CAR Risk Management & Mitigation 2 — Questions and Answers
Question 1: When an appraiser uses an extraordinary assumption that significantly affects value, the appraisal reviewer should primarily assess whether the assumption:
- Is supported by market evidence or disclosed as speculative (Correct answer)
- Was suggested by the client
- Results in the highest possible value conclusion
- Eliminates the need for a sales comparison approach
Correct answer: Is supported by market evidence or disclosed as speculative
Extraordinary assumptions must be supported by available evidence or clearly disclosed as speculative, per USPAP requirements.
Question 2: A lender requests a desk review of an appraisal. The reviewer identifies that the subject property's neighborhood is in rapid transition but the appraiser made no mention of this. This omission is best characterized as:
- An acceptable simplification
- A scope of work deficiency (Correct answer)
- A limiting condition
- An extraordinary assumption
Correct answer: A scope of work deficiency
Failing to analyze and report a neighborhood in transition represents a scope of work deficiency that could materially affect the credibility of the value conclusion.
Question 3: Which condition most increases collateral risk for a mortgage lender reviewing an appraisal?
- Subject property located in a stable neighborhood
- Comparable sales drawn exclusively from the subject's subdivision
- Subject property has superior condition compared to all comparables
- Market time for the subject type exceeds six months (Correct answer)
Correct answer: Market time for the subject type exceeds six months
Extended marketing time indicates weak demand, which increases collateral risk because the property may be difficult to sell if the lender must foreclose.
Question 4: An appraisal review reveals the appraiser reconciled by simply averaging the three comparable sales without weighting. The primary risk this introduces is:
- Overstatement of the site value
- A value conclusion not supported by market logic (Correct answer)
- Failure to meet minimum comparable requirements
- Inadequate cost approach development
Correct answer: A value conclusion not supported by market logic
Mechanical averaging ignores each comparable's relative reliability and similarity, producing a value unsupported by reasoned market analysis.
Question 5: A reviewer notices an appraisal was completed two months after the effective date stated in the report. Under USPAP, this is known as a:
- Retrospective appraisal (Correct answer)
- Prospective appraisal
- Update of a prior appraisal
- Limited appraisal
Correct answer: Retrospective appraisal
A retrospective appraisal has an effective date prior to the date the appraisal is completed.
Question 6: During a field review, the reviewer finds the subject property has an unpermitted addition containing a bedroom and bathroom. The primary risk concern is:
- The addition may require local zoning approval to legalize
- The appraiser used the wrong cost manual
- Comparable sales likely include similar additions
- The gross living area calculation may be incorrect (Correct answer)
Correct answer: The gross living area calculation may be incorrect
Unpermitted additions are typically excluded from GLA calculations, meaning the appraiser may have overstated size and thus inflated value.
Question 7: A reviewer assessing environmental risk would be MOST concerned with an appraisal that fails to note:
- The subject's proximity to a dry cleaning facility on an EPA Superfund list (Correct answer)
- The subject's distance from the nearest fire station
- Above-average property taxes relative to the neighborhood
- The subject's age relative to comparable sales
Correct answer: The subject's proximity to a dry cleaning facility on an EPA Superfund list
Proximity to a Superfund site is a significant environmental hazard that can materially impair property value and must be disclosed.
CAR Risk Management & Mitigation 2
When an appraiser uses an extraordinary assumption that significantly affects value, the appraisal reviewer should primarily assess whether the assumption: