CAR Advanced Techniques & Methods 2 — Questions and Answers
Question 1: When reviewing a complex mixed-use property appraisal, which technique is most appropriate for allocating value between residential and commercial components?
- Automated valuation model segmentation
- Extraction method applied to each component separately
- Paired sales analysis isolating each use type (Correct answer)
- Land residual technique applied to the dominant use only
Correct answer: Paired sales analysis isolating each use type
Paired sales analysis isolating each use type provides the most defensible market-based allocation by directly comparing properties with similar component ratios.
Question 2: A reviewer finds that an appraiser used a 4% terminal capitalization rate on a property where market evidence supports 5.5%. This discrepancy most likely results in:
- An understated reversion value in the DCF model
- An overstated reversion value in the DCF model (Correct answer)
- No material impact if the holding period exceeds 10 years
- A lower overall indicated value via the income approach
Correct answer: An overstated reversion value in the DCF model
A terminal cap rate that is too low overstates the projected sale price (reversion value) at the end of the holding period, inflating the DCF conclusion.
Question 3: Which statistical measure should a reviewer prioritize when assessing whether comparable sales used in a sales comparison approach are truly comparable?
- Median absolute deviation of the adjusted sale prices
- Coefficient of variation of the unadjusted sale prices
- Standard error of the mean of adjusted indicators
- Coefficient of variation of the adjusted sale prices (Correct answer)
Correct answer: Coefficient of variation of the adjusted sale prices
The coefficient of variation of adjusted sale prices measures relative dispersion after all adjustments, indicating how tightly the comps cluster around a central value indicator.
Question 4: In reviewing a retrospective appraisal for estate tax purposes, the reviewer notes the appraiser used current market data. The most critical deficiency is:
- Failure to use a licensed appraiser
- Using data that post-dates the effective date of value (Correct answer)
- Not applying the income approach as a secondary method
- Omitting a neighborhood map exhibit
Correct answer: Using data that post-dates the effective date of value
A retrospective appraisal must reflect market conditions and data available as of the historical effective date, not conditions at the time of report preparation.
Question 5: A reviewer evaluates a cost approach where functional obsolescence was calculated using the rent loss capitalization method. Which condition best justifies this specific technique?
- The subject has a structural deficiency not curable by typical buyers
- Market rents for the subject and competing properties differ measurably due to a functional defect (Correct answer)
- The improvement has significant physical deterioration exceeding 40%
- The site value exceeds the improvement contribution
Correct answer: Market rents for the subject and competing properties differ measurably due to a functional defect
The rent loss capitalization method is appropriate when a functional deficiency causes a measurable rent differential between the subject and competing properties without the deficiency.
Question 6: When reviewing a 'going concern' appraisal of a hotel, the reviewer must ensure the appraiser properly segregated which components?
- Land, improvements, furniture/fixtures/equipment, and business value (Correct answer)
- Replacement cost, depreciation, and site value
- Potential gross income, vacancy, and operating expenses
- Cap rate, discount rate, and terminal rate
Correct answer: Land, improvements, furniture/fixtures/equipment, and business value
Going concern appraisals require separate identification and allocation of real property, personal property (FF&E), and intangible business value.
Question 7: A reviewer observes that an appraiser made a net adjustment of +32% to a single comparable sale. Under USPAP guidance, the most appropriate reviewer action is to:
- Reject the appraisal as non-compliant without further analysis
- Flag the comparable and assess whether the appraiser provided adequate support for the adjustments (Correct answer)
- Require the appraiser to find a replacement comparable with under 15% net adjustment
- Accept the comparable if the gross adjustment is under 25%
Correct answer: Flag the comparable and assess whether the appraiser provided adequate support for the adjustments
USPAP does not establish numeric thresholds for adjustments; the reviewer must assess whether the appraiser provided credible market support regardless of the adjustment magnitude.
CAR Advanced Techniques & Methods 2
When reviewing a complex mixed-use property appraisal, which technique is most appropriate for allocating value between residential and commercial components?