neglect, is in demand again, new
construction starts, becomes popular again and retailers start coming back.

Conformity
 Lack of conformity with properties in the neighborhood impacts value.
 The level of conformity (progression or regression) significantly impacts value.
 Physical inspection of the neighborhood and talking to people confirms the information gathered from
different sources.

Sources of Information
 Statistics Canada: Make-up and size of families, population and age make-up, income levels and type of
jobs.
 Municipal Offices: Property assessment, zoning and planned construction, housing starts, business
employment and economic forecasts
 Real Estate Boards: Sales information, price levels, supply and demand.
 Newspapers: The economy, local developments and trends.
 CMHC: The economy, mortgage interest rates, consumer expenditures on improvements and renovations.

Measuring the Impact on Value

 The sales, listing and expired listings in the subject neighborhood over a period of time when the factors or
forces were or were not present.
 The sales, listings and expired listings in other similar neighborhoods over a period of time when the same
factors or forces were or were not present.
 Example: One neighborhood is only half a mile from heavy industrial f development while a similar
neighborhood is five miles away. There will be a negative impact on values in the first neighborhood.

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 Chapter 4 - Site Analysis

Land vs. Site

 Land includes surface of earth, supra-surface air space and sub-surface area and is typically referred to as
raw acreage, raw land or unimproved land.
 Site is a parcel of land that has been subdivided, services (water, gas, hydro, telephone, drainage, etc.) are
available and a building can be built.

Factors Affecting Value of Site

Locational Factors
 Location of a site is viewed in relation to surrounding facilities and conditions impact the value.
 Land use pattern in the area: Land use is controlled by zoning by-laws that provides conformity in the area.
 Access: Proximity to desired facilities such as schools, shopping centers, work places, recreational
facilities, etc. has a positive impact on value.
 Corner Influence: Corner site for a commercial purpose is a positive factor while it is a negative factor for a
residential site.
 Hazards and Nuisances: The existence of nearby hazards and instances such as non-conforming land uses,
noise, odor and traffic has a negative effect on value.

Physical Factors
 Site Dimensions: If the frontage, depth, width, and area of site are standard for the area, which maintains
value of the site.
 Assemblage: The act of combining about the parcels of land into one ownership for the purpose of a greater
utility.
 Pottage: The increment in value own the merge process (assemblage) when the utility is more than the
individual sites.
 Excess land: A site which is larger than standard, where the additional size does not provide proportional
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 utility or operational increase in value.

Legal-Government Factors
 Private Restriction or Restrictive Covenants: Contained in the deed for the protection of all owners may
have a negative effect on value as it may not allow development into a highest and best use.
 Easements: The impact of an easement (right-of-way) depends on the nature, scope and extent of the
easement.
 An easement may have a positive effect for the one site (dominant tenement) while a negative effect on the
other site (servient tenement).
 Minor easements such as those for utilities usually do not have any effect on value.
 Encroachments: An up-to-date survey will reveal the presence of an encroachment whether on the subject
site or onto the neighboring site.
 An encroachment agreement, coverage by title insurance, the cost of removal, etc. are important factors to
consider. (For value of property)

Economic Factors
 Tax burden: The level of assessment, taxes and special assessments for utilities may be a burden on the site
owner.
 Sale of Comparable Sites: The selling price of comparable sites tends to set the price range for the subject
site.

Environmental Issues
 These are related to contamination of soil and ground water from materials such as lead, PCBs and
gasoline, etc. This could be a result of presence of industry, underground oil tanks, dumping of hazardous
waste or spills. Information can be obtained from vendor’s documentation, land registry office or city/
provincial records.

Environmental Audits
 Phase 1: Involves visual inspection combined with review of owner documents, registry information,
records, certificates, etc. This audit determines if reasons exist to believe the property has some form of
environmental contamination.
 Phase 2: More costly investigation involving various tests, hazardous, Waste assessment/ analysis and soil/
water sampling. This audit determines the scope of contamination and recommendation for remedial action.
 Phase 3: Involves detailed remedial action and costs associated with circumstances identified in Phase 2.

Sources of Information
 Ask the seller to complete Seller Property information statement,
 Previous inspection reports may help identify any problem with the property.
 Previous listings may describe a problem such as an easement.
 Neighbors may be able to tell something that the owner may have forgotten to mention.

Physical Value vs. Functional Value

 A property may have good physical value but poor functional value.

 Man-made components such as desks, walkways, fences and pools deteriorate with passage of time.
 Natural components such as sod, grass and trees often improve with time.

 A swimming pool may be physical good (new) but functionally poor because it is unpopular and does not
appeal.
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 CHAPTER 5 - BUILDING ANALYSIS

Categories of Information
Residential Building
 General Data: Items such as chronological age (actual age), square footage (area), type and style of
building, general condition, etc.
 Equipment and System Data: Electrical, plumbing, ventilation, air conditioning, built-in vacuum, built-
in intercom, security systems, water treatment systems, sprinkler system, cable, telephone, smart wiring
systems, etc.
 Construction Data: Block foundation vs. poured concrete, wood framing vs. steel framing vs. steel
framing, brick veneer vs. siding, asphalt shingles vs. other shingles, etc.
 Functional Data: Appeal, utility, popularity and performance of the building and its components as
compared to other buildings in the area. This also includes information on floor plans, ensuite in
master bedroom, hardwood floors vs. carpeting, old octopus furnace vs. high efficiency furnace, etc.
 Building Area/ Size: Above grade square footage of the building of information on what is included in
area and what is not included.

Economic Life (Life Expectancy)

 The amount of time a structure is useful/ habitable, without any renovations, updating, or modernization.
 Most appraisers estimate the economic life to be 50 or 60 years.

Remaining Economic Life

 The number of years remaining in the economic life from the effective date of appraisal.
 Remaining life can be extended indefinitely by renovating/ modernizing.

Actual Age (Chronological Age)

 The actual number of years it have passed since the structure was built.

Effective Age
 Estimated number of years based on amount of care, maintenance, renovations or modernization.
 Effective age is less than actual age if maintenance is better than average.
 Effective age is more than actual age if the structure is poorly maintained.

Over Improvement
 An improvement in the property which is excessive and inconsistent with the overall size, quality or
appearance of other improvements.

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  The cost of over improvement does not add much to the value.
 It is related to Principle of Contribution.

 If adding a swimming pool at a cost of $45,000 adds only $20,000 to value, it may be an over improvement
because most homes in the area do not have pools and they are not popular. Physical vs. Functional Value.
 An item may be physically good but functionally poor.
 Physical refers to condition of the item such as a brand new item (good).

 Functional value refers to performance, quality, appeal and popularity.

 Comparison has to be made with similar properties in the neighborhood.

 A new 60 amp circuit breaker would be physically good (new) but functionally poor because normally 100
amp or 200 amp are common.

Possible Questions
 If something was built without a building permit, it may not comply with zoning, the city may order
removal and the cost may be incurred in removal.
 If a furnace is leased instead of owned, what is the value impact if it were owned?
 Electrical wiring may be aluminum instead of copper or fuse panel instead of circuit breakers.
 If there is moisture in basement, ask the buyer to seek professional home inspection.
 If the subject property is installed with UFFI, there may be a negative impact on value due to Stigma.

Comparable Sales Data

 Date of Sale: The date when the comparable was sold.
 Date of closing: A faster than normal closing date may suggest a lower price was negotiated as the
seller would receive money earlier and buyer would have to arrange money quickly.
 Sale price: Any special conditions or financing such as Seller take Back (STB) at a rate lower
than current interest rates may have impacted the sale price.
 Motivation of Parties: Any of the parties may have been under pressure.
 Chattels Included in the Sale: If the seller had relatively new fridge, stove, washer, dryer or dishwasher,
the buyer would have paid several thousand dollars more.

Formulas for Economic Life

 Economic life = Effective Age + Raining Economic Life
 Effective Age = Economic Life - Remaining Economic Life
 Remaining Economic Ute = Economic Life - Effective Age

CHAPTER 6 - DIRECT COMPARISON APPROACH

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Essentials of Good Comparable(s)
 Time: The sale should be as close as possible to the date of appraisal. Remember -The most recent sale is
most reliable. The older the sale, the less reliable it is because significant economic, physical, location or
political changes may have taken place and impacted value of properties.
 Location: the comparable sale should be located within the same neighborhood, preferably on the same
street.
 Physical Similarity: The comparable property should be as similar as possible to the subject.
 Arm's Length Sale: The sale should be at arm's length to satisfy the definition of Market Value.

Choosing Comparable(s)
 In recession times, very few sales are available while there are many comparable(s) during the market
boom.
 Comparable(s) cannot be manufactured, they have to be located.
 Choose a comparable that would appeal to the same buyer as would the subject property.
 Accuracy of adjustments is required for time, location or physical differences.
 Use sale price of the comparable and not the listing price.

Types of Adjustments
 Rights Conveyed
 The type of ownership such as Freehold (Pee Simple), Leasehold, Easements, Rights-of-way,
Encroachments, Restrictive Covenants, etc.

Financing Terms
 The property should be free and clear of liens and encumbrances and capable of financing.
 A comparable sale with seller take back (STB) below current interest rates would mean that the seller
is incurring losses and is making up the loss by inflating the sale price. A negative adjustment in sale
price would be required
 On the other hand if STB is at a rate higher than current interest rate, than the seller is making more money
(gain). A positive adjustment in sale price is needed.
 Similarly a negative adjustment would be required for an assumed mortgage that is below the current
interest rates.

Motivation of the Parties

 Market value assumes that neither the seller nor the buyer is under pressure or unusual motivation.
 If one of the comparable(s) has been affected by pressure or motivation, it should be disregarded.
 Examples:
 Bank threatening power of sale.
 Seller has already purchased a home and the closing is in three weeks.
 Buyer is to relocate due to employment change.
 Buyer is desperate to buy a home near his/ her aging parents.

Market Conditions (Time Adjustment)

 It is rare to find a good comparable sale that occurs as of the date of appraisal.
 Prices might have changed since the sale date of the comparable, so a time adjustment is required.
 Time adjustment is done to calculate the sale price of comparable as of the date of appraisal.
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  No time adjustment is done if the sale occurred within 3 weeks of the appraisal date.

Location
 The comparable may be located within a different neighborhood or same neighborhood as the subject.
 The subject may back on to a park and the comparable does not.
 The subject may not be on a busy main road while the comparable is on a quiet street.

Physical Characteristics
 Each physical difference can be shown separately when doing adjustments.
 Size, layout, condition of garage, fireplace, air conditioning, etc. must be considered.
 Positive adjustment for inferior and negative adjustment for superior
Comparable.

Calculating Adjustments

Published Statistics Method

 The average or median prices can be used to calculate price changes.
 Problems: Average or median prices may include all types of housing e.g. condos, freehold, two-story,
bungalows, etc.
 Price change may have occurred within each neighborhood at different times at different rates.
 Distortion is published statistics refle6ts the monthly difference in types of home sold, rather than
difference in market prices.

Time Resale Method

 This method used when the comparable(s) selected are sold and resold within a given time period.
 The difference in price is an indication of change in market due to time.
 The price change is due to only change in time and not due to physical or motivational factors.
 The most recent resale is considered most reliable.
 Search for sale and resale comparable(s) can be expanded to same neighborhood or nearby neighborhoods.

Paired Sales Method

 Used when good comparable(s) are not available.
 Take two properties within the subject neighborhood that were similar to each other (except for location
difference}, where one is sold close to the sale date of comparable and the other sold close to appraisal
date.

Location and Physical Adjustments

 Paired Sales method is used for calculating location adjustments.
 Ensure that paired sales are identical or very similar to each other (except for location difference).
 They should be of a similar type and in same price range as the subject.
 The sales should have occurred roughly at the same time.
 Select at least three sets of paired sales.

Financing Terms Adjustment

 Adjustment in sale price is required if the Seller Take Back (STB) is at a lower/ higher interest rate than the
current interest rates.
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  If the seller is gaining, he may have lowered the sale price (to attract buyers) and a PLUS agreement is
required.
 If the seller is losing, he may have pushed up the sale price (to make up loss) - a Negative adjustment
is required.

Reconciliation
 Adjusted sale prices of comparable(s) are reconciled to arrive at a single point of estimate.
 The most recent sale is usually the most reliable one and best mediators of market value.
 Fewest adjustments means that the comparable is most similar to subject.
 No judgment is implied in averaging - never average the adjusted sale prices to estimate value of the
subject.

