Chapter 11

The net income that remains after the costs of production have been paid is

• competitive productivity.

• externalities.

• surplus productivity.

• internal conformity.

Answer explanation

Surplus productivity refers to the net income remaining after production costs are covered. It indicates the profit generated, distinguishing it from other terms like competitive productivity or externalities.

What term best describes the point where price, cost, and market value are all equal?

• market equilibrium point

• balance point

Answer explanation

The term 'market equilibrium point' refers to the situation where the price, cost, and market value are equal, indicating a balance in supply and demand. This is the correct choice over 'balance point', which is less specific.

The interaction of buyers and sellers is an indirect measure of supply and demand.

• True

• False

Answer explanation

True. The interaction of buyers and sellers reflects their willingness to buy and sell, which indicates the levels of supply and demand in the market.

All of the following are tests of highest and best use EXCEPT:

• A. legal permissibility.

• B. physical possibility.

• C. economic viability.

Answer explanation

Legal permissibility is not a test of highest and best use; it refers to zoning laws and regulations. The correct tests are physical possibility, economic viability, and legal permissibility is a separate consideration.

Which of the following is true regarding excess land?

• It must be larger than 1 acre.

• It must have an independent highest and best use.

• It must result in measurable profit when developed.

• It must be platted as a stand-alone lot.

Answer explanation

Excess land is defined as land that has an independent highest and best use, meaning it can be developed or utilized separately from the primary property. The other options do not accurately describe excess land.

David is appraising a residential property with a house and several outbuildings located in an area where the zoning has changed to commercial business use. How should the appraiser treat the site and existing residential improvements in the valuation if the highest and best use of the property is commercial?

Answer explanation

The appraiser should value the property based on its highest and best use as commercial, disregarding the residential improvements, as they may not contribute to the value in a commercial context.

A small average residence is in an area of luxury homes. The effect of the surrounding homes on the small residence is called

• regression.

• excess profits.

• progression.

• conformity.

Answer explanation

The effect of surrounding luxury homes on a small residence is known as conformity, where the value of the smaller home is influenced by the higher values of nearby properties. Regression and progression are not applicable here.

The appraiser must value the site and structures as residential because that is the current use.

• The appraiser must value the site and structures as residential because that is the current use.

• The appraiser should treat the site as commercial and account for the cost to remove the residential improvements in the valuation.

• The appraiser should value the land as commercial and value the structures as residential.

Answer explanation

The appraiser must value the site and structures as residential because that is the current use, reflecting the property's actual function and market conditions.

Highest and best use can be concluded as a fact.

• True

• False

Answer explanation

Highest and best use is determined through analysis and can be established as a fact based on market conditions and property potential. Therefore, the statement is True.

Which theory states that land cannot be valued based on one use while the improvements are valued on the basis of another use?

• uniform use

• use value

• interim use

• consistent use

Answer explanation

The uniform use theory asserts that land should be valued consistently based on its intended use, while improvements are also valued according to that same use. This prevents discrepancies in valuation.