Arkansas Real Estate License FREE Arkansas Real Estate License Property Valuation and Appraisal Questions and Answers 2 — Questions and Answers
Question 1: In Arkansas, which appraisal approach estimates value by calculating the cost to rebuild a property minus depreciation plus land value?
- Cost approach (Correct answer)
- Sales comparison approach
- Income capitalization approach
- Gross rent multiplier approach
Correct answer: Cost approach
The cost approach estimates value by determining replacement or reproduction cost, subtracting depreciation, and adding land value.
Question 2: What is the primary purpose of a Comparative Market Analysis (CMA) prepared by an Arkansas real estate licensee?
- To help sellers set a competitive listing price (Correct answer)
- To replace a certified appraisal for lending purposes
- To determine property tax assessments
- To calculate insurance replacement cost
Correct answer: To help sellers set a competitive listing price
A CMA is used by licensees to help sellers understand current market conditions and set an appropriate listing price.
Question 3: Under Arkansas law, which factor is NOT typically considered a form of depreciation in property appraisal?
- Proximity to a new shopping center (Correct answer)
- Outdated electrical wiring
- Wear and tear on the roof
- A nearby environmental hazard
Correct answer: Proximity to a new shopping center
Proximity to a new shopping center is generally considered a positive externality that increases value rather than a form of depreciation.
Question 4: When using the income approach to value a rental property in Arkansas, what does the capitalization rate represent?
- The rate of return an investor expects on the investment (Correct answer)
- The annual percentage of depreciation
- The mortgage interest rate on the property
- The property tax rate set by the county assessor
Correct answer: The rate of return an investor expects on the investment
The capitalization rate reflects the expected rate of return on a real estate investment based on the income the property generates.
Question 5: Which type of value represents the most probable price a property would bring in a competitive and open market under fair sale conditions in Arkansas?
- Market value (Correct answer)
- Assessed value
- Insurance value
- Liquidation value
Correct answer: Market value
Market value is defined as the most probable price under conditions where both buyer and seller are acting prudently and knowledgeably.
Question 6: In Arkansas property appraisal, what is functional obsolescence?
- Loss in value due to outdated design or layout features within the property (Correct answer)
- Loss in value due to physical wear and deterioration
- Loss in value caused by factors external to the property
- Loss in value from natural disaster damage
Correct answer: Loss in value due to outdated design or layout features within the property
Functional obsolescence is a reduction in value caused by outdated or undesirable features within the property itself, such as a poor floor plan.
Arkansas Real Estate License FREE Arkansas Real Estate License Property Valuation and Appraisal Questions and Answers 2
In Arkansas, which appraisal approach estimates value by calculating the cost to rebuild a property minus depreciation plus land value?