Calculations
 Percentage Change = (New - Old) divided by Old x 100
 Percentage Changer per Month = (New - Old}/Old x 100?? No. of Months
 Percentage Change with Average Price,
 The average price as of Current\Date (Appraisal Date) is the NEW price for ALL comparable(s).
 The average price as of date of sale of comparable is OLD for that comparable.
 Find percentage change for each comparable.
 Apply that percentage than age to sale price of each comparable. (Sale Price Plus/ Minus % Change)
 Reconcile by selecting the Adjusted Sale Price of the MOST RECENT sale.
Chapter 7 - The Cost Approach

Steps in Cost Approach

 Step 1: Estimate the Site Value
 Step 2: Estimate the Cost New of the Building (RCN)
 Step 3:Calculate the Depreciation of the Building and Other Improvements
 Step 4: Estimate the current Value of the Building: Current value = Cost New - Depreciation
 Step 5: Estimate the Current Value of Other Improvements: Current Value = Cost New - Depreciation
 Step 6: Add the Site Value to
Current Value.

Site Value

Units of Comparison
 Bulk Sales Price: This means price per lot where the minor change in size does not affect value.
 Price per Front Foot/ Meter: This method is regularly used for residential lots and only considers Frontage
(Front Foot/ Meter).The depth of the lot is not considered, extra depth indicated Excess Land that does not
add to the value of the site but may decrease the value proportionately.
 Price per Square Foot/ Meter: Used for apartment buildings, commercial and industrial sites. This method
can cause problems when the sites are of irregular size, unusual shapes or with excessive depths.

Methods of Site Valuation

 Comparatives Sales Method (Direct Compassion Approach)
 Compare the subject site with at least recently sold comparable sites, preferably in same neighborhood.
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  If there are [Link] comparable site, ignore the value of improvements and treat it as a
vacant site.
 A comparable site may be a building on it provided that the building does not add any value to the
land and the property is Sold with a clear intention that the buyer would demolish (tear down) the
current building.

Abstraction Method
 This method is used when there is lack of good comparable(s).
 Select three comparable(s) properties (land + building) sold recently.
 Deduct the value of building and any other improvements to get the abstract of the site value.
 Apply adjustments to the site value to arrive at Adjusted and Value per Meter.
 Apply the reconciled land value to the subject land.

Estimating the Building Cost New

Reproduction Cost New (RCN)

 It is the cost of construction at current prices, of an exact duplicate or replica, using the same materials,
construction standard, design, layout and quality of workmanship, while embodying all deficiencies, super
adequacies and obsolescence of the subject building.
 The newer the building it is more likely that Reproduction Cost would be used.

Replacement Cost New

 It is the cost of construction, at current prices, of a building have utility equivalent to the subject building,
but built with modern materials, current standards, design and layout.
 The older the subject building, it is more likely that Replacement Cost would be used.

Calculating Building Cost New

Cost Services Method: Useful for calculating the Reproduction Cost New (RCN')-of-the building when no
comparable(s) are available. The building costs given in Cost Services Manual apply to the entire city.
Comparative Square Meter Method: This method is useful if properties are sold for their land value and the
building does not add to the value.
 Reconciliation is done by picking up the Most Recent Sale

 Apply the reconciled building cost per square meter to the subject.

Calculating Depreciation of a Building

 Accrued depreciation is also called Diminished Utility

 Physical deterioration occurs due6o wear and tear, decay and structural defects such as worn carpet, flaking
of paint, broken window, etc.
 Functional obsolescence related to outdated, inadequate, unattractive, unpopular unappealing equipment’s
or any over improvement.
 Locational obsolesces is due to negative environmental forces beyond the property boundaries such as a
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 building next t0 a gas station, car parking, night club, major highway, etc.

Curable and Incurable

Curable Items
 Those items in a building which are economically feasible to cure may be repaired or replaces by a prudent
owner or buyer.

Incurable Items
 Deterioration that either cannot be corrected or can only be corrected at a cost which does not contribute to
the value of the property.
 Short-lives incurable Items are those which are not yet ready to be replaced but would require replacement
sometime before the end of the remaining economic life of the structure.
 Long-lived Incurable Items are those which have suffered some physical deterioration but will not require
replacement anytime during the remaining economic life of the structure.

Calculating Accrued Depreciation

 Accrued Deprecation = RCN – Current Value

 Accrued Deprecation = Replacement Cost (RCN) x Effective age/Economic life

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 CHAPTER 8 - CONCLUDING THE APPRAISAL REPORT

The Certification Statement

 This statement shows how and under what circumstances the valuation was done.
 It gives confidence to the reader that the appraiser completed a thorough, competent and objective
valuation.
 The appraiser was done under no undue pressure.
 The appraiser personally inspected the property and there is no personal positive or negative bias
towards the property or the persons affected by it.
 Appraiser confirms that his/ her employment to conduct appraiser is not condition upon the amount of
valuation.

Attachments
 Neighborhood map that shows features such as schools, shopping, parks, railway lines, landmarks, etc.
 Copies of MLS® listings for each comparable, preferably with pictures.
 Photos of the subject property including front, back and interior rooms- or anything that affects the
value.
 An up-to-date survey of the property showing shape, easements, encroachments, etc.
 Site/ building sketch for visualization purposes only
 Other information on zoning by-laws, lease agreements, water tests, certificate for septic system, UFFI
tests, and any architectural drawings.

Assumptions and Limiting Conditions

 Assumptions and limiting conditions provide the framework and circumstances under which the appraiser
completed the valuation
 What can or cannot be done with the-appraisal report. (Purpose)
 Who can and cannot use t repay.
 What is or what is not included in the report.
 How the appraisal report was or was not completed.
 What restrictions were imposed on the appraiser in completing the report?
 What the reader can cannot rely on.
 What the appraiser did or did not do to complete the report.

Final Estimate of Value

 The final estimate of value can be a single value or a range or values (when the range is useful for the
client).
 It should be given as a rounded number as opposed to exact terms, since the appraisal process uses judgment
and experience and the value given is an estimate only.

Market Value and Listing Price

 The closer the list price to market value, the more likely that a higher sale price will be realized.
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  It is recommended that the list price should not be more than 2-3% of the market value.

Problems with Overpriced Property

 May become stale as serious buyers may not be interested.
 The property remains on market for a long time.
 Buyers may think that there is something wrong with the property.
 Seller may have to negotiate a price that is much lower than market value.
 Comparable property.

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 CHAPTER 9 - STANDARD CONDOMINIUM

Collecting Information
 Only direct comparison approach is used for a condominium unit and cost approach cannot be used.
 Name and background of property Management Company.
 Condition and appearance of common elements.
 Monthly Maintenance fees and what is included.
 Details of any lawsuits against or on behalf of the corporation.
 Details of any special assessments.
 Amount of money held in reserve fund.
 Whether parking and storage lockers are owned, leased, assigned or exclusive use.
 Availability of amenities or facilities.
 Number of units in the building, exposure/ view and floor number (level).

Property Management
 Quality and effectiveness of management is important. If the complex is not properly managed, it impacts
the value negatively.

Maintenance Fees
 The monthly Maintenance Fee depends on facilities and amenities available in the complex, and number
of units in the building.
 High maintenance fee has negative effect on the value.-ot units and vice-versa.

Special Assessments
 The Reserve Fund is used for major repairs replacement of common elements such as roof, hallway
carpets, resurfacing the drive way, etc. Reserve fund is not for regular maintenance. Not for adding new
common elements.
 A Special Assessment may be requ1recfif:
o The building is poorly managed and if the reserve fund is not sufficient for repairs/ replacement,
it may take several years for repairs.
o An unexpected structure problem may occur which is expensive to correct.
o The residents’ mayft1ecide to significantly upgrade the building in terms of facilities or
renovations.
 Depending on Special Assessment, buyers may put off purchasing a unit in those condominium
buildings or may ask for a large discount in sale price.
 The prices should come down to normal level after the special assessment is over, but the
condominium might have lost reputation.

Additional Sources of Information

 Property Manager: Monthly maintenance fee and what is included.
 Status Certificate: Amount of maintenance fees, special assessments, number of leased units.
 Condominium Declaration and Rules: Parking and locker/ storage is owned, rented, assigned or exclusive
use.
 Rules/ Regulations: what residents are allowed or not allowed to do (restrictions).

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 Reserve Fund Study: Condition of the building and what repaired would be needed of if special
assessment would be necessary.
 Financial statements: Financial health of the corporation and if special assessment would be needed.
 Annual General Meetings: How the residents feel the building is being managed.

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 CHAPTER 10 - COMMERCIAL PROPERTIES

Collecting Information
Apartment Buildings
 Access to public transportation, proximity to schools/ colleges, distance to shopping, recreational
facilities ,parks, theatres, stadiums, swimming pools, medical services, level of security in
building, above ground or underground parking, laundry facilities, amenities in the building,
pools, exercise rooms, etc.

Office Buildings
• Proximity to shopping, restaurants, health clubs, distance to public transportation, frequency
of public transportation services, banks, lawyers and accountants, central telecom services,
data processing facilities, condition/ quality of entrance, lobby, elevators and hallways
security, parking facilities for clients and employees.

Retail Buildings
 Major traffic routes and patterns, pedestrian flow, access to and frequency of public transportation,
location of on or off street parking ,population and income levels in surrounding areas, adequate
parking, mix of different retail stores.

Industrial Buildings
 Access route for road transportation, distance to railway freight depots, clear height, dock height
loading bays, load bearing capacity of floor, turning of facility for trailers, local environmental
standards, available labor pool in area, industrial waste disposal, disposal of hazardous waste.

Other Information
 Leasing arrangements including remaining period of lease and amount of rent paid, common area
maintenance as well as percentage rent (if any).
 Operating and maintenance expenses of the subject building and comparable buildings.
 Vacancy rates for the subject as well as comparable buildings.
 Quality and effectiveness of the property management.
 Rental rates for similar comparable buildings in the area. Valuation of Commercial Properties.

Direct Comparison Approach

 The selling prices can be broken down into units of comparison depending on the type of property.
 Price per Square Foot/ Meter or Price per Front Foot/ Meter.
 Price per Suite or Price per Unit.
 Adjustments may be shown in terms of units of comparison.

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Cost Approach
 Cost approach is the only method for Special Purpose or Single Purpose industrial buildings.
 The calculations are similar to RCN calculations but are more detailed.
 Advanced methods such as Quantity Survey method or Unit in Place Method may be used.

Income Approach
 The value of a commercial property is the present worth of future income.
 Capitalization of Net Operating Income (NOI) is used for evaluation.
 Higher is the income potential, higher is the value of the property.
 As the Cap rate increases, value decreases and vice-versa.

Calculation Using Income Approach

Potential Annual Gross Income

 Value depends on the annual income or potential rental income of the property.
 Market Rent is used as opposed to actual rent (current rent/contract rent) being paid.
 Potential income is based on 100% occupancy.
 It is assumed that Typical Management is in place.
 Owner's last 3 years income statements are studied to analyze past and present performance.
 Income statements may not be reliable because:
 The current management may be poor resulting in rent al income well below the
market rent or rent collection is not efficient.
 Some units may be vacant due to recent renovations and the income is not shown in the
statement.
 The owner's statement may show the income that is not being realized.
 The rent control legislation and its effect must also be studied.

Effective Gross Income/ Gross Operating Income

Effective Gross Income (EGI) = Gross Potential Annual Income -Vacancy and Bad Debt

Total Annual Expenses

 Include only the expenses that are necessary to maintain the regular flow of income.
 Expenses are based on typical management.
 If some expenses are done in one year and not in other years, these must be annualized.
 Do not income capital expenses.
 Compare the owner's income statements with similar properties in the area.
 Appraisers usually prepare Reconstructed Operating Statement by sorting out the
irregularities in owner's statements.

Included in Expenses:
 Management fees (even if no management is involved)

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  Superintendent's suite and/ or janitor's suite and their salaries
 Replace of Thermostat for furnace
 Painting of walls/ halls/ suites
 Replacing a broken window
 Cleaning the carpets

Not included in Expenses (These are not necessary to maintain regular flow of income):
 Capital expenses such as Replacement of kitchens, bathrooms, flooring, windows, furnace, etc.
 Mortgage payments
 Depreciation
 Charitable donations
 Car allowances (owner leased a car)
 Business tax
 Reserves for Capital Expenditures

Net Operating Income (NOI) = Effective Gross Income (EGI) - Operating Expenses

Converting Net Operating Income into Value

 The direct method is most frequently used with smaller income investment properties.
 The yield method is used for larger investment commercial properties.

