CAR Appraisal Reviewer Property Valuations 3 — Questions and Answers
Question 1: When reviewing a residential appraisal, a reviewer notices the appraiser used three comparables all located in a subdivision that is considerably newer and superior to the subject's neighborhood. This raises concerns about:
- Compliance with the Equal Credit Opportunity Act
- Whether the comparables represent the same competitive market as the subject (Correct answer)
- The appraiser exceeding the maximum allowable number of comparables
- Whether the GLA measurements were performed correctly
Correct answer: Whether the comparables represent the same competitive market as the subject
Comparables should compete with the subject in the same or similar market; using comparables from a clearly superior neighborhood can result in upward-biased adjustments and an unreliable value conclusion.
Question 2: An appraiser's sales comparison approach grid shows net adjustments of -38% and gross adjustments of 62% on one comparable. Under Fannie Mae guidelines, this comparable is:
- Acceptable because the net adjustment is negative
- Potentially outside acceptable thresholds, warranting explanation or replacement (Correct answer)
- Always acceptable if the sale occurred within 12 months
- Required to be given the most weight in the reconciliation
Correct answer: Potentially outside acceptable thresholds, warranting explanation or replacement
Fannie Mae guidelines flag comparables with net adjustments exceeding ±15% of sale price or gross adjustments exceeding 25%, and such comparables require explanation or should be replaced.
Question 3: Which appraisal approach is typically given the most weight when valuing a special-purpose property such as a church or school?
- Sales comparison approach
- Income capitalization approach
- Cost approach (Correct answer)
- Gross rent multiplier method
Correct answer: Cost approach
Special-purpose properties rarely sell and generate little market-rent data, so the cost approach is typically most reliable and given the most weight.
Question 4: In reviewing a complex commercial appraisal, the reviewer disagrees with the appraiser's value conclusion. Under USPAP Standard 3, the reviewer may:
- Refuse to issue a review report unless the appraiser changes the value
- Issue a review report that includes the reviewer's own value opinion if necessary (Correct answer)
- Only report the disagreement verbally to the client
- Require the appraiser to reperform the appraisal under the reviewer's supervision
Correct answer: Issue a review report that includes the reviewer's own value opinion if necessary
USPAP Standard 3 permits (and sometimes requires) the reviewer to provide their own value opinion in the review report when disagreeing with the appraiser's conclusion.
Question 5: An appraiser values a 10-unit apartment building using a gross rent multiplier (GRM) of 12, derived from three comparable sales. A reviewer's concern about this approach is that the GRM:
- Cannot be applied to apartment buildings under any circumstances
- Does not account for differences in operating expenses between properties (Correct answer)
- Is only valid when derived from properties in the same zip code
- Must equal the reciprocal of the capitalization rate
Correct answer: Does not account for differences in operating expenses between properties
GRM is a crude measure because it ignores vacancy, operating expenses, and expense ratios, which can vary widely among comparable properties.
Question 6: When an appraisal review reveals that the appraiser failed to identify a significant easement affecting the subject property, this omission most likely constitutes:
- A workfile deficiency only, not an appraisal standard violation
- A misleading appraisal under USPAP if the easement affects value (Correct answer)
- An acceptable omission if the easement is not recorded on the deed
- Grounds to automatically revoke the appraiser's license
Correct answer: A misleading appraisal under USPAP if the easement affects value
Failing to identify and analyze a value-affecting easement can render an appraisal misleading, violating USPAP's requirement that appraisals not mislead intended users.
Question 7: A reviewer is asked to review an 'as-improved' appraisal of a proposed new apartment complex. Which of the following is a critical assumption the reviewer must verify is properly disclosed?
- The appraiser's license was issued before the construction was planned
- The extraordinary assumption that the improvements will be completed as proposed (Correct answer)
- The income and expense data was sourced from an approved HUD database
- The subject's legal description matches the assessor's records
Correct answer: The extraordinary assumption that the improvements will be completed as proposed
An 'as-improved' appraisal of a proposed property requires an extraordinary assumption that construction will be completed as described, and this must be clearly disclosed per USPAP.
CAR Appraisal Reviewer Property Valuations 3
When reviewing a residential appraisal, a reviewer notices the appraiser used three comparables all located in a subdivision that is considerably newer and superior to the subject's neighborhood.
This raises concerns about: