DAY 5 FUNDAMENTALS of REAL ESTATE APPRAISAL

1. Major causes of depreciation are the following except

A. Deferred maintenance
B. Physical deterioration
C. Functional obsolescence
D. External obsolescence

2. Refers to the wear and tear from regular use and the impact of the elements
A. Physical deterioration
B. Functional obsolescence
C. External obsolescence
D. Adverse market condition

3. Method of estimating reproduction or replacement costs by applying the average or typical

comparative cost (per square-meter cost) of similar improvements.
A. Quantity survey method
B. Unit-in-place method
C. Comparative method
D. Index or trending method

4. This cost estimate envisions constructing a structure of comparable utility, employing the
design and materials that are currently used in the market.
A. Reproduction cost
B. Replacement cost
C. Quantity survey method
D. Unit-in-place method

5. The period of time over which improvements contribute to property value.

A. Useful life
B. Economic life
C. Remaining life
D. Lifespan

6. Lose in value caused by a flaw in the structure, materials, or design that diminishes the
function, utility, and value of the improvement
A. Functional obsolescence
B. Economic obsolescence
C. Physical deterioration
D. Deferred maintenance

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7. The period of time over which the components of the improvement may reasonably be
expected to perform the functions for which they were designed.
A. Economic life
B. Useful life
C. Remaining life
D. Used life

8. The age indicated by the condition and utility of a structure

A. Used life
B. Chronological life
C. Effective age
D. Actual age

9. A method of estimating depreciation that involves the development of a depreciation

estimate by studying sales of comparable properties that have depreciated to a similar degree
as the improvement.
A. Cost to cure method
B. Component method
C. Market extraction method
D. Observed condition method

10. A method of estimating depreciation whereby the appraiser estimates the total economic
life expectancy of the existing structure as well as its effective age, based on an analysis of sales
of similar structures
A. Age-life method
B. Component method
C. Market extraction method
D. Observed condition method

11. The estimated period from the actual age of a component to the end of its total useful life
expectancy.
A. Remaining economic life
B. Remaining useful life
C. Actual age
D. Effective age

12. An impairment of the utility or salability of an improvement or property due to negative

influences outside the property.
A. Functional obsolescence
B. Physical deterioration
C. Adverse market condition

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D. Economic obsolescence

13. Sometimes called historical age or chronological age, is the number of years that have
elapsed since building construction was completed.
A. Effective age
B. Actual age
C. Remaining useful life
D. Remaining economic life

14. A method of estimating the reproduction cost or replacement cost that involves a complete
cost itemization of all direct and indirect cost to be incurred or incurred in the construction of
an improvement.
A. Index method
B. Cost-in-place method
C. Quantity survey method
D. Comparative method

15. Primarily used to allocate a known amount of total depreciation, estimated by either the
market extraction method or the age-life method, into its components
A. Component method
B. Market extraction method
C. Age-life method
D. Breakdown method

16. The process of retiring a mortgage or debt over a specified time period.
A. Debt service
B. Installment
C. Amortization
D. Equity

17. Represents the money earned for the right to use capital.
A. Equity
B. Amortization
C. Interest
D. Principal amount

18. Also known as debt service.

A. Amortization
B. Equity
C. Installment
D. Payment

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19. Credit regulation devices that the Bangko Sentral ng Pilipinas can use to regulate the supply
of money.
A. Lending rates and amortization rates
B. Capitalization rates and mode of payments
C. Discount rates and reserve requirements
D. Production of new bills and disposal of old bills

20. The government’s management of revenues (taxes) and expenses (appropriations) is called
A. Monetary policy
B. Fiscal policy
C. Repayment policy
D. Credit policy

21. The Philippines’ fiscal policy is managed by the

A. Bangko Sentral ng Pilipinas
B. Department of Finance
C. Department of Budget and Management
D. Department of Justice

22. The estimated amount for which a property, or space within a property, should lease on the
date of valuation between a willing lessor and a willing lessee on appropriate lease terms in an
arm’s length transaction, after proper marketing wherein the parties had each acted
knowledgeably, prudently, and without compulsion
A. Contract rent
B. Market rent
C. Rental rate
D. Leased fee

23. Financial vehicles with traditional maturities or investment periods of less than one year. A.
Capital markets
B. Cash deposits
C. Time deposits
D. Money markets

24. In the income approach to value, reconstructed operating statements specify that the
income projection is subject to the assumption that the property is run by a / an
A. Expert competent management.
B. Average competent management.
C. Inefficient operator.
D. Substandard management.