Gross Income Multiplier (GIM)

 This is NOT a percentage.

 Used for small commercial properties.

 GIM = Sale Price / Effective Gross Income (EGI)

 Value = Gross Income Multiplier (GIM) x Effective gross income (EGI)

Overall Capitalization Rate (Cap Rate)

 Cap rate is a percentage.

 Cap Rate = Net Operating Income (NOI)/Sale Price

 Value = Net Operating Income I Cap Rate

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 SAMPLE APPRAISAL EXAM

1. For which of the following appraisal assignments would a form report normally be
used by a professional appraiser?

a. The valuation of a single family home or duplex where the appraisal will
be presented in court.
b. The valuation of a duplex for mortgage financing or capital gains tax
purposes.
c. The valuation of an office building for mortgage financing or for sale
purposes.
d. The valuation of a 90 unit apartment building for mortgage financing or
capital gains tax purposes.

2. There are many types of property interest that a person can have in land. What type
of property interest (i.e. estate/ownership) do appraisers/salespeople commonly
estimate the market value of?

a. Municipal Zoning.
b. Extension of Credit
c. Fee Simple
d. Comparable Sales

3. What is one of the key questions that need to be considered in determining the highest and
best use of a vacant site?

a. What is the current depreciation rate for the land?

b. Does the proposed use affect the assessed value of the property?
c. Does the proposed use conform to the zoning?
d. What was the MLS history of the subject property?

4. Which of the following comprise the four states of a neighborhood life cycle phase?

a. Growth, stability, decline and renewal

b. Physical, economic, legal/governmental and location
c. Physical, economic, political and social
d. Time, direction, cause and effect

5. What impact could a private deed restriction have on the value of a site?

a. A private deed restriction has no impact on the value of a site but it does have a negative
impact on the [Link] new of the improvements to the site.
b. A private deed restriction can have no impact on the value of a site as it is between
people as opposed to properties.
c. It could have either a positive or negative impact on value depending on what the deed
restriction is.
d. It could only have a positive impact on value because the purpose of a deed restriction is
to protect the interested of the owner.

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6. The effective age of a building is:

a. The difference between its actual age and the economic life of a building.
b. The difference between its actual age and the remaining economic life of a
building.
c. The actual number of years that have passes since the building was constructed.
d. The exhibited age based on the amount of care and attention that the building has
received.

7. In order to determine how a home would be viewed by a buyer from a functional

perspective, as appraiser needs to:

a. Check the zoning as well as confirm the purpose of the appraisal and the type of
value required by this appraisal.
b. To look at the physical condition of the home in terms of its wear and tear.
c. Compare the performance, quality, appeal and style of the home to the other homes
in the neighborhood.
d. Estimate the actual age of the home and confirm what phase of the life cycle the
area is going through.

8. What would be one of the steps that an appraiser would undertake in the Direct Comparison
Approach in order to ensure an accurate valuation of the subject property?

a. The appraiser would estimate the reproduction cost new of all of the improvements
to the subject property using the modified economic age/life method.
b. The appraiser would reconstruct the subject property's income and-expense statement
to ensure it was correct.
c. The appraiser would estimate the overall capitalization rate to 'be-used in the
valuation through the use of comparable sales.
d. The appraiser would compare each selected comparable sale to the subject property
and identify any differences that existed between the two properties.

9. In the context of an appraisal, what is functional obsolescence?

a. It is a loss in value to improvements due to such things as the improvements being

outdated, inadequate, unattractive or unappealing.
b. It is a loss in value to the land due to deteriorating economic conditions within the
subject, neighborhood and surrounding areas.
c. It is a loss in value to the improvements due to such things as the improvements
suffering decay and wear and tear over a period of time.
d. It is a loss of value to improvements as a result of being located next to negative
influences such as a railway, gas station or dump site.

10. Which of the follow pieces of information would an appraiser need when
valuing a single residential condominium in unit in a high rise building?

a. The value of the common element portion of site that is attributable to

the subject unit.
b. The Reproduction Cost New or the Replacement Cost New of the
subject unit.

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 c. Whether the parking is owned, leased, assigned or common element
exclusive use.
d. The accrued depreciation rate that is to be used in valuing the subject
unit.

11. Which of the following factors would be used to estimate the potential annual
gross income of an apartment building?
a. A 3% to 5% vacancy and bad debt rate
b. Operating expenses
c. Contract rent
d. Market rent

12. There are many types, concepts and principles of value that apply to the
valuation of real estate. With this in mind, which one of the following
statements is correct with respect to objective value?

a. It is a value that is created and exists only in the minds of potential

buyers.
b. It is the actual selling price that a property is purchased for
c. It is a value based on the actual costs of reproduction or replacement.
d. It is a principle of value which states that values change over time.

13. What has been one of the effects on the residential appraisal industry of the
introduction of AVMs (Automated Valuation Models?

a. It has reduced the demand for appraisers with respect to the valuation
of residential properties for mortgage purposes.
b. It has increased the need for appraisers for all types of residential
appraisal assignments since an AVM requires a CRA or AACI to carry
out the valuation.
c. It has increased the cost of residential appraisals since a physical i1'\
5Pection of the subject property and comparable(s) is required when
using an AVM.
d. It has reduced the amount of mortgage fraud given that owners are
asked for identification when the property is physically inspected.

14. Appraisers use Market Value when appraising a single family residential
property for sale purposes. An estimate of market value for a property is based
on:
a. The highest and best use of the property.
b. The stability phase of a neighborhood’s life cycle.
c. Its value in use to the seller only.
d. Supply and demand being equal in tl1e neighborhood.

15. Neighborhoods "A" and "B" are located next door to each other. They are
identical neighborhoods in every way except that neighborhood A is located
very close to industrial development and an active railway .How can the dollar
impact of the industrial development and active railway on neighborhood "A"
be measured?

a. By comparing the selling prices of similar homes in both

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 neighborhoods.
b. By comparing the [Link] takes to sell similar properties in both
neighborhoods.
c. By comparing the listing prices of similar homes in both
neighborhoods.
d. By comparing the sale to list price ratios of similar homes in both
neighborhoods.

16. Which of the following statements is correct with respect to the factors that need to be looked at in
a site analysis?

a. Anyone being asked to estimate the value of a site for sale purposes is expected to be an
expert in environmental issues and is required to complete a 3 phase environmental audit
to the site as part of the appraisal process.
b. The dollar value per front foot of two individual identical adjoining sites can either
increase or decrease when they are combined into one larger site (i.e. one ownership).
This increase or decrease will depend on the utility of the larger site as compared to the
utility of the two individual sites.
c. Easements will always have a negative impact on the value of the dominant tenement i.e.
a negative impact on the value of the site that has the use of easement
d. Once a contaminated site is thoroughly physically cleaned up, any remaining stigma will
have a positive impact on the marketing and value of the size.

17. An appraiser with a CRA designation is qualified to appraise a residential home containing up to a
maximum of:

a. 4 self-contained units
b. 6 self-contained units
c. 10 self-contained units
d. 2 self-contained units

18. Under what circumstances might the effective date, or an appraisal be different from the date of
inspection?
a. Valuation for mortgage financing
b. Valuation for listing purposes
c. Valuation for a marriage separation
d. Valuation where the property is tenanted.

19. Which one of the following is a correct statement regarding site analysis?

a. A vacant site refers talented that has been improved with landscaping and buildings.
b. A corner lot can only have a negative impact on the value of a site even when the site is
zoned and used for commercial/retail purposes.
c. Land automatically suffers from ongoing physical depreciation, both curable and
incurable, irrespective of how it is maintained.
d. The dimensions and shape of a site, its proximity to amenities and its zoning can have an
impact on the site's value.

20. John Smith has just constructed a 4,000 square foot building which his friend believes is an over
improvement. Under what conditions would the building be an over improvement ?

a. The market value of the building is less than its cost.

b. The market value of the building is far more than its cost.
c. The market value of the building is slightly more than its cost.
d. The market value of the building is equal to its cost.
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21. The Direct Comparison Approach is based on the Subjective concept of value. This
means that, in the Direct Comparison Approach:
a. The value of a home may not be the same as its cost to construct.
b. The value of a home will not change over time.
c. There will always be a greater demand than supply of properties.
d. The market value and market price of a property must be the same.

22. Up until 3 months ago, supply and demand for residential properties in the neighborhood
had been in balance. Over the past 3 months there has been a very significant increase in
the supply of homes for sale while the demand has stayed constant. Based on this
scenario, how would you expect prices to have reacted over the past 3 months to the
present?

a. Prices would likely have stayed the same

b. Prices would have tended higher than market value.
c. Prices would likely have increased.
d. Prices would likely have declined.

23. 234 Maple Street is a property with a single family home on a large 'tot located on a busy
main road. The zoning allows for a six story commercial building and the lot is 1arge
enough to accommodate that type of improvement. The cost of putting up the office,
building would be $3,300,000 and it would add $2,700,000 in value to the subject site.
Based on the information provided, is this particular six story’s commercial building the
highest and best use of the land?

a. No, because this specific use would not be financially viable

b. Yes, because it would add much more value to tile land than the single family
house.
c. Yes, the zoning allows for it and it is physically possible.
d. No, because the highest and best use of the property is based on the current use.

24. In Ontario, is there a legal requirement for a person to be licensed in order to become a
real estate appraiser?

a. Yes, a person must be licensed by the Provincial Government in order to become

a real estate appraiser.
b. Yes, a person doe must be licensed by the Institute of Municipal Assessors in
order to become a real estate appraiser
c. No, but a person has to have at least five years of experience in selling real estate
before they can become a real estate appraiser.
d. No, a person does not have to be licensed to have a professional designation in
order to become a real estate appraiser.

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25. What is one of the key questions that need to be considered in determining the highest
and best use of a vacant site?
a. When the vacant site was last sold or listed for sale?
b. Is the proposed use of vacant site physically possible?
c. What is the current assessed value (for property taxes) of the vacant site?
d. Does the owner of the vacant site have good title to the property?
26. Pottage occurs when the value of the assembled land is greater than the combined
value of the individual sites that go to make it up. This increase in value can only
happen if:

a. There is a change in the highest and best use of the land.

b. There is a change in the ownership of the land.
c. All of the original individual sites were of a standard size for the area.
d. There is a change in the remaining economic life of the land.

27. The economic life of a building is:

a. The total period of time over which a newly constructed building is

expected to contribute to the value of a property assuming that significant
renovations, updating or modernization will occur during that time period.
b. The period of time from the date of the appraisal that a building is
expected to continue to contribute value to a property assuming that no
renovations, updating or modernization will occur during that time frame.
c. The total of the effective age and the actual age of a building estate date of
appraisal assuming that no regular maintenance has taken place since the
date of construction.
d. The difference between the effective age and the actual age of a building
as at the date of appraisal assuming that no functional obsolescence has
taken plal:[Link] the date of construction.

28. Which of the following would be a typical Limiting Condition found in an

Appraisal Report?

a. Only the appraiser can authorize the use of any appraisal report by anyone
other than the client who commissioned it.
b. The appraisal can confirm that the subject property is in compliance with
all applicable zoning bylaws and building codes.
c. That the appraiser can confirm that the rare no environmental or structural
problems affecting the subject property being appraised.
d. That the appraiser can confirm good things to the subject property and is
responsible for all legal matters with respect to the subjective property's
title and ownership.

29. In the context of appraisal, what is physical deterioration?

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 a. It is a loss of value of the land as a result of such things as inadequacy or
inefficiency.
b. It is a loss of value to improvements as a result of such things as wear and
tear.
c. It is a loss of value to Improvements as a result of such things as lack of
modernization or over improvement.
d. It is a loss of value to the land as a result of such things as decay and wear
and tear.

30. Under which of the following circumstances might a property's selling price most
likely be less than its market value?

a. Both the buyer and seller had sufficient and adequate knowledge when
negotiating.
b. The subject property was in very poor condition and needed a complete
renovation/modernization.
c. Typical exposure times in the area are 30 to 60 days and the subject sold
within that time frame.

