A city raises property tax rates and tightens building regulations. Which market force does Fannie Mae classify these as?
Correct Answer
D) Governmental force
Fannie Mae gives regulations, laws and taxes imposed on properties as examples of governmental forces the appraiser must consider.
Why This Is the Correct Answer
Option D is correct because Fannie Mae lists the regulations, laws and taxes imposed on properties as examples of governmental forces the appraiser should consider. Raising property tax rates and tightening building regulations are both actions of government. Their effects on value flow from public policy.
Why the Other Options Are Wrong
Option A: Economic force
Option A, economic force, is wrong because economic forces involve things like employment, income and financing conditions. Tax rates and building rules are imposed by government, so Fannie Mae classifies them as governmental.
Option B: Environmental force
Option B, environmental force, is wrong because environmental forces involve physical and locational features such as climate, topography and natural hazards, not tax rates or building codes.
Option C: Social force
Option C, social force, is wrong because social forces involve population characteristics such as household size, age mix and lifestyle preferences. Taxes and building regulations are governmental actions.
Government makes the rules
If a public body imposes it, such as taxes, laws or regulations, it is a governmental force.
How to use: Use this test to classify any tax or regulatory change among the four forces.
Exam Tip
Taxes, zoning, building codes and other regulations belong in the governmental category of forces affecting value.
Common Mistakes to Avoid
- -Classifying property taxes as an economic force
- -Treating building regulations as environmental factors
- -Ignoring governmental forces in neighborhood analysis
Concept Deep Dive
Analysis
This question tests classification of the four forces that influence value: social, economic, governmental and environmental. Property tax rates and building regulations are imposed by government. Fannie Mae gives regulations, laws and taxes as examples of governmental forces.
Background Knowledge
Appraisers analyze four broad forces affecting value: social, economic, governmental and environmental. Governmental forces include taxation, zoning, building codes, regulations and public services. Changes in these can raise ownership costs or limit what can be built, which can affect demand and value.
Real-World Application
A city adopts a higher property tax rate and stricter building permit rules. In the neighborhood section, an appraiser notes these as governmental forces that raise ownership costs and may slow new construction, and then looks for market evidence of their effect.
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