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Preparing for the PPS Case Study Exam

Wednesday, February 20, 2013 Presented by Kirk F. Boone, PPS

From this Webinar you will learn

The requirements of the PPS Designation Exact steps to take before taking the exam The PPS Case Study Exam format What to expect on the day of the exam Example questions and calculations Sources of study material

The PPS Designation

IAAO’s professional designation program (PDP) confers five internationally recognized professional designations:

Assessment administration specialist (AAS) Certified assessment evaluator (CAE) Cadastral mapping specialist (CMS) Personal property specialist (PPS) Residential evaluation specialist (RES)

The PPS Designation

The purpose of the PPS (Personal Property Specialist) designation is to recognize professionalism and competency in the valuation of personal property for tax purposes.

Designation Requirements

To qualify for the PPS designation, the following general requirements must be fulfilled on the date of sitting for the master examination.

Requirements from IAAO February 11, 2013.


A. The candidate must be an IAAO member and a candidate in good standing in the PPS program.

B. The candidate must have at least three (3) years of experience in appraising any class of personal property or in administering a personal property valuation system.

Designation Requirements C. The candidate must have credit for specific

educational courses. 1. IAAO Course 101: Fundamentals of Real

Property Appraisal 2. IAAO Course 102: Income Approach to

Valuation (if you take the case study exam) 3. IAAO Course 500: Assessment of Personal

Property


4. Either IAAO course 151 or a Foundation approved two-day USPAP course if an IAAO designation candidate prior to January 1, 2003 or if an IAAO designation candidate after December 31, 2002 then either IAAO 151 or a Foundation approved two-day USPAP course and either IAAO 171 Standards of Professional Practice and Ethics or IAAO online Standard of Practice and Professional Ethics Supplement. Examination cannot be challenged.


In addition, the candidate must have attended course(s) and/or workshop(s) of at least forty (40) credit hours on appraising personal property.

– I highly recommend Workshop 551 – Valuation of Machinery and Equipment for preparing for the case study. -Kirk


D. The candidate must have satisfactorily completed either:

1. a personal property demonstration narrative appraisal report, using the recognized approaches to value, on a retail, service, or manufacturing property, or

2. an eight-(8-) hour comprehensive case study examination. If the candidate does not successfully complete the case study requirement after two (2) attempts, a different project must be selected to fulfill this requirement.


E. The candidate must pass a four-(4) hour PPS Master Examination. This examination can be given only after all other requirements have been met.

F. Upon successfully completing the PPS Master Examination, the candidate must submit an affidavit attesting to experience before the designation can be conferred.


G. The candidate must be a high school graduate or the equivalent.

Candidates should maintain an approved (by IAAO) checklist of requirements as they are achieved.

So you want to consider the case study option…..

The Case Study Option

Added August 2, 2002. Since this option has been offered, most

PPS candidates have chosen the case study option.

Five steps to take before the day of the exam

Five steps

One. Make sure your membership is current. Two. Gather documents for checklist (required).

– Certificates, – Transcript, – Diploma, – Grades, etc…

Three: Become a Candidate

The Case Study Option

Since this is an option to the demonstration narrative appraisal, the case study will attempt to measure many of the competencies required by the demonstration narrative appraisal.

YOU MUST BE FAMILIAR WITH THE THREE APPROACHES, USPAP, AND HOW TO WRITE AN APPRAISAL REPORT.

The primary focus is on the three approaches.

Four: Find an exam proctor and set a date

Five: STUDY!!!

What to expect on the day of the exam

A quiet, comfortable room. The proctor All materials you need

The PPS Case Study Exam Format

Two parts, 75 multiple choice questions each, 8-hour limit.

Part 1 focuses on general personal property appraisal and property tax knowledge.

Part 2 focuses more on a subject property and requires many of the skills needed to complete a demonstration narrative appraisal report, including the three approaches to value, USPAP, and details on how to write a report. It includes a data booklet and a test booklet.

Overview

Comments from a PPS reviewer who took the exam:

“Part 1 is very good at testing a candidate’s overall knowledge and appraisal skills. I feel if a candidate studies the materials from the required courses, they should have a good chance at passing this part of the exam. I did struggle with some of the questions.”

PPS’ comments

“Part II was very challenging and certainly will test the candidate thoroughly. The data booklet was well organized and had all the data I needed to calculate the problems. I liked the mixture of questions that test knowledge and skills.”

PPS’ comments “it is a very challenging test and I think it will

require most of 8 hours to complete. I had to refresh my memory on the sales comparison approach…There are a lot of questions on sales. My only concern is that it is not taught heavily in Course 500. Even though it is taught in 101, a candidate might think since this is a personal property case study, that there would not be a great deal of questions on the sales approach and therefore, not be as prepared as they need to be.”

Note: The new Course 500 does teach all three approaches.

The most recent PPS Designee comments

“Know how to develop an appraisal of personal property, using all three approaches to value, when a range of data is provided. Be aware that not all information provided in the case study may be utilized in determining fair market value.”

How to Study for the Exam

This review is a guide - it does not attempt to reveal everything about the exam, but is a study tool that will:

1. Provide an accurate big picture of the exam. 2. Refer you to texts for review, and 3. Provide some examples of study questions. 4. References to PAV are third edition

Detailed Review – Part 1

Highest and best use – Review PAV Ch.3 What are the three approaches to value –

this and other general knowledge questions. Be familiar with USPAP standards relating

to personal property appraisal. Know how to calculate depreciation in the

cost approach, like in Course 101, Chapter 10 PAV, Workshop 551, and Course 500.