31. The seller was under a lot of financial pressure to sell the property very quickly.123
Main Street is a modest, 900 square foot; 70 year old bungalow surrounded by
2,000 square foot, ten year old luxury homes. What effect would the surrounding
homes have on 123 Main Street?

a. There would be no impact on the value of 123 Main Street.

b. There would be a positive impact on the value of 123 Main Street.
c. There would be a negative impact on the value of 123 Main Street.
d. There would be an increase in the demand for 123 Main Street.
32. Which one of the following would be an accepted reason why the net income
shown in an appraiser's reconstructed income/expense statement of an apartment
building might be different from an owner's income/expense statement?

a. Legitimate expenses can occur in some years and not in others. An owner's statement
would stabilize these periodic legitimate expenses on an annual basis while an
appraiser's statement would only show these expenses if they were paid in the year the
building being appraised.
b. An owner often uses a different method of capitalization as well as higher
capitalization rate than an appraiser in order to determine the actual net operating
income of a building.
c. There may be expenses included in owner's statement such as [Link]&b-1les leasing,
which would be excluded to from the appraiser's statement because they are not
necessary expense maintain the current income flow of the building.
d. An owner's statement would only show expenses based on typical competent
management while an appraiser's statement would only show the actual expenses paid
by the owner whether they were typical or not.
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33. In appraising a property for mortgage financing purposes, when might it be appropriate for an
appraiser to estimate a highest and best use that, according to the zoning, is not legal as at the
effective date of the appraisal?

a. When the property does not conform to the other homes in the area.
b. When the required change to the zoning is probable and imminent.
c. When the property is currently listed for sale above market value.
d. When it would help the owner of the property obtain a larger mortgage.

34. The subject property has been listed at $349,000 for 100 days. It is a very active market but
there have been no offers on the-property. The typical time required to sell similar properties in
the neighborhood is 65 days. What would this information likely suggest about the value of the
property?

a. The listing price of $349,000 is setting the lower limit of value for the subject
property, i.e. the property is worth no less than $349,000
b. The information suggests that the subject property is underpriced and there may be an
imbalance in supply and demand.
c. The listing history provides no guidance at all as to what the value of the subject
property might be i.e. it could be more or less than $349,000.
d. The listing price of $349,000 is setting the upper limit of value for the subject
property, i.e. the property is worth no more than $349,000.

35. If a neighborhood were going through a period of renewal, what might an appraiser expect to
see happening?

a. A significant number of established retailers moving out of the area and, as a result,
a significant increase in retail vacancies.
b. Properties taking a much longer period to sell as compared to properties in
neighborhoods facing decline.
c. A significant increase in the levels of tenant as opposed to owner occupation with
many homes being converted to rooming houses.
d. An increasing level of new construction or property renovations taking place within
the neighborhood.

36. Adele is a builder who has been given the following information on two vacant sites (i.e.
unimproved land) located next door to each other.

 Forest Road has a market value of $290,000. The site has a frontage of 50 feet and a
depth of 130 feet.
 130 Forest Road has a market value of $298,[Link] site has af frontage of 50 feet
and a depth of 260 feet.
The two vacant sites are identical to each other except for the difference in size.

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 Based purely on the information provided above, which of the following would be a correct
explanation as to how 130 Forest Road can be twice-the size of 132 Forest Road but only
be worth
$8,000 more?

a. 130 Forest Road would appear to have excellence.

b. The land at 130 Forest Road must have a longer remaining life expectancy.
c. 130 Forest Road is being negatively affected by the Principle of Surplus Productivity.
d. The land at 130 Forest Road must have the lower effective age.

37. Which of the following statements regarding the site analysis of a property is correct ?

a. If a site loses $250,000 in value due to soil contamination but the cost of the cleanup is
only $100,000 then the cost of the stigma is $150,000.
b. The location of a property is not considered in a site analysis as it has no impact on the
actual value of the property.
c. Easements do not have any significant impact on the value of a property since they only
impact the owner's title.
d. Private deed restrictions always have a significant positive impact on the value of the
restricted property.

38. Sari is appraising a residential condominium unit at 123 Main Street. It is a relatively new
condominium and there are no comparable sales in the building complex. What should Sari do in
order to complete the valuation?

a. Use any sales in the building complex, even if they are not comparable, and reduce their
sale price to a price per square foot.
b. Use the Assessed Value of the subject unit.
c. Look for comparable sales in similar condominium complexes in the areas.
d. Use the Cost Approach instead of the Direct Comparison Approach.

39. In arriving at a value using the Direct Comparison Approach, what would be one of the
four basic qualities that an appraiser would look for in a good comparable sale?

a. The adjusted selling price of the comparable is within 10% of the other
comparable(s) selling prices.
b. Numerous adjustments have to be made to the comparable sale to bring it into
line with the subject.
c. The comparable sale should have been on the open market for a minimum of 60
to 90 days.
d. The comparable sale should be on or as close as possible to the date of valuation
for the subject property.

40. The furnace in the house at 93 Centre Street has a life expectancy of 15 years and an
effective age of ears. Based on thein formation, it can be assumed that:
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 a. The average person would wait at least another 30 years before deciding to
replace the existing furnace.
b. The average person would replace the furnace immediately as it has reached the
end of its life.
c. The furnace is an incurable long lived item that has suffered both locational and
functional obsolescence.
d. The furnace has suffered a depreciation of about 50% and will only need
replacing when the depreciation reached 75%.

41. In completing a final reconciliation of value an appraiser must evaluate the strengths and
weaknesses of each approach to value used in the appraisal. Which of the following is a
correct statement as it relates to the weaknesses of the Direct Comparison Approach in
valuing a single family home?

a. Constructions costs are constantly changing well that affects the value.
b. It results in various problems related to estimating building costs and
depreciation.
c. It is often the only method available to use in the appraisal of special purpose
properties.
d. The data used in the valuation process is historical in nature.

42. The building at 48 Teston Road is actually 25 years old and the effective age is 35 years.
What does this tell you about the building?
a. The building has receive well above average care and maintenance.
b. The building has an ec0nomic life of 60 years and a remaining life of 25 years.
c. The building has an economic life of 60 years and a remaining life of 35 years.
[Link] building has F.ece1ved less than average care and maintenance.

43. For which of the following appraisal assignments would a narrative report normally be used by a
professional appraiser?

a. The valuation of a residential condominium for sale purposes.

b. The valuation of a 20-unit strip plaza for mortgage financing purposes.
c. The valuation of a triplex for mortgage financing purposes. The valuation of a duplex for
location purposes.
d. The valuation of a single-family home

44. Which of the following would be a key factor in selecting sales to be used in the Paired Sales
Method when calculating physical adjustments?
a. The properties used in the paired sales should be in different neighborhoods to each
other.
b. The properties used in the paired sales should have sold at very different times to
each other.

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 c. The properties used in the paired sales should have sold at approximately the same
time.
d. The properties used in the paired sales should have been listed for sale for between
90 and 120 days

45. In arriving at a value using the Direct Comparison Approach, what would be one of the four
basic qual ties that an appraiser would look for in a good comparable sale?

a. The comparable sale should be inferior to the subject properly.

b. The comparable sale needs to have been listed for sale for at least 90 days.
c. The comparable sale should involve a non-arms-length transaction.
d. The comparable sale should be physically similar to the subject property.

46. Which one of the following is an example of plottage?

a. 470 Cook Drive is vacant site worth $220,000 and 472 Cook Drive is a vacant site worth
$320,000. If the two sites were assembled into one title, the assembled site would be
worth $850,000.

b. 470 Cook Drive is vacant site worth $620,000 and 472 Cook Drive is a vacant site worth
$750,000. If the two sites were assembled into one title, the assembled site would be
between $620,000 and $750,000.

c. 470 Cook Drive is vacant site worth $390,000 and 472 Cook Drive is a vacant site worth
$650,000. If the two sites were assembled into one title, the assembled site would be
worth $1,040,000.

d. 470 Cook Drive is vacant site worth $490,000 and 472 Cook Drive is a vacant site worth
$520,000. If the two sites were assembled into one title the assembled site would be
worth less than $890,000.

47. In completing a final reconciliation of value, an appraiser must evaluate the strengths and
weaknesses of each approach to value used in the appraisal. Which one of the following is a
correct statement, as it related to the weakness of the direct comparison approach in valuing a
single family home?

a. There is usually difficulty in selecting an appropriate capitalization rate.

b. It is sometimes difficult to obtain good comparable sales.

c. It is difficult in this approach to estimate depreciation, particularly in older buildings.

d. This approach is generally not accepted by the courts.

48. Appraiser Ann has stated in her appraisal report that the estimated value of the subject properties
$289,[Link] then added that the value was based on an assumption that the title is free and
clear. This statement and other similar statement are:

a. Irrelevant when competing the appraisal report

b. Typically included in Assumptions and Limiting Conditions.
c. Are set out during the agreement with client
d. Normally set out in the certification by the appraiser
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49. Jane, the appraiser has just signed an appraisal assignment with a client whose vacant land is
located at 123 Main Street. He needs to find comparable site sales in the neighborhood and
comes across sale of 135 Main Street sold 4 months ago for $180,000. The problem is that this
property at 135 Main Street is 1100 square freehold bungalow. Do you think Jane can use this
property as comparable?

a. No, because a vacant site can only be compared with a vacant site.
b. Yes, provided that the bungalow does not add any value to the property and any buyer
would tear it down.
c. No, anyone who pays for the bungalow would have paid for the site as well as the
bungalow.
d. Yes, provided that Jane deducts the depreciation of the bungalow to find its current
value.

50. Which of the following would be a typical assumption and Limiting Condition found in an
Appraisal Report?
a. This valuation has been based on the assumption that the information collected from
industry recognized sources and professionals is in fact correct and can be relied upon
for the purpose of this appraisal.
b. That the report includes attachments such as neighborhood map, corpse of MLS
Listing/ Sa les, photos, survey, site/ building sketch and an addendum containing
additional information.
c. That the appraisal report can be used not only for the valuation of the subject property,
but also to value other similar properties in the subject neighborhood tor any purpose
including highest and best use.
d. That the value expressed in the appraisal report for the valuation of the subject
property can be used and is good for a period of anywhere from 60 days to a
maximum of 120 days.

51. Angels has appraised 42 North Circular Road for mortgage financing and estimated the value
of $395,000 as of August [Link] what period of time would that value be valid?

a. For a period of 30 days after the appraisal is completed.

b. There is no specific period for which the appraisal would be valid.
c. Only as of effective date of appraisal.
d. It would be up to the client decide the time period.

APPRAISAL MATH
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52. Asia is appraising 123 Main Street using the Direct Comparison Approach and has chosen 3
very good comparable sales. Based on the adjustments to those 3 comparable sales contained
in the Sales Analysis Chart, select the correct reconciliation and estimate of value for the
subject property.

Comparable Sale Comparable Sale Comparable

#1 #2 Sale #3
$ $ $
Sale Price 520,000 565,000 530,000
Time Adjustment +30,000 - +20,000
Time Adjustment Sale Price 550,000 565,000 550,000
Location - - -10,000
Lot Size -5,000 -
Building Size - 10,000 +10,000
Rec Room - - -
Garage - - -8,000
,/
-
Parking - - -
Bathrooms - +8,000
Condition ·. ·,o. o:;; -8,000 -9,000
Fireplaces v

--
- +6,000
Skylights --
'
- +3,000
Total Net Adjustment +5,000 -18,000 0
Total Adjusted Selling Price 555,000 547,000 550,000

a. The estimated value-Of-.t_r1e subject property is $551,000 (rounded) based on

the average of the totally adjusted selling prices of all three sales.
b. The estimated value of the subject property is $555,000 based on comparable #1
as it only had two minor adjustments i.e. $10,000 and $5,000
c. The estimated value of the subject property is $547,000 based on comparable #2
which was a recent sale with the least overall adjustments.
d. The estimated value of the subject property is $550,000 based on comparable
sale #3 which had an overall total ne

53. 123 Main Street is a 50 year old detached, two stores, 2,200 square foot home situated on a 40
foot by 120 foot lot. The Replacement/ Reproduction Cost New (RCN} of the home is
$275,[Link] property sold a few days ago for $409,[Link] current value of the land and
landscaping is estimated to be $212,000.
Based on this information, calculate the building's depreciation rate.
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 a. 32.76%
b. 36.79%
c. 28.36%
d. 22.91%

54. The subject property is a 58 unit, 62,750 square foot apartment building with operating
expenses of
$241,[Link] lot size is 82 feet by 295 feet.
The most comparable sales is a 66,069 square foot apartment building which sold recently for
$8,655,000. This property had an effective gross income of $628,450 and operating expenses of
$259,470.
Using the Direct Comparison Approach to Value and the appropriate unit of comparison,
calculate the value of the subject property based on the above information.

a. $8,555,335 rounded to $8,555,000

b. $8,220,213 rounded to $8,220,000
c. $8,469,368 rounded to $8,469,000
d. $8,308,080 rounded to $8,308,000

55. Jane is an appraiser who has been asked to estimate the value of 79 Gerome Avenue which is
an 80 unit apartment building with a building size of 79,000 square feet and a lot that measures
91feet by 300 feet.
While using the Direct Comparison Approach to value, Jane comes across a very comparable
90 unit apartment building at 10 Walker Avenue which sold a few days ago for $9,452,000.

