Advanced Techniques & Methods Flashcards

In a discounted cash flow analysis review, which error would cause the present value of cash flows to be overstated while leaving the reversion value unaffected?

Answer: Using a discount rate that is too low

A discount rate that is too low increases the present value factor applied to each periodic cash flow, inflating the PV of NOI without directly affecting the projected reversion.

When reviewing an appraisal using the extraction method to develop a land-to-value ratio, the reviewer should be most concerned if:

Answer: The ratio varies significantly across the comparable improved sales used

Significant variation in the land-to-value ratios extracted from improved sales suggests the comparable properties are not sufficiently similar to produce a reliable ratio for the subject.

A reviewer assesses an appraisal of a special-purpose property (e.g., a church). Which limitation is most important to flag if only the cost approach was used?

Answer: The cost approach may not capture economic obsolescence from limited alternative uses

Special-purpose properties often suffer from external obsolescence due to limited demand and few alternative uses, which cost approach depreciation schedules may fail to fully capture.

Under USPAP's jurisdictional exception rule, an appraiser omits a specific required disclosure. In reviewing the report, the reviewer must:

Answer: Accept the omission if the appraiser cited a valid law or regulation overriding USPAP

USPAP's jurisdictional exception allows non-compliance with a specific requirement when law or regulation precludes it, provided the appraiser clearly identifies the law or regulation.

A reviewer finds that an appraiser supported time adjustments using list price trends rather than closed sale trends. The primary concern is:

Answer: List prices reflect seller aspirations, not confirmed market transactions

List prices represent asking prices and may not reflect actual transaction prices; time adjustments should be grounded in closed sale data to capture real market movement.

Which technique is most appropriate when reviewing an appraisal where the subject property has an easement that impairs value, and no direct paired sales exist?

Answer: Use regression analysis on properties with and without easements

Regression analysis can quantify the market's response to easements by controlling for other variables when no direct paired sales are available.

When reviewing a narrative appraisal report for a federally related transaction, a reviewer discovers the effective date differs from the date of inspection by six months. The reviewer should:

Answer: Assess whether market conditions changed materially between inspection and the effective date

A material change in market conditions between inspection and effective date could render the appraisal unreliable, so the reviewer must assess whether the gap affected credibility.