CAR Appraisal Reviewer Property Valuations 2 — Questions and Answers
Question 1: When reviewing an appraisal using the income capitalization approach, which factor most directly affects the capitalization rate selected by the appraiser?
- Gross living area of comparable sales
- Market-derived investor yield expectations and risk (Correct answer)
- Replacement cost of the improvements
- Physical depreciation of the subject property
Correct answer: Market-derived investor yield expectations and risk
Capitalization rates are market-derived and reflect investor yield expectations, risk, and alternative investment returns for similar properties.
Question 2: A reviewer finds that an appraiser used paired sales analysis to extract an adjustment for a swimming pool. What is the primary concern if only two paired sales were used?
- Paired sales analysis is not permitted under USPAP
- Two pairs may be insufficient to account for other variables that differ between the pairs (Correct answer)
- Swimming pool adjustments must be based on cost data only
- The adjustment must equal the cost to install a new pool
Correct answer: Two pairs may be insufficient to account for other variables that differ between the pairs
A single paired sale or two pairs may not isolate the feature's contribution because other differing variables can distort the extracted adjustment.
Question 3: Under USPAP, an appraisal reviewer who signs a review report as a reviewer is certifying that:
- The original appraiser's value conclusion is correct
- They personally inspected the subject property
- The review was performed in compliance with applicable standards (Correct answer)
- They hold a higher license than the original appraiser
Correct answer: The review was performed in compliance with applicable standards
By signing the review report, the reviewer certifies that the review was performed according to applicable USPAP Standards and the reviewer's professional judgment.
Question 4: An appraiser reports a site value of $180,000 using only one land sale that occurred 18 months ago. As a reviewer, your primary concern should be:
- The appraiser did not use the income approach for the land
- Insufficient market evidence and potential time-trend adjustments needed (Correct answer)
- Land should always be valued using the subdivision development method
- The land sale was not from the same county as the subject
Correct answer: Insufficient market evidence and potential time-trend adjustments needed
A single land sale from 18 months ago raises concerns about adequacy of market support and whether a time adjustment for market conditions was applied.
Question 5: Which of the following best describes the concept of 'effective age' as used in the cost approach?
- The number of years since the building permit was issued
- The age the improvements appear to be based on condition and utility, regardless of actual age (Correct answer)
- The remaining economic life divided by the total economic life
- The actual age minus any major renovations performed
Correct answer: The age the improvements appear to be based on condition and utility, regardless of actual age
Effective age reflects how old a structure appears based on its condition, maintenance, and functional utility, and may differ significantly from its actual chronological age.
Question 6: During a desk review of a commercial appraisal, the reviewer notes the appraiser applied an 8% overall capitalization rate while market data indicates rates are between 6.5% and 7.2%. This discrepancy most likely indicates:
- The appraiser correctly applied a risk premium for the subject's specific characteristics
- The value conclusion may be understated if market cap rates are lower than what was applied (Correct answer)
- Cap rates above 7% are always appropriate for commercial properties
- The reviewer should accept the appraiser's judgment without question
Correct answer: The value conclusion may be understated if market cap rates are lower than what was applied
A higher cap rate produces a lower value indication, so applying an 8% rate when market evidence supports 6.5%-7.2% would tend to understate the property's value.
Question 7: A field review requires the reviewer to do which of the following that a desk review does not?
- Read the entire appraisal report
- Inspect the subject property and comparables (Correct answer)
- Verify that the sales price was arm's-length
- Check that the appraiser's license is current
Correct answer: Inspect the subject property and comparables
A field review includes an exterior (and sometimes interior) inspection of the subject property and comparable sales, which is not required in a desk review.
CAR Appraisal Reviewer Property Valuations 2
When reviewing an appraisal using the income capitalization approach, which factor most directly affects the capitalization rate selected by the appraiser?