Using the Direct Comparison Approach and the appropriate unit of comparison, estimate the
value of 79 Gerome Avenue based on the above information.

a. $8,387,458 rounded to $8,387,000

b. $8,418,759 rounded to $8,419,000
c. $8,401,778 rounded to $8,402,000
d. $8,506,782 rounded to $8,507,000

Case Study: (Questions 56, 57 & 58)

There are 3 questions based on the case study below. The case study deals with Cost Approach and valuing,
as of today's date, a vacant site. You should answer the 3 questions based on the information provided.
The subject site is 11.6 meters by 43.8 meters in size. You have been unable to find any recently and sales:
As a result, you have been compelled to use the Abstraction Method and have now found the following 3
sales of improved properties where the sites are similar to the subject site:

 Sale #1: Sold a few days ago for $442,000. It had an 11.S by 43.28 meter lot. The current value
on the lot is $185,500 and the current value of the landscaping is estimated to be $22,[Link]
lot has an inferior location for which a 4% adjustment is required but it is physically superior to
the subject for which a 2% adjustment is warranted. The lot appears to be very similar to the

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 subject lot in all other respects.

 Sale #2: 26 Ashford Way is a property which sold a few days ago for $379,[Link] had an 11.3
by 43.28 meter lot. The current value on the lot is $142,400 and the current value of the
landscaping is estimated to be $12,800. The lot has a superior location for [Link] a 3%
adjustment is required but it is physically inferior to the subject for which_ a 5% adjustment is
warranted .The lot appears to be very similar to the subject lot in all other respects.

 Sale #3: Land send Drive is a property which sold p few days ago for $479,[Link] had an 11.7
by 43.28 meter lot. The current value on the lot is S215, 800 and the current value of the
landscaping is estimated to be $29,[Link] lot has an inferior location for which a 3%
adjustment is required but it is physically inferior to the subject for which a 2% adjustment is
warranted. The lot appears to be very similar to the subject lot in all other respects.

Answer the following 3 questions based on the above information. Your answers may vary due
to rounding. In those cases select the answer closest to the answer you have calculated.

56. After making all the nece5sary adjustments, calculate the fully adjusted sale price per front
meter for sale #1.
a. $20.746
b. $19,932
c. $22,790
d. $19,119

57. After making all the necessary adjustments, calculate the fully adjusted sale price per front
meter for sale #2.
a. $20,201
b. $20,987
c. 21,357
d. 22,690

58. After making all the necessary adjustments, calculate the fully adjusted sale price per front
meter for sale #3.
a. $21,562
b. $19,383
c. $23,473
d. $20,982

59. Appraiser Violet has been asked to estimate the current market value of a 32 unit apartment
building. Appraiser Violet obtains the owners' 12 month income and expense statement prepared
for income tax purposes by their accountant. The owners own statement indicates that the gross
revenue received for last year (a 12 month period) was $350,400.
After inspecting the subject property and analyzing relevant market data, Appraiser Violet
concludes that comparable suites in the area rent for $950 monthly. There a1,e 15additional
parking spaces which should rent for $40 each per month and the vacancy and bad debt rate
applicable to all the potential income is 2.50%.
Based on the above information, calculate this property's estimated Effective Gross Income.
a. $364,800
b. $350,400

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 c. $372,000
d. $362,700

60. Khan is estimating the value of 56 Downs 'Road using the Cost Approach to Value. Khan
collects the following information regarding the improvements to the site:
 Driveway/Walkway/Patio....................................... Cost New $8,000
• Fence/Deck……………............................................. Cost New $9,000
• Sod and Trees…………............................................... Cost New $3,500

The driveway, walkway and patio are effectively 13 years old with a life expectancy of 30 years.
The deck and fencing are effectively 15 years old with a 10 year remaining life expectancy.
Based on the above information, what is the current value of all the improvements to the site?
a. $12,681
b. $20,500
c. $8,867
d. $11,633

61. The subject building has an effective age of 35 years and an actual age of 40 years. The
remaining economic life of the building is 20 years. The land value is estimated at
$275,000 and the cost new of the building is $334,[Link] on the information
provided, calculate the current value of the building.
a. 121,673 rounded to $122,000
b. $111,533 rounded to $112,000
c. $223,067 rounded to $223,000
d. $175,327 rounded to $175,000

62. Given the following information, what would be the value of the subject property by
the Cost Approach?
 Amount of Building's Depreciation.................................$59,000
 Cost New of the Building……….......................................$320,000
 Estimated Land Value.......................................................$105 000
 Cost New of other improvements…………………………$45,0001
 Amount of depreciation of other improvements............$12,,00
a. $399,000
b. $470,000
c. $294,000
d. $331,000

63. Jane Smith has been asked to estimate the current value of a detached 2 story single family
residential building at 74 Broad Street. This 35 year old building has a
Reproduction/Replacement Cost New (RCN) of $235,000.

Jane's research reveals that 140 Broad Street sold recently for $470,[Link] site value
(including landscaping) of 140 Broad Street is estimated at $282,000 and the RCN of the
building is $260,000. This building on 140 Broad Street is very similar to the subject in
terms of its age, utility, condition and appeal.

Based on the information provided in this question, calculate the current value of the
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 subject building at 74 Broad Street

a. $162,996 rounded to $163,000

b. $150,038 rounded to $150,000

c. $169,928 rounded to $170,000

d. $173,333 rounded to $173,000

64. Abdul is using the ABC Cost Services Method to estimate the Cost New of the subject
building. Based on the following information provided to him, calculate the estimated cost
new of the building.
 Base Building Cost of Subject is $320,000
 Area Shape Multiplier to be used is 1.04
 The subject building has a fireplace but the base building cost does not include the
price of a fireplace. The cost of a fireplace is $5,000
 There is a Location Multiplier of 0.97
 There is a Cost Multiplier of 1.02

a. $349,862 rounded to $350,000

b. $324,325 rounded to $324,000
c. $340,627 rounded to $341,000
d. $334,219 rounded to $334,000

65. Ahmed is using the ABC Cost Services Method to estimate the cost new of the subject building.
Based on the following information provided to him, calculate the estimated cost new of the
building.
 Base Building Cost of Subject is $240,000
 Area Shape Multiplier to be used is 1.03
 The base building cost includes a bathroom which the subject building does not have.
Cost of bathroom is $8,000
 There is a Location Multiplier of 1.02
 There is a Cost Multiplier of 1.04

a. $262,018 rounded to $262,000

b. $246,106 rounded to $246.000
c. $253,743 rounded to $254,000
d. $270,716 rounded to $271,000

Case Study: (Questions 66, 67 &68)

There are 3 questions based on the case study below. The case study deals with Cost Approach and valuing,
as of today's date, a vacant site. You should answer the 3 questions based on the information provided.
The subject site is 10 meters by 38 meters in size. The comparable site sales to be used in the valuation are
as follows:

 Comparable e Sale #1: This vacant site sold a few days ago for $299,[Link] had a 10.2 meter
frontage by 38 meter depth, with a superior location, but inferior physical condition as compared
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 to the subject. The location warrants a 3% adjustment and the physical condition requires a 4%
adjustment.

 Comparable Sale #2: This vacant site sold a few days ago for $278,[Link] had a 9.8 meter frontage
by 38 meter depth, with an inferior location, but superior physical condition as compared to the
subject. The location warrants a 4% adjustment and the physical condition requires a 2%
adjustment.

 Comparable Sale #3: This vacant site sold a few days ago for $307,[Link] had a 10.3 meter
frontage by 38 meter depth, with a superior location but inferior physical condition as compared to
the subject .The location warrants a 4% adjustment and the physical condition requires a 5%
adjustment.

Answer the following 3 questions based on the above information. Your answers may vary due to
rounding in those cases, select the answer closest to the answer you have calculated.
66. After making all the necessary adjustments calculate the fully adjusted sale price per front meter
for sale #1.
a. $29,607
b. $29,021
c. $30,487
d. $28,935

67. After making all the necessary adjustments, calculate the fully adjusted sale price per front meter
for sale #2.
a. $29,502
b. $27,800
c. $30,069
d. $28,935

68. After making all the necessary adjustments, calculate the fully adjusted sale price per front meter
for sale #3.
a. $30,104
b. $29,508
c. $28,614
d. $31,296

69. Appraiser Black has been asked to estimate the current market value of a 70 unit apartment
building. Appraiser Black obtains the owners' 12 month income and expense statement prepared
for income tax purposes by their accountant. The owners' income and expense statement shows the
following information:

The owners' operating expenses for last year (a 12 month period):

Gross revenue for last year (12 months) $852,800

Water 23,750
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 Heating and Air Conditioning 47,300
Fire Insurance (1 year premium) 8,500
Minor Repairs and Maintenance 42,180
Electricity for Common Areas 7,ld5
Landscaping/Snow Removal Contract Realty 9,000
Taxes 85,ooo
Mortgage Interest 55,700
Purchase of 30 stoves 20,000
Janitor's Salary 32,000
Painting of Hall and Common Areas 19,000
Painting and Decorating 15 Suites 15,000
Exterior Painting 42,000
Carpeting Halls and Public Areas 22,500
Depreciation 150,000
Elevator Contract 8,000
Miscellaneous Sundry Expenses 1,850
Total Operating expenses $589,805 5891805
Net Operating Income 262£995

After inspecting the subject property and analyzing relevant market data, Appraiser Black
concludes that:
 The estimated annual effective gross income for the property is $872,332.
 The owner manages the property. However, typical management fees are 3.25% of
effective gross income
 Suits are painted once every five years
 Halls and common areas are painted every seven years
 Exterior painting is done every six years
 Janitor has a free suite in addition to her salary. Comparable suites in the area rent for
$1,050
 monthly

Based on the above information, which of the following options correctly describes one of the
actions that Appraiser Black would take in order to arrive at an appropriate estimated net
operating income for the property?
a. The appraiser's reconstructed expense statement would show the management fee as
being $8,547 and the janitor's salary with the use of a free suite as being $33,050.
b. The appraiser would estimate the net operating income by adding the total of the
operating expenses to the estimated annual effective gross income for the property.
c. The appraiser's reconstructed expense statement would show the painting of the halls
and common areas as being $2,714 and the exterior painting as being $7,000.
d. The cost of the water, heating and air conditioning, fire insurance and realty taxes
would be excluded from the appraiser' s reconstructed expense statement

70. Appraiser Green has been asked to estimate the current market value of a 42 unit apartment
building. During Appraiser Green's research of market data, he finds the following comparable
sales:

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  Sale #1: Sold for $1,954,[Link] total operating expenses are [Link] at $167,597
and the effective gross income is estimated at $374,330.

 Sale #2: Sold for $2,151,[Link] total operating expenses are estimated at $184,493
and the effective gross income is estimated at $412,069.

 Sale #3: Sold for $2,050,000. The total operating expenses are estimated at $175,830
and the effective gross income is estimated at $392 720.