Example Question Curable Functional Obsolescence PAV pp285-288: An item has a deficiency, it needs to be upgraded or

modernized. What is the amount of curable functional obsolescence?

Cost new of existing item: $2,000 Physical deterioration already charged: $500 Salvage Value of old components: $100 Cost to remove old & install new components: $400 Answer: $2,000 - $500 - $100 + $400 = $1,800

Detailed Review – Part 1 (cont.)

Tax Rates Measures of Appraisal Level – PAV Ch. 15. USPAP ethics rule The Discovery Process – Course 500, PAV

Ch 16. Thoroughly review: “Assessment of

Personal Property” – All of PAV Ch.16.

Example Question

What is the most complex method the assessor can use in the discovery of personal property?

A. Detailed Book Audit B. Annual Canvass C. Self-Declaration D. Physical Inspection


All sections of Course 500 Case problems from Course 500 Income approach - capitalization rates –

what are the components? “Guide to Personal Property Demonstration

Appraisal Report Writing” – IAAO guide The reconciliation process – PAV p 71,

course 500, Guide to Pers. Prop writing.

Example Question

What is the expression of a tax rate that is equal to one one-thousandth of a dollar?

A. A grinder B. A mill C. A cent per hundred D. A still

Basic principles of value – PAV Ch. 2 Direct capitalization. Value-in-use Vs. Value-in-exchange. Turn-over Ratios Inventory valuation methods. Trade Levels – what are they? (not adjustments) Distinguish between different types of

depreciation. PAV Ch. 10


Example Question

A condition that decreases the utility of the property and is not economically feasible to cure as of the date of appraisal is:

A. Functional Obsolescence B. Incurable Functional Obsolescence C. Infunctional obsolescence D. Incurable

Accounting depreciation – straight line Incurable means “not curable”. There are some very easy questions, some

not so easy…… Gross Income Multipliers – Course 500 Calculate sales ratios Calculate depreciation – as if you were

writing a demonstration appraisal report.


Example Question The price index of 8 years ago was 225.5 and

the price index today is 287.3. If a subject property cost $1,000,000 8 years go, what is the reproduction cost new today?

287.3 / 225.5 = 1.274 1.274 x $1,000,000 = $1,274,000 No tricky answers, rounding won’t be an

issue. Rounding to 3 decimal places is sufficient to get the answer. Other, incorrect, answers will not be close.

Detailed Review

Part II

Detailed Review – Part 2

Still some general questions on Part 2. Many of the general questions refer to the

case study data. Know how to measure different types of

depreciation. PAV Chapter 10. IAAO 101, IAAO workshop 551, Course 500.

Know characteristics of the different types of depreciation

Normal Deficiency, modernization, and Superadequacy forms of Curable Functional Obsolescence – PAV Pgs 282-288.

Calculate incurable functional obsolescence Know how to calculate economic

obsolescence by capitalizing the income or rent loss. PAV Ch. 10, Workshop 551.

Detailed Review – Part 2 (cont)

Example Question

Because of a decrease in demand attributable to external causes, the market indicates a net decrease in rental income of $3,000 per month. A cap rate of 25% is determined to be appropriate. Estimate depreciation.

$3,000 x 12 = $36,000 V=I/R = $36,000 / .25 = $144,000

Calculate physical deterioration using age/life method.

Be able to estimate value using the cost approach. RCNLD.

Calculate adjustments in the sales comparison approach using paired sales analysis. Course 101, Workshop 551, PAV Chapter 8 p.211, Course 500.


Example Question

A UV upgrade costs $20,000. If sale 3 does not have the upgrade, what

is the adjustment for sale 3. A. ($20,000) B. $20,000 C. 0 D. $40,000

Example Question

A UV upgrade costs $20,000. If sale 3 does not have the upgrade, but the

subject does, what is the adjustment for sale 3?

A. ($20,000) B. $20,000 C. 0 D. $40,000

Know how to make adjustments to sales prices.

Know the sales comparison approach. Know the sales comparison approach! Know that the appraiser usually relies on

the most comparable sale – the one with the fewest adjustments.


Know direct capitalization formulas. Be able to read case study data and calculate

income and expense for capitalization. Proper Expenses PAV 326-331. Know the three components of the cap rate

for direct capitalization and what they mean. Ex. What does a discount rate represent?


Example Question

Lease 1 machine is used 2,000 hours per year. Terms of the lease is $30,000 per month plus 1% of the hours used x $75 for a required annual inspection. Calculate the gross annual income.

$30,000 x 12 =$360,000 2,000 x .01 x $75/hr = $1,500 (annual) $360,000 + $1,500 = $361,500

You’ll choose an estimated value by the cost approach, the most comparable sale using sales comparison approach, and an estimated value using the income approach (direct capitalization and gross income multiplier).

Be able to select the most reliable approach, given the conditions in the case study, for the reconciliation process.


Know which USPAP standard(s) apply to the development and reporting of a personal property appraisal.

Know characteristics and form of a proper demonstration appraisal report according to IAAO standards. For example:


Appraisal Report

Can it contain any hypothetical data? What is the layout of a proper report? For

example, is the title page first and final remarks last?

Does it have to show calculation of economic obsolescence?

What does the certification, certify?

Final Remarks

There are only about 22 PPS designees in the world. It should be a challenge to achieve, and it is.

The case study exam is fair. If you pass the required courses, study these concepts, and are comfortable with them, you can pass the case study exam.

Contact Information

Kirk F. Boone, PPS Tax Management Associates, Inc. 2225 Coronation Blvd. Charlotte, NC 28227 [email protected] 800-951-5350 Toll Free 919-397-7846 Mobile

mailto:[email protected]

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