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25. Financial vehicles with usual maturities of more than one year.
A. Capital markets
B. Cash deposits
C. Time deposits
D. Money markets

26. In this technique the land value is estimated as the present value of the residual income
attributable to the land of an income producing property.
A. Building residual technique
B. Development technique
C. Land residual technique
D. Discounted cash flow analysis

27. A loan for personal property and secured by personal property.

A. Real estate mortgage
B. Chattel mortgage
C. Liens
D. Blanket mortgages

28. ________________________________________ specify that the income projection is

subject to the assumption that the property is run by a reasonably efficient operator or average
competent management.
A. Operating statements supplied by client
B. Operating statements supplied by agent of client
C. Operating statements reconstructed by the appraiser
D. Operating statements reconstructed by the internal auditor

29. The process of converting an income stream into value.

A. Capitalization
B. Investment analysis
C. Market analysis
D. Depreciation

30. The resulting amount of reducing the annual potential gross income by a vacancy allowance
amount.
A. Gross profit
B. Net operating income
C. Effective net income
D. Effective gross income

31. Operating expenses are deducted from the effective gross income to determine the

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A. Annual net operating income for the property.
B. Annual net profit for the property.
C. Annual gross profit for the property.
D. Annual depreciation of the property.

32. Process of converting income into value by dividing a single year’s stabilized net operating
income, by an all-risks rate.
A. Yield capitalization
B. Discounted cash flow analysis
C. Direct capitalization
D. Valuation approach

33. In the application of the discounted cash flow analysis to operating real properties, the
value of the property is estimated as the net present value of ___________________________
A. The series of periodic net operating incomes.
B. The reversion value, anticipated at the end of the projection period.
C. The series of periodic net operating incomes, along with an estimate of the reversion value,
anticipated at the end of the projection period.
D. The value of the business at the end of the projection period.

34. Profit-making entities operating to provide consumers with products or services.

A. Financial interests
B. Real property
C. Public sector asset
D. Businesses

35. A credit regulation device of the BSP that refers to the percentage of deposits that must be
retained by banks.
A. Discounted rates
B. Fiscal policy
C. Credit regulation
D. Reserve requirement

36. In the application of the discounted cash flow analysis to development properties, the value
of the properties is estimated as the present value of the
A. The series of net cash flows that are discounted over the projected development and
marketing periods.
B. The series of periodic net operating incomes, along with an estimate of the reversion value,
anticipated at the end of the projection period.
C. The series of dividends and the value of the business at the end of the projection period.
D. The series of periodic net operating incomes.

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37. This capitalization process considers the time value of money, and is applied to a series of
net operating incomes for a period of years.
A. Direct capitalization
B. Yield capitalization
C. Discounted rate
D. Internal rate of return

38. The estimated period over which existing improvements are expected to continue to
contribute to property value
A. Remaining useful life
B. Effective age
C. Actual age
D. Remaining economic life

39. A method that is used to build a capitalization rate using just two components; financing
and equity.
A. Build-up method
B. All risks method
C. Band of investment method
D. Gross income multiplier method

40. Defines the percentage number used to determine the current value of a property based on
estimated future operating income.
A. Absorption rate
B. Selling rate
C. Buying rate
D. Capitalization rate

41. Acquisition of private land by the government for public use could be undertaken thru the
following procedures, except
A. Negotiated sale or purchase
B. Expropriation
C. Exchange or barter
D. Foreclosure

42. A _________________ leasehold interest is created when the market rent is greater than
the contract rent.
A. Negative
B. Equal
C. Zero

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D. Positive

43. The rate that equates the present value of the net cash flows of a project with the present
value of the capital investment.
A. Discounting rate
B. Overall rate
C. Internal rate of return
D. Recapture rate

44. A loan or promissory note that is secured by the real estate.

A. Lease
B. Mortgage
C. Lien
D. Chattel

45. A trespass on another’s land is a form of a/an

A. Easement
B. Encroachment
C. Mortgage
D. Restriction

46. A government restriction imposed on ownership of real estate that actually means going to
the state.
A. Eminent domain
B. Police power
C. Escheat
D. Taxation

47. The most common form of ownership where one person or corporation owns the entire
bundle of rights, still subject to governmental and private restrictions.
A. Severalty
B. Condominium
C. Leased fee
D. Real property

48. This term means that the property itself cannot be divided, only the ownership interest.
A. Lease interest
B. Real property
C. Undivided interest
D. Financial interest

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49. A form of ownership in which a corporation own the land and improvements, and the
residents own stock in the corporation. Then, the corporation signs exclusive lease with the
tenant.
A. Cooperative
B. Condominium
C. Time-share
D. Severalty

50. A form of ownership in which other tenants in common purchase the right of use/
occupancy for a specified period of time, say one week per year.
A. Cooperative
B. Condominium
C. Time-share
D. Severalty

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 Day 5 Multiple Choice Answers
1. A 26. C
2. A 27. B
3. C 28. C
4. B 29. A
5. B 30. D
6. A 31. A
7. B 32. C
8. C 33. C
9. C 34. D
10. A 35. D
11. B 36. A
12. D 37. B
13. B 38. A
14. C 39. C
15. D 40. D
16. C 41. D
17. C 42. D
18. D 43. A
19. C 44. B
20. B 45. B
21. B 46. C
22. B 47. A
23. D 48. C
24. B 49. A
25. A 50. C

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