Based on the above information, calculate the Gross Income Multiplier (GIM) suggested by the
comparable sales found by Appraiser Green.
a. 11.66
b. 5.22
c. 9.45
d. 8.58

71. Appraiser Grey has been asked to estimate the current market value of a 50 unit apartment
building. The effective Gross Income of the property is $582,394 and the Net Operating
Income is $364,670. During Appraiser Grey's research of market data, he finds the following
comparable sales:
 Sale #1: Sold for $4,950,[Link] total operating expenses are estimated at $203,818
and the effective gross income is estimated at $546,358.
 Sale #2: Sold for $5,120,000. The total operating expenses are estimated at $210,817
and the effective gross income is estimated at $565,121.
 Sale #3: Sold for $5,170,000. The total operating expenses are estimated at $212,876
and the effective gross income is estimated at $570,640.
Calculate the estimated value of the subject property using a Gross Income Multiplier (developed from
the comparable sales found by Appraiser Grey.
a. $5,397,948 rounded to $5,398,000
b. $5,276,490 rounded to $5,276,000
c. $4,761,936 rounded to $4,762,000
d. $5,305,106 rounded to $5,305,000

72. Appraiser White has been asked to estimate the current market val ue of a 65 unit apartment
building. The effective Gross Income of the property is $807,()30 and the Net Operating Income
is $515,296. During Appraiser White's research of market data, she finds the following
comparable sales:

 Sale #: Sold for $6,650,000. The total operating expenses are estimated at $271,845 and
the effective gross income is estimated at $762,615.
 Sale #2: Sold for $6,430,000. The total operating expenses are estimated at $262,851and
the effective gross income is estimated at $737,385.
 Sale #3: Sold for $6,740,000. The total operating expenses are estimated at $275,524
and the effective gross income is estimated at $772,936.

Calculate the estimated value of the subject property using the Direct Method of
capitalization and an Overall capitalization Rate developed from the comparable sales found
by Appraiser White.
a. $6,843,941rounded to $6,844,000
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 b. $6,982,331 rounded to $6,982,000
c. $7,135,814 rounded to $7,136,000
d. $7,036,006 rounded to $7,036,000

73. Janet Smith is valuing 46 Thomas Street as at September 9th, 2009 using the Direct Comparison
Approach. During her research and analysis she decides to use 52 Acron Avenue as a comparable
sale. 52 Acron Avenue sold on June 4th, 2009 for $240,000.

Janet's research of the local Real Estate Board's MLS Average Sale Prices for 2009 revealed the
following:
 Average Sale Prices for September 9th $263,511
 Average Sale Prices for July 15th $260,897
 Average Sale Prices for June 4th $252,768
 Average Sale Prices for March 20th $247,987

Based on the above information, calculate the time adjusted selling price for 52 Acron Avenue.
a. $255,700
b. $250,200
c. $245,900
d. $242,860
74. Janet Smith has been asked to estimate the site value..of 98 [Link] Street, as of today's date,
using the Comparative Sales [Link] her research and analysis,she decides to use 17
Carew Avenue as a comparable sale. 17 carew Avenueis a vacant s tP. wh ch sold 6 months ago
for $8,285 per front foot.

There are 2 sites in the neighbourhood that sold and resold over the past several months and
they are as follows:
• Site A sold 7 months ago for $236,000 and resold a few days ago for $264,900.
• Site B sold 5 months ago for $242r000 and resold a few days ago for $263,200.
Based on the above information,calculate the time adjusted selling price per front foot for 17
Carew Avenue.
a. $9,840 per front foot
b. $7,596 per front foot
c. $9,155 per front foot_--------
d. $7,946 per front foot

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74. Bahari is estimated the value of 65 Downs Road usingthe Cost Approach to [Link] collects the following information
regarding the improvements to the site:

• Driveway/Wal kway/Patio...............................•......Cost New $10,000

• Fence/Deck.•.•..•.•....•...................•.....•....................Cost New $12,000
• Sod and Trees.•......................................................Cost New $4,000

• The driveway,walkway and patio are effectively 8 years old with a remaining life expectancy of 20 years;
• The deck and fencing are effectively 6 years old with a 25 year life expectancy .

Based on the above information,whatis the current value of all the improvements to the site?

a. $15,421
b. $23,786
c. $20,263 -------
d. $17,485

75. The subject building has an actual age of 15 years and an effective age of 10 [Link] remaining economic life of the
buildingis 55 [Link] land valueis estimated at $270,000 and the cost new of the building is $282,500.

Based on the information provided,calculate the current value of the building. a. $231,136 rounded
to $231,000
b. $221,964 rounded to $222,000
c. $239,038 rounded to $239,00G ------
d. $205,455 rounded to $205,000

case Study:(Questions 77, 78 & 79\

There are 3 questions. n"this case study. This case study is based on the Cost Approach and valuing, as of today's date,the
Cost New of the subject [Link] should answer the 3 questions based on theinformation provided.

Jane Smith has been asked to estimate the Building Cost New of a house at 74 Broad Street. An inspection reveals that it
is a 215 square meter building which has central air conditioningand
skyl ghts but no fireplace She has found 3 brand new detached homes which are very similar to the subject in terms of size,
quality, construction,appeal,floor plan and utility and that sold within the past several months. As a result, she will be
usingthe Comparative Square Meter Method to estimate the Cost New of the subject building.

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 • Sale #1. This property sold four months ago for $455,000. It was improved with a brand new 220 Square Meter
building. The site dimensions were 11meters by 45meters and it was attractively
landscaped. Four months ago,similar sites in the area were selling for $175,000 and the
landscaping was valued at the time of sale as beingworth $24,[Link] only significant difference to the subject building
was that sale #l's building enjoyed the use of fireplace and had no central air conditioning or skylight.

• Sale #2. This property sold two months ago for $473,[Link] was improved with a brand new 215 Square Meter
building. The site dimensions were 11meters by 45 meters andit was attractively
landscaped. Two months ago,similar sites in the area were selling for $185,000 and the
landscaping was valued at the time of sale as being worth $19,000. The only significant difference to the
subject building was that sale #2's building has a fireplace.

• Sale #3. This property sold three months ago for $482,000. It was improved with a brand new 225 Square Meter
building. The site dimensions were 11meters by 45 meters and it was attractively landscaped. Three months
ago,similar sites in the area were sellingfor $182,000 and the landscaping was valued at the time of sale as beingworth
$27,000. The only significant
difference to the subject building was that sale #3's building lacked skylights.

Adjustments
• Building Costs have been increasing by 1.25% per month over the past 12 months.
• Central Air adds $4,000.
• Fireplace adds $4,500 to the cost of a building.
• Skylights add $5,500 to the cost of a building.

76. After making all necessary adjustmentsr calculate sale #l'sindicated cost per square meter?

a. $1,199
b. $1,245--
c. $1,359
d. $1,281

77. After making all necessary adjustments, calculate sale #2'sindicated cost per square meter?

a. $1,303
b. $1,230
c. $1,352
d. $1,262----

78. After making all necessary adjustments,calculate sale #3's indicated cost per square meter?

a. $1,237
b. $1,283-----
c. $1,408
d. $1,234

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 Case Study: (Questions 80,81,82 & 83)

There are 4 questions based on the case study below. The case study deals with valuing a property usingthe Direct Comparison
[Link] should answer the 4 questions based on the information provided including that found on the Sales Analysis
Chart below:

Item Subject Comparable 1 Comparable 2 Comparable 3

Address Distance To Subject
18 Wingmone St 28 Perry court 19 Regal Street 120 Stock Ave
Date Sold Sale Price 1block 12th May 2 blocks 4th May 3 blocks 9th May
Days on Market $3S2,000 $333,000 $322,000
Time Adjustment 49 days 26Days 32Days

15th May

Time Adjusted Price

Location Lot Size House Style
Park
Total Sq. Footage Family Room Bedrooms Inner Lot
Bathrooms Inner Lot Park
SO' SS'
Room Garage/Parking Interior Condition Exterior Condition CAC 50' ' 4S'
Bugalow
Bugalow
Skylights Fireplaces TotalAdjustments 40 Years
42years 1900 sq. ft Yes Bugak>w Bugalow 39 Years lSOOsq. ft No
1700
Totally Adj. Sale Price [Link] No 3 41 [Link] 3
3 2-4pcs,1-2pcs FulV20% 1700sq. ft No 2-4pcs, 1-2pcs Full/800
2-4pcs, 1-2pcs Full/20% No 3 Yes
.Singfe/Private
No None/Private Fair Average Average 2-4pcs, 1-2pcs Full/20% None/Private Fair
Av_erage Yes No Yes No No Double/Private Good Average Yes No
No No Average Yes No No
No

- - . -
l
- I I ' 11 I (, \ (l. J
r
lI r1 ' N
Your research of the local Real Estate Board's MLS Average Sale Prices for this year reveals the following information:
• The average sale price for the neighbourhood did not change from May 1st to May 15th
• The average sale price for the neighbourhood decreased by 1.62% from April1st to May 15th
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• The average sale price for the neighbourhood decreased by 2.42% from March 1st to May 15th

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 Market research has revealed the following dollar adjustments for differences between properties:
• A property with a park location is felt to be worth $15,000 more than a property with an inner lot location
• A property with a 55 foot frontage is worth $10,000 more than a property with a 50 foot frontage
• A property with a 50 foot frontage is worth $10,000 more than a property with a 45 foot frontage
• Each additional 100 square foot in living space is valued at $5,000. People do not pay more for extra living space
with fewer than 100 square foot differences.
• A home with a family room is worth $5,000 more than one without.
• A home in goodinterior condition is worth $20,000 more than a house in fairinterior condition.
• A home in fair interior conditionis worth$10,000 less than a house in average interior condition.
• A double garage is worth $9,000, while a single garage is worth $6,000 as compared to a property without a garage.
• An 80% finished basement with recreation room is worth $12.,000 more than a 20% finished basement without a
recreation room.
Information on the subject property and comparable are detailed on the Sales Analysis Chart [Link] valuation
date for the subject property is the 15th of May, this year.

Answer the following 4 questions based on the above [Link] answers may vary due to roundingin those 3cases;
select the answer closest to the answer you have calculated.

80. Calculate the totally adjusted sale price for comparab e #1.

a. $326,000 -----
b. $378,000
c. $360,000
d. $336,000

-4988

81.

82. Calculate the totally adjusted sale price for comparable #3.

a. $330,000 -------
b. $310,000
c. $314,000
d. $320,000

83. Suppose comparable #1 had sold on the 1st March instead of the 12th of May what would be the time adjusted price have
been for this property?
a. $343,270
b. $335,955
c. $343,550
d. $343,482------

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Case Study:(Questions 84,85, 86 & 87)

You have an appointment to list Mr. & Mrs. Menelli's property tonight and are tryingto determine a listing price based onthe
direct comparison approach. On a previous visit you compiled the following information.

The Menelli's property is a 3 bedroom bungalow with a single detached garage andis located backing onto other houses.
The site measures 50 foot by 140 foot and the house is 1,750 square feet. It has central air conditioner, 1four piece
bathroom and 1two piece bathrooms. There is a fireplace but no recreation room.

You have researched the followingcomparables:

Sale #1: 48 Houston Street sold 3 months ago for $ 364,500.

It has 2 four piece bathrooms and 1two piece washrooms, 47 foot by 140 foot lot and backs on a Ravine. It is 1,625 square
feet in building size and has a double garage as well as a finished recreation room,fireplace and central air conditioner. It is
similar to the sub;ect in all other respects.

Sale #2: 76 Olive Avenue sold 5 months ago for $353,000.

It has 51foot by 140 foot lot, it is 1900 square feet in bui ding size and has double garage. This property has no central
air conditioning,no recreation room and no fireplace. It is similar to the subject in all other respect.

Sale #3: 172 Neptune Street sold 1month ag_o for $340,000.
It has no fireplace and is 1700 [Link] in bui ding size. This property has double garage. It is similar to the subject in all other
respect.

Note the following:-

1. Selling prices have risen gradually and evenly by a total of 5% over the past 10 months.
2. A $1750 adjustment is needP.d for each front foot of lot.
3. A $55 I [Link] adjustment rs needed for differences in building sizes.
4. Backing to a ravine is superior to backing onto other houses and sells for $ 10 000 more.
5. Each 4 pc bathroom adds $ 7000 to value.
6. Central A/C adds $5 000 to value.
7. Fireplace adds $4 000 to value .
8. A double garage is worth $6 000 more than a single garage
9. A recreation room is worth $10 000.

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 Based on the information provided and usingthe direct comparison approach answer the following four questions:

84. What is the Totally Adjusted Sale price of Sale #1 Houston Street?
a. 338158
b. 349093-----
c. 390842
d. 379908

85. Whatis the Totally Adjusted Sale price of Sale #2,76 Olive Avenue

a. 337175
b. 346000
c. 354825-----
d. 368825

86. Whatis the Totally Adjusted Sale Price of sale #3,172 Neptune Street
a. 337550
b. 339050
c. 342450-----
d. 340750

87. If Sale #2, 76 Olive Avenue had been located on a ravine and the building size was 1875 square feet what would be the
total adjustment be for those two items?
a. -16875-----
b. +13125
c. -6875
d. +3125

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88. Appraiser Brown has been asked to estimate the current market value of a 50 unit apartment [Link] Brown obtains
the owners'12 month income and expense statement prepared for income tax purposes by their accountant. The owners' own
statement indicates that the gross revenue received for last year {a 12 month period) was $525,600.

After inspecting the subject property and analyzing relevant market data,Appraiser Brown concludes that comparable suites in
the area rent for $975 monthly. There are 20 additional parking spaces which should rent for $45 each per month and the
vacancy and bad debt rate applicable to all the potential incomeis 2.25%.

Based on the above information,calculate this property's estimated Effective GrossIncome.

a. $572,717
b. $513,774
c. $582,395 ------
d. $571,838

89. Appraiser Green has been asked to estimate the current market valJ:Je of a 65 unit apartment building. Appraiser Green obtains
the owners' 12 month income and expense statement prepared for income tax purposes by their accoun ant. The owners'income

-
nd expense statement shows the followil, g
information:

The owners' operating expenses for last year (a 12 month period):

Gross revenue for last year (12 months) $785,000

Water $19,950
Heating and Air Conditioning 43,890
Reserves (Buildingcomponents) 20,000
Fire Insurance (1year prem um) 6,930
Minor Repairs and Maintenance 36,220
Electricity for Common Areas 8,085
Landscaping/Snow Removal Contract 3,650
Realty Taxes 72,030
Mortgage Interest 42,546
Installation of New hardwood floors 35,000
Janitor's Salary 35,000
Painting of Hall and Common Areas 16,800
Painting and Decorating 15 Suites 15,000
Exterior Painting 32,000
Carpeting Halls and Public Areas 19,500
Depreciation 105,000
Elevator Contract 7,000
Miscellaneous Sundry Expenses 1,900
Total Operatingexpenses $530,501 $530,501
Net OperatingIncome $254,499

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• After inspecting the subject property and analyzing relevant market data, Appraiser Black concludes that:
• The estimated annual effective gross income for the property is $807,030.
• The owner manages the [Link], typical management fees are 2.25% of effective gross income
• Suits are painted once every four years
• Halls and common areas are painted every six years
• Exterior painting is done every seven years
• Janitor has a free suitein addition to her [Link] suites in the area rent for $1025 monthly

Based on the above information,which of the followingoptions correctly describes one of the actions that Appraiser Black
wouldtakein order to arrive at an appropriate estimated net operating income for the property?
a. The total operating expenses of $530,501 would be deducted from the effective gross income of the property (i.e.
$807,030) to arrive at the net operating income.
b. The cost of the realty taxes,landscaping/snow remova l,and the fire insurance would be excluded from the appraiser's
reconstructed expense statement.
c. The appraiser's reconstructed expense statement would show the total cost of the paintingfor the hall/common areas,
exterior and suites as being $49,800 .
d. A management fee of $18,158 and the cost of the janitor's free suite (i.e. $12,300) willbe included and shown in the
appraiser's reconstructed expense statement------
647-36 1-498 8

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90. Appraiser Green has been asked to estimate the current market value of a 32 unit apartment bui ding. Appraiser Green obtains
the owner's 12 month income and expense statement prepared for income tax purposes by their accountant. The owners' own
statement shows the following information:

The owners' operatingexpenses for last year (a 12 month period):

Gross revenue for last year (12 morrths) ... ···i········c-····=·..................$: 00 - 8
Water ........•................................................................$9,soo-'
Heating and air conditioning•...........•..........................20,900
Fireinsurance (1year premium).............•..........•.•........3,300
Minor repairs and maintenance ..•.•..............•....•.....•...17,325
Electricity for common areas........................................3,850
Landscaping/Snow removal contract..•........•................6,500 Realty
taxes................................................................34,300
Mortgage interest...........•...............•...................•.......20,260
Modernization of 10 bathrooms............................•....•25,000
Janitor's salary•••....•.•....•••.•...•...•.••.•.....•...•..••....•.......,.20 000
Painting of halls and common areas............................ .9,000
Painting and decorating 3 suites.......................-.•--.-3,000 Exterior
painting.•..•...................................••.L ........20,000
Carpeting Halls and public areas..........--·--···--·········10,500
Depreciation...................................... ·-·----···...........60,000
Owner's automobile leasing..•......·.- .....•.....................6,000
Miscellaneous sundry expenses..............................................................850
Total operatingexpenses.....--........ .........................270,285•...••...•.....•....$270,285

Net operating incom·-···--··- ······························································$80,115

After inspecting the subject property and analyzing relevant market data. Appraiser Green concludes that:
• The estimated annual effective gross income for the property is $362,700
• The owner manages the property. However, typical management fees are 3% of effective gross income.
• Suites are painted once every four years.
• Halls and common areas are painted every 6 years.
• Exterior painting is done every 7 years.
• Janitor has a free suit in attrition to his [Link] suites in the area rent for $950 monthly.

Based on the above information,which of the following options correctly describes one of the actions that Appraiser Green
would take in order to arrive at an appropriate estimated net operating
income for the property?

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 a. The total of all of the operating expenses estimated in the appraiser's reconstructed expense statement would be
deducted from the $350,400 which is the gross revenue for the last year of operations.
b. A management fee as well as the monthly rental on the free suite would be added to the owner's gross revenue i.e.
$10,512 and $950 would be added to the gross revenue of $350,400 to arrive at a new gross revenue of $361,862.
c. The cost of the mortgage interest, modernization of bathrooms,carpeting,depreciation and automobile leasing would be
excluded from the appraiser's reconstructed expense statement-----
d. The cost of the painting on the halls,suits, and exterior as well we the realty taxes and miscellaneous sundry
expenses would be excluded from the appraiser's reconstructed expense statement

91. Appraiser Grey has been asked to estimate the current market value of a 70 unit apartment building.
During Appraiser Grey's research of market data, he finds the following compa rable sales:

• Sale #1:Sold for $6,300,[Link] total operating expenses are estimated at $333,581and tfie effective gross income
is estimated at $884,831.
(/

• Sale #2: Sold for $6,075,000. The total operating expenses are estimated at $321,6$)7 and the effective gross
income is estimated at $853,230.

• Sale #3:Sold for $6,200,000. The total operating expenses are estimated at $328,287 and the effective gross income
is estimated at $870,787. /
r

Based on the above information, calcalte the Gross Income Multiplier (GIM) suggested by the comparables sales
found by Aporaiser GFeen.
a. 11.43
b. 18.89
c. 7.12------
d. 14.04

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92. Appraiser Black has been asked to estimate the current market val ue of a 42 unit apartment building. The effective Gross
Income of the property is $389,051and the Net Operating Income is $213,487. During Appraiser Black's research of market
data, he finds the following comparable sales:

• Sale #1:Sold for $1,954,[Link] total operating expenses are estimated at $167,597 and the effective gross income
is estimated at $374,330.

• Sale #2:Sold for $2,151,[Link] total operating expenses are estimated at $184,493 and the effective grossincome
is estimated at $412,069.

• Sale #3:Sold for $2,050,[Link] total operating expenses are estimated at $175,830 and the effective gross income
is estimated at $392,720.

Calculate the estimated value of the subject property using a Gross h1come Multiplier developed from the comparable sales
found by Appraiser Grey.

64 7-
a. $2,030,846 rounded to $2,031,000-------

b. $2,630,505 rounded to $2,631,000 61-4g88

c. $2,198,800 rounded to $2,199,000 Q

d. $1,786,427 to $1,786,000 J
rounded

93. Appraiser Emerald has been asked to estimate the current market val ue of a 32 unit apartment building. The effective
Gross Income of the property is $362,700 and the Net operating income is
$211,[Link] ring Appraiser White's research of market data, she finds the following comparable sales:

• Sale #1: Sold for $2,525,000. The total operating expenses are estimated at $137,426 and the effective gross
income is estimated at $334,881.

• Sale #2:Sold for $2,650,000. The total operating expenses are estimated at $144,229 and the effective gross income
is estimated at $351,459.

• Sale #3:Sold for $2,980,000. The total operating expenses are estimated at $162,189 and the effective gross income
is estimated at $395,225.

Calculate the estimated val ue of the subject property using direct Method of Ca pitalization Rate developed from
comparable sales found by appraise Emerald.
a. $2,477,864 rou nd ed to $2,478,000 b.
$2,804,981rou nded to $2,805,000 c.
$2,518,769 rou nded to $2,519,000
d. $2,705,077 rou nded to $2,705 ,000 ------

Page 62 of
63
FORMULAS:

Direct Comparison Approach:

Percentage Change = (New - Old) + Old x 100
Percentage Change per month = (New - Old) + Old x 100 + Number of Months Time Adjustment = Sold Price x
Increase % + increase period x months ago sold

Cost Approach :
ALWAYS IGNORE ACTUAL AGE
Depreciation = Replacement Cost(RCN} x Effective Age + Life Expectancy Life Expectancy = Effective
Age + Remaining Economic Life
Depreciation % = (RCN - Building Value) + RCN

8
Building Value = Sold Price -Va lue of and-/Site - Landscaping

(
Gross Income Multiplier (GIM):
Effective Gross Income (EGI} = Total Potential Income- Vacancy/Bad Debts% V-7Value = Sold Price
GIM = V + EGI
EGI = V + GIM V
= GIM x EGI

Direct Method of Capitalization Rate:

EGl-7Effective Gross Income = Total Potential Income -Vacancy/Bad Debts% NOi (I) -7Net Operating
Income_ = EGI- Operating Expenses
V-7Value/Sold Price
R- 7Rate of Market [Link]
I= V x R
V=I+R
R = I+ V x 100

Page 63 of
63
' .•

APPRAISAL ANSWERS

52. Look for comparable which is recently sold and has least # of [Link] total net adjustments.

53. Depreciation rate: New -Old -:- Old xlOO

New 409,000 -212,000(land) = 197,000 (new)
212,000 is value of land which never depreciates 197,000 -
275,000 -:- 275,000 xlOO = 28.36%

/ , I "".;('
54. Comparable property per square foot x Subject Sq. footage 8,655,000 -:-
66,069 x subject property 62,750 = 8,220,213

55. Comparable val ue per unit x subject units

9,452,000 -:- 90 x 80 = 8,401,778

56. Sold price - Building value - landscaping ± net adjustments -:- frontage foot Sale 1.
442,000 -185,500 - 22,600 + 2% (+4% - 2%) -:- 11.S = 20,746
Make plus adjustment for inferior and minus adjustment for superior.
57. Sal e 2.
379,000-142,400 -12,800 + 2% (-3% + 5%) -:- 11.3 = 20,201
58. Sa le 3.
479,000 - 215,800 - 29,400 + 5% (+3% + 2%) -:- 11.7 = 20,982

59. First find out potential rent

32 units' x 950 per month x 12 = 364,800
15 parking x 40 per month x 12 =__.7._..,.2.,..........

Total 372,000
Less vacancy 2.50% - 9,300
= effective gross income 362,700
60. Depreciation = effective age x RCN
Total Age (Effective + remai ning).Ignore actual age.

RCN Depreciation

• Driveway/ Walkway/ Patio = 13 x 8,000 = 3,467

30
• Fence/ Desk = 15 x 9,000 = 5,400
25
• SOD and Tree = ---- -= 3,500

• SOD and tree do not depreciate.

