Risk Management & Mitigation Flashcards
7 cards from real CAR practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Risk Management & Mitigation flashcards as text
An appraiser values a property at $500,000 using only the sales comparison approach for a complex income-producing property. The primary risk the reviewer should flag is:
Answer: Omission of the income approach, which is typically the primary indicator for income-producing properties
For income-producing properties, the income approach is generally the primary and most relevant methodology; its omission without justification is a significant scope of work deficiency.
A reviewer identifies that an appraisal's gross living area figure is 15% larger than public records and the MLS listing. This discrepancy is MOST likely caused by:
Answer: The appraiser including basement area in GLA contrary to ANSI standards
Including below-grade space (basement) in the GLA is a common error that inflates measured area contrary to ANSI Z765 measurement standards.
When reviewing an appraisal for a property in a FEMA Special Flood Hazard Area (Zone AE), the reviewer should confirm that the appraiser:
Answer: Noted the flood zone status and analyzed its market impact on value
The appraiser must disclose the flood zone designation and analyze whether and how it affects market value through buyer perception and insurance costs.
A review of an appraisal for a proposed construction property shows the appraiser used the 'as-is' value rather than the 'as-completed' value. The risk this creates for the lender is:
Answer: The loan amount may not be appropriately tied to the completed property value
Construction loans require the as-completed prospective value so the lender can underwrite the loan against the value of the finished collateral.
An appraisal reviewer notices the appraiser identified comparable sales in a subdivision where all sales are REO or distressed sales. The primary risk is that:
Answer: Distressed sales may not represent market value and could understate the subject's value
REO and distressed sales may reflect forced liquidation prices rather than arm's-length market transactions, potentially understating the subject property's market value.
In reviewing an appraisal for a mixed-use property, the reviewer finds the appraiser used only residential comparables and ignored the commercial component. This is MOST likely to result in:
Answer: An understated value
Ignoring the commercial income-generating component omits a value-contributing element, leading to an understated total property value.
Under the Uniform Standards of Professional Appraisal Practice, the review appraiser's FIRST step when the scope of the review assignment is ambiguous should be to:
Answer: Communicate with the client to clarify the intended use and scope required
USPAP requires that the scope of work be determined in communication with the client based on the intended use, so clarifying ambiguity with the client is the required first step.