Arkansas Real Estate License Property Valuation and Appraisal 3 — Questions and Answers
Question 1: When an appraiser 'brackets' comparables in the sales comparison approach, this means:
- Using only sales from the same neighborhood
- Selecting comparables with features both superior and inferior to the subject (Correct answer)
- Limiting comparables to the same square footage as the subject
- Using only the three most recent sales
Correct answer: Selecting comparables with features both superior and inferior to the subject
Bracketing means selecting comparables that are both superior and inferior to the subject in key features, ensuring the subject's value falls within a supportable range.
Question 2: Which of the following best defines 'effective age' of a property?
- The number of years since the building permit was issued
- The age indicated by the property's condition and utility relative to similar properties (Correct answer)
- The remaining economic life of the improvements
- The age listed in the county tax records
Correct answer: The age indicated by the property's condition and utility relative to similar properties
Effective age reflects a property's condition and utility rather than its actual chronological age; a well-maintained older home may have a younger effective age.
Question 3: The reconciliation process in an appraisal involves:
- Averaging the values indicated by each approach
- Mathematically weighting each approach to arrive at a value
- Analyzing and weighing the results of each applicable approach to arrive at a final value opinion (Correct answer)
- Discarding outlier comparable sales before finalizing value
Correct answer: Analyzing and weighing the results of each applicable approach to arrive at a final value opinion
Reconciliation requires the appraiser to analyze strengths and weaknesses of each approach and exercise professional judgment — not simply average — to arrive at a final value opinion.
Question 4: A property has a potential gross income of $60,000, a vacancy and collection loss of 5%, and operating expenses of $20,000. What is the net operating income?
- $40,000
- $37,000 (Correct answer)
- $38,000
- $57,000
Correct answer: $37,000
Effective gross income = $60,000 × 0.95 = $57,000; NOI = $57,000 − $20,000 = $37,000.
Question 5: Under Arkansas law, who is authorized to perform appraisals for federally related transactions involving property valued over $500,000?
- Any licensed real estate agent
- A Certified Residential Appraiser
- A Certified General Appraiser (Correct answer)
- A Licensed Appraiser Trainee
Correct answer: A Certified General Appraiser
Federally related transactions on non-residential or complex properties over the applicable threshold require a Certified General Appraiser under FIRREA guidelines adopted by Arkansas.
Question 6: Which of the following is NOT typically considered when selecting comparable sales in the sales comparison approach?
- Proximity of the comparable to the subject property
- The original listing price of the comparable (Correct answer)
- The sale date and market conditions at time of sale
- Physical characteristics such as size and bedroom count
Correct answer: The original listing price of the comparable
The original listing price is irrelevant; appraisers use the actual closed sale price of a comparable, not what the seller originally asked.
Question 7: The income approach to value is MOST reliable for which type of property?
- Owner-occupied single-family residences
- Vacant land in a rural area
- Income-producing commercial properties with consistent rental data (Correct answer)
- Historic properties with unique architectural features
Correct answer: Income-producing commercial properties with consistent rental data
The income approach is most applicable and reliable for income-producing properties where investors purchase based on expected income streams.
Arkansas Real Estate License Property Valuation and Appraisal 3
When an appraiser 'brackets' comparables in the sales comparison approach, this means: