Arkansas Real Estate License Property Valuation and Appraisal 5 — Questions and Answers
Question 1: Which of the following statements about the sales comparison approach is most accurate?
- It is the preferred approach for appraising special-use properties like churches
- It is most reliable when many recent, similar sales exist in the subject's market area (Correct answer)
- It relies entirely on the subject property's income-producing potential
- It is only used for vacant land appraisals
Correct answer: It is most reliable when many recent, similar sales exist in the subject's market area
The sales comparison approach is most reliable when there are sufficient recent, arms-length sales of comparable properties in the same market area.
Question 2: A property's 'highest and best use' must meet which four criteria?
- Legal, physical, financial, and maximally productive (Correct answer)
- Zoned, profitable, accessible, and residential
- Legal, comparable, financially feasible, and appraised
- Physical, marketable, assessed, and productive
Correct answer: Legal, physical, financial, and maximally productive
Highest and best use must be legally permissible, physically possible, financially feasible, and maximally productive.
Question 3: What is 'market rent' as used in income property appraisal?
- The rent currently paid by existing tenants under their leases
- The rental income a property would command on the open market given current conditions (Correct answer)
- The rent set by the local housing authority
- The average of rents in the subject's building only
Correct answer: The rental income a property would command on the open market given current conditions
Market rent is the most probable rent a property would command in the open market under competitive conditions, which may differ from actual contract rent.
Question 4: When a comparable sale required a seller concession of $5,000, the appraiser should:
- Ignore the concession since it is a private agreement between buyer and seller
- Add $5,000 to the comparable's sale price to reflect its cash-equivalent price
- Subtract $5,000 from the comparable's sale price to reflect its cash-equivalent price (Correct answer)
- Reject the comparable and find one without concessions
Correct answer: Subtract $5,000 from the comparable's sale price to reflect its cash-equivalent price
Seller concessions inflate the nominal sale price, so the appraiser subtracts the concession amount to arrive at the cash-equivalent, arms-length sale price.
Question 5: The principle of 'progression' in real estate value means:
- Property values always increase over time in any market
- A lower-value property benefits from being located among higher-value properties (Correct answer)
- Improvements always add value equal to their cost
- Newer construction is always worth more than older construction
Correct answer: A lower-value property benefits from being located among higher-value properties
Progression holds that a modest property surrounded by superior properties tends to be pulled upward in value by the more valuable neighborhood.
Question 6: In the cost approach, the term 'reproduction cost' differs from 'replacement cost' in that:
- Replacement cost uses modern materials and design; reproduction cost is an exact replica using original materials and design (Correct answer)
- Reproduction cost uses modern materials while replacement cost replicates original design
- Both terms mean the same thing in modern appraisal practice
- Replacement cost always exceeds reproduction cost
Correct answer: Replacement cost uses modern materials and design; reproduction cost is an exact replica using original materials and design
Reproduction cost is the cost to build an exact replica of the original structure; replacement cost is the cost to build a functionally equivalent structure using current materials and standards.
Question 7: Under Arkansas appraisal licensing, which category allows appraisal of non-complex one-to-four unit residential properties with a transaction value below the established threshold?
- Certified General Appraiser
- Licensed Residential Appraiser (Correct answer)
- Appraiser Trainee
- Certified Residential Appraiser
Correct answer: Licensed Residential Appraiser
The Licensed Residential Appraiser credential in Arkansas authorizes appraisal of non-complex one-to-four unit residential properties below the applicable federal threshold.
Arkansas Real Estate License Property Valuation and Appraisal 5
Which of the following statements about the sales comparison approach is most accurate?