Tota l------------------------------------- 20,500 - 8,867 = 1 1 ,633

61. 3S(effective age) x 334,600 = 212,927 (depreciation)

55(total age 35+20}
Current value after depreciation 334,600 -
212,927 = 121,673

[Link] + Land + improvements -depreciation (320,000 + 105,000

+ 45,000) -(59,000 + 12,000}
470,000 -71,000 = 399,000

[Link]
New (470,000- 282,000 land) -old -:- old x 100
188,000 -260,000 .;- 260,000 x 100 = 27.69%
Current val ue of subject
235,000 - 27.69% (depreciation rate}
= 169,928

64. 320,000 x 1.04 + 5000 x 0.97 x 1.02

= 334,219

65. 240,000 x 1.03 - 8,000 x 1.02 x 1.04 = 253,743

 66. Sale 1
299,000 + 1% (-3% + 4%) + 10.2 = 29,607
67. Sale 2
278,000 + 2% (+4% - 2%) -:- 9.8 = 28,935
68. Sale 3
307,000 + 1% (-4% + 5%) + 10.3 = 30,104

69. See BOLDED below for the adjustments made as per information provided in the question:

The owners' operatingexpenses for last year (a 12 month period):

Gross revenue for last year (12 months) $852,800 (872,332)

Management Fee {872,332 x 3.25%) = 28,351
Water 23,750
Heating and Air Conditioning Fire 47,300
Insurance (1year premium) Minor 8,500
Repairs and Maintenance Electricity 42,180
for Common Areas
7,125
Landscaping/Snow Removal Contract
Realty Taxes 9,000
Mortgage Interest Purchase of 30 85,900
stoves Janitor's Salary 55,700
Painting of Hall and Common Areas 20,000
Painting and Decoratin.g 15 Suites Exterior 32,000 + (1,050 x 12) = $12,600
Painting 19,000 -:- 7yrs = $2,714 per yea r
Carpeti g Halls and Public Areas 15,000 + 15 x 70..;. Syrs = 14,000/yr
Depreciation 42,000 -:- 6yrs = $7,000 per year
Elevator Contract 22,500
Miscellaneous Sundry Expenses 150,000
8,000
1,850

Total Operating expenses $589,805 $589,805

Net Operating Income $262,995

70. Gross income m ulti plier {GIM) = value ..;. effective gross income Sale 1
1,954,000 -:- 374,330= 5.22
2,151,000 + 412,069 = 5.22

2,050,000 -:- 392,720 = 5.22

Average = 5.22
 71. Calculate (GIM) first.
Value -:- EGI (effective gross income) = GIM Sale
1. 4,950,000 -:- 546,358 = 9.06
Sale 2. 5,120,000 -:- 565,121 = 9.06
Sale 3. 5,170,000 + 570,640 =_9.06
Value = EGI x GIM
= 582,394 x 9.06 = 5,276,490

72.. Find out cap rate first

Net operating income (NOi) + value x 100 Sale 1.
EGI - operating expenses = NOi + val ue x 100
762,615 -271,845 = 490,770 -:- 6,650,000 x 100 = 7.38%
Sale 2.
737,385- 262,851= 474,534 ..;. 6,430,000 x 100 = 7.38%
Sale 3.
772,936 - 275,524 = 497,412 + 6,740,000 x 100 = 7.38% Average cap rate
------------------------------7.38%
Val ue = NOi divided by cap rate
515,296 divided by 7.38% = 6,982,331

73. New - old -:- old x 100 = Rate

New Sept 9th 263,511

Old June 4th 252,768
263,511- 252,768 + 252,768 x 100 = 4.25%
Value of subject 240,000 + 4.25% = 250,200

74. Find out increase or decrease per month. New - old -:-
old x 100 -:- # of months

Site A. 264,900 -236,000 -:- 236,000 x 100 + 7 1.75% per

Site B. 263,200 =
months -242,000 -:- 242,000 x 100 + 5 months month
75% per month
=
Average increase per month 1.75% x 6 months =10.50%
Time adjusted selling price per front foot for 17 Carew Avenue 8,285 +10.50% = 9,155
 75. Find out depreciation first.
SOD and trees do not depreciate.
Effective age -:- total age x RCN
RCN Depreciation
Driveway/ walkway/ patio
8 x 10,000 = 2,857

28 (20+8)
Fence/ deck _ .;:6;.. x 12,000 = 2,880
25
Sod & tree 4,000
Current value 26,000 5,737= 20,263

76. Building value 282,500

Depreciation 10 x 282,500= 43,462
. ....
65 (55+10)
Current value 282,500 - 43,462 = 239,038

Q. 77, 78 ,79

74 Broad Street
77 78 79
Subject Property Comp 1 Comp 2 Comp 3
Sold Date 4 months ago 2months ago 3months ago
Sold price 455,000 473,000 482,000
Site Value 175,000 185,000 182,000
Landscaping 24,000 19,000 27,000
Building Value 256,000 269,000 23,000
Time adjustment 1.25 x4 = + 5.00% 2x 1.25 = + 2.5% 3 Xl.25 =+ 3.75%
New Value 268,800 275,725 283,238
Building 220 sq. m 215 sq. m 225 sq. m
Size ([Link].
m.)
Fire place-no yes Yes ----·-·-
-4,500 -4,500
Sky Lights -yes no -·-·- no
+5,500 +5,500
Central AC-yes no ----- ----
+4,000
Value Per Sq. M 273,800/220 271,225/215 288,738/225
Ans =1,245 Ans = 1,262 Ans =1,283

77. See above.

78. See above.
79. See above.
Q. 80, 81, 82, 83

Item Subject Comparable 1 Comparable 2 Comparable 3

Address 18Wingmone 28 Perry court 19 Regal Street 120 Stock Ave
Distance To Subject St 1block 2 blocks 3 blocks
Date Sold 12th May 4th May 9th May
Sale Price $352,000 $333,000 $322,000
Days on Market 49 days 26 Days 32 Days
Time Adjustment 15th May

Time Adjusted Price

Location Park Inner Lot +15,000 Inner Lot +15.000 Park

Lot Size SO' 55' -10,000 50' 45' +10,000
House Style Bugalow Bugalow Bugalow Bugalow
Age of house 40Years 42years 41Years 39Years
Total Sq. Footage [Link] [Link] -10,000 1700sq. ft lSOO sq. ft +10,000
Family Room No Yes -5,000 No No
Bedrooms 3 3 3 3
Bathrooms 2-4pcs,1-2pcs 2-4pcs, 1-2pcs 2-4pcs, 1-2pcs 2-4pcs, 1-2pcs
Basement/% Finished Full/20% Full/20% Full/20% Full/80% -12,000
Rec Room No No No Yes
Garage/Parking None/Private Single/Private -6,000 Double/Private -9,000 None/Private
Interior Condition Fair Average -10,000 Good -20,000 Fair
Exterior Condition Average Average Average Average
CAC Yes Yes Yes Yes
Skylights No No No No
Fireplaces No No No ,.. No
Total Adjustments -26,000 -14,000 +8,000
Totally Adj. Sale Price 326,000 319,000 330,000

Q.80 Q.81 Q.82

Q. 83 352,000 -
2.42%=343,482

80. See above.

[Link] above.
82. See above.
83. See above.
Q. 84, 85, 86, 87

iam Subj I""'"::'l!=<:[Link] 1 I\:=i:i= : :2 I [Link].p.:i!:b 3

Adc!re::
Mane.l li 4 v.b S-hdj -=tbO l '1ve Ave 1"1-2. Nep+u

Di1lonc2 To
Subject
Dc!c Sold 3 Mo-i'l.t:h s- MO''\H11 I I Mo-;,E h
S<1!c Price ..:-).,G-A1r ,;..x..) I·_3s·s,oco .
-:> .... 3-40000

Dey: On h.'orlcet
Time Adju1fmonl S:-4(f.@ g82.S- l":/10()
1imeAdjustod Price 369'1b.'3 3G ! 82.!;" 3-"1 I::roo

lacoJicn v h'\e ... 101000

le!Size 5'0" 49-1 .. 52.50 5."I -1-:,Z.50
1-.'ousc Style
Age of Hou.o I
To!c!Sq. fologc J '7-50 / { f,2..S- ..{[Link]: - 1qoo j-&zsci l "':f-00 -i--2.=ilSQ
.
Family Room J I
Sdraom; <3 I
Soihrooms l x"l!. I 60- ,, .J 11>.t\ .:!-it: .. . I
X'.:?... x {:zooo
Sosom<>nt/% Fini<hed
Rec Reem No ...1. €5 OOcO ND
Gcrogo/l'orking le.. Dov.b e. . t,;ooo [Link] -6.0PC : D" 'bte -GOOD

S1C3\
..
.. .. ....
lnlcrior °"'
Condition •••

EXlorlor
[Link].i
C A C. '::J es- '-;jeS l No · + ?OOC
1-re. Plc;.c<J,... l f e!i "je> I I No +:"i OOO No +400L
I :
To!ol Ad(uslmnl• : -:-20 87!:" -7-ooo. · . +7-50

To:al!y Adj. Salo

Price . 3L1C10Cf 3 [Link] g 25': .·3.2_ .>0

C:[Link].:s, ltec:inciliation .And i::s,;rnctc Of [Link] Sy [Link] Ccmpcrris m Appl"Oc:ich

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::.
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: ::::: :::::::::
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:: :::::::::::::::::::::::::e: =:::r:G.:B.:f.:r.::::
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. ao,cd'on th obo•k infcrmatlon or>d oncly:i,, ovale oy !l.o Dircd Ccmpatbon Api>1ooc: is e:imarcd a be:
($............... ............. ...... ..... ..............)

::>c:gc 5 ci o
 84. See as solved
85. See as solved
86. See as solved
87. See as solved

88. Find out gross potential income.

so x 975 x 12 =
20 x 45 x 12 = 585,000
10,800
Less vacancy
595,800
Gross effectiveincome
- 2.25%
582,395

89. See SOLOED below for the adjustments made as per information provided in the question:

The owners' operating expenses for last year (a 12 month period):

Gross revenue for last year (12 months) $785,000 (807,030)

Management Fee (807,030 x 2.25%) = 18,158

Water $19,950
Heating and Air Conditioning 43,890
Reserves (Building components) 20,000
Fire Insurance (1year premium) 6,930
Minor Repairs and Maintenance 36,220
Electricity for Common Areas 8,085
Landscaping/Snow Removal Contract 3,650
Realty Taxes 72,030
Mortgage Interest 42,546
Installation of New hardwood floors 35,000
35,000 + {1,025 x 12) = 12,300
Janitor's Salary 16,800 + Gyrs = 2,800 per year
Painting of Hall and Common Areas 15,000 + 15 x 65 + 4yrs = 16,250/yr
Painting and Decorating 15 Suites
Exterior Painting 32,000 + 7yrs = 4,571 pe,r
Carpeting Halls and Public Areas year
19,500
Depreciation 105,000
Elevator Contract 7,000
Miscellaneous Sundry Expenses 1,900
Total Operating expenses $530,501 $530,501
Net Operating Income $254,499
90. See SOLOED below for the adjustments made as per information provided in the question: The owners'
operating expenses for last year (a 12 month period):
Gross revenue for last year (12 months).....................................................$350,400 (362,700}
Management Fee (362,700 x 3%) = 10,881
Water .........................................................................$9,500
Heating and air conditioning.......................................20,900
Fire insurance (1 year premium)...................................3,300
Minor repairs and maintenance..................................17,325
Electricity for common areas........................................3,850
Landscaping/Snow removal contract............................6,500
Realty taxes ................................................................34,300
Mortgage interest.......................................................20,260
Modernization of 10 bathrooms ..................................25,000
Janitor's salary............................................................20,000 + (950 x 12} = 11,400
Painting of halls and common areas..............................9,000 + Gyrs = 1,500 per year
Painting and decorating 3 suites...................................3,000 + 3 x 32 + 4yrs = 8,000/yr
Exterior painting.........................................................20,000 + 7 years = 2,587
Carpeting Halls and public areas.................................10,500
Depreciation...............................................................60,000
Owner's automobile leasing.........................................6,000
Miscellaneous sundry expenses.........................................................850
Total operating expenses..........................................270,285....................$270,285
Net operating income................................................................................$80,115

91. GIM= Value -:- EGI

Sale 1. 6,300,000 + 884,831= 7.12

Sale 2. 6,075,000 + 853,230 = 7.12
Sale 3. 6,200,000 + 870,787 = 7. 1 2
Average
7.12
92. Find out GIM of all compa rables
Value..;. EGI
Sale 1. 1,954,000 -:- 374,330 = 5.22
Sale 2. 2,151,000 ..;. 412,069 = 5.22
Sale 3. 2,050,000 -:- 392,720 = 5. 22
Average 5.22
Val ue = EGI of subject x 5.22
= 389)051x 5.22 = 2,030,846

93. Calculate cap rate

EGI -expenses = NOi Cap rate = NOi x 100
Value

Sale 1. 334,881-137,426 = 1 97,455 x 100 = 7.82%

2,525,000
Sale 2. 351,459 -144,229 = 207!231 x 100 = 7.82%
2,650,000
Sale 3. 395,225 -162,189 = 233! 036 x 100 = 7.82%
2,980,000
Average cap rate 7.82%
Val ue = NOi of subject
Cap rate
= 211,537
7.82%
= 2,705,076