CAR Foundational Concepts & Principles 3 — Questions and Answers
Question 1: Which foundational element of value is absent when a property has utility and scarcity but no effective demand or transferability?
- Utility
- Scarcity
- Effective demand (Correct answer)
- Transferability
Correct answer: Effective demand
All four elements — utility, scarcity, effective demand, and transferability — must be present for value to exist; absent effective demand, no market transaction can occur.
Question 2: An appraiser's conclusion that a warehouse is worth more as condominiums reflects which type of value concept used in highest and best use analysis?
- Value in use
- Value in exchange (Correct answer)
- Assemblage value
- Plottage value
Correct answer: Value in exchange
Value in exchange (market value) reflects what the open market will pay, which is the basis for highest and best use conclusions about alternative uses.
Question 3: Which USPAP concept allows an appraiser to accept an assignment with geographic or property-type limitations, provided they disclose those limitations?
- Departure provision
- Competency Rule (Correct answer)
- Jurisdictional exception
- Scope of Work Rule
Correct answer: Competency Rule
The Competency Rule allows an appraiser to accept an assignment lacking competency if they disclose the deficiency and take steps to acquire the necessary knowledge before completing the assignment.
Question 4: The principle that the worth of an improvement is measured by how much it adds to the whole property's value, not its cost, is called the principle of:
- Substitution
- Contribution (Correct answer)
- Balance
- Surplus Productivity
Correct answer: Contribution
The principle of contribution states that the value of any component is measured by its contribution to the whole, regardless of the component's actual cost.
Question 5: Under USPAP, when a reviewer provides an opinion of value in their review report, they are performing what type of assignment?
- Standard 1 appraisal assignment
- Standard 3 appraisal review with opinion of value (Correct answer)
- Standard 4 appraisal consulting assignment
- Standard 6 mass appraisal assignment
Correct answer: Standard 3 appraisal review with opinion of value
Standard 3 permits a reviewer to provide their own opinion of value within a review report; this is still an appraisal review assignment, not a separate appraisal.
Question 6: A federally regulated lender orders an appraisal review to confirm compliance with FIRREA. The reviewer is primarily checking that the appraisal conforms to which set of standards?
- AI Standards
- USPAP and agency-specific guidelines (Correct answer)
- IAAO standards
- ASB Advisory Opinions only
Correct answer: USPAP and agency-specific guidelines
FIRREA requires that federally regulated lenders use appraisals that conform to USPAP and any additional standards issued by the applicable federal financial institution regulatory agency.
Question 7: Which principle explains why a modest home in a neighborhood of luxury homes typically sells for more than its intrinsic value?
- Principle of Regression
- Principle of Progression (Correct answer)
- Principle of Conformity
- Principle of Contribution
Correct answer: Principle of Progression
The principle of progression states that the value of an inferior property is positively influenced by its association with better properties in the surrounding area.
CAR Foundational Concepts & Principles 3
Which foundational element of value is absent when a property has utility and scarcity but no effective demand or transferability?