CGA Appraisal Methodology & Report Writing 5 — Questions and Answers
Question 1: When an appraiser uses comparable sales data from auction records to support a value conclusion, this is an example of which appraisal methodology?
- Cost approach
- Sales comparison approach (Correct answer)
- Income approach
- Replacement value method
Correct answer: Sales comparison approach
The sales comparison approach uses actual market transactions of comparable items to support value conclusions, and auction records are a recognized source of comparable sales data.
Question 2: A client asks a CGA to inflate an appraisal value for insurance purposes. The correct response is to:
- Comply if the client agrees to sign a waiver
- Decline and explain that inflating values is unethical and potentially fraudulent (Correct answer)
- Inflate by no more than 10% as a standard buffer
- Only comply if the insurance company requests it
Correct answer: Decline and explain that inflating values is unethical and potentially fraudulent
Inflating appraisal values for insurance constitutes fraud; the appraiser must decline and may be required to report the request under applicable professional standards.
Question 3: The term 'market level' in personal property appraisal refers to:
- The geographic location of the market
- The tier of buyers and sellers in the distribution chain (retail, wholesale, secondary) (Correct answer)
- The volume of sales in a given period
- The price range of items being appraised
Correct answer: The tier of buyers and sellers in the distribution chain (retail, wholesale, secondary)
Market level identifies which point in the distribution chain is relevant — retail, wholesale, or secondary markets — each producing different value indications for the same item.
Question 4: An appraiser is asked to provide a 'verbal appraisal.' Under USPAP, which statement is TRUE?
- Verbal appraisals are prohibited under USPAP
- Verbal appraisals are acceptable but still require a work file (Correct answer)
- Verbal appraisals require no documentation
- Verbal appraisals carry the same weight as written reports for legal purposes
Correct answer: Verbal appraisals are acceptable but still require a work file
USPAP permits oral appraisal reports but requires the appraiser to maintain a work file documenting the basis for the conclusions communicated verbally.
Question 5: Which component of a gemstone appraisal report provides the appraiser's professional credentials and qualifications?
- The limiting conditions section
- The appraiser's certification and qualifications section (Correct answer)
- The value conclusion paragraph
- The scope of work statement
Correct answer: The appraiser's certification and qualifications section
The appraiser's certification and qualifications section establishes the professional's credentials, education, and experience, lending credibility to the value conclusions.
Question 6: When a CGA determines that a gemstone has been subjected to a previously undisclosed fracture filling treatment, the appraiser should:
- Ignore it if it improves the stone's appearance
- Disclose the treatment in the report and adjust the value conclusion accordingly (Correct answer)
- Return the stone to the client without documentation
- Only disclose if the treatment is visible to the naked eye
Correct answer: Disclose the treatment in the report and adjust the value conclusion accordingly
All treatments that affect value must be disclosed in the appraisal report, and the value conclusion must reflect the stone's actual treated condition.
Question 7: Which of the following is the primary reason appraisal values should be updated periodically?
- Appraiser fees increase over time
- Gemstone and precious metal markets fluctuate, making older appraisals potentially inaccurate (Correct answer)
- Insurance companies require annual renewals
- Grading standards change every year
Correct answer: Gemstone and precious metal markets fluctuate, making older appraisals potentially inaccurate
Market conditions for precious metals and gemstones change over time, so an appraisal that was accurate several years ago may no longer reflect current replacement or market values.
CGA Appraisal Methodology & Report Writing 5
When an appraiser uses comparable sales data from auction records to support a value conclusion, this is an example of which appraisal methodology?