COS Property Valuation & Appraisal 2 — Questions and Answers
Question 1: Which appraisal approach estimates value by calculating the cost to replace a property's improvements minus depreciation, plus land value?
- Income capitalization approach
- Sales comparison approach
- Cost approach (Correct answer)
- Gross rent multiplier method
Correct answer: Cost approach
The cost approach estimates value as land value plus the depreciated cost of reproducing or replacing improvements.
Question 2: An appraisal for a HUD-assisted housing property must be completed by which type of professional?
- A certified general or certified residential appraiser licensed in the state (Correct answer)
- Any licensed real estate broker
- The property manager with 5+ years experience
- A HUD field office employee
Correct answer: A certified general or certified residential appraiser licensed in the state
HUD requires appraisals to be performed by state-certified appraisers (general or residential) to ensure compliance with USPAP and federal standards.
Question 3: What does 'effective age' mean in the context of property appraisal?
- The calendar age of the building since its construction date
- The age the property appears to be based on its condition and utility (Correct answer)
- The remaining economic life of the property
- The age used to calculate property taxes
Correct answer: The age the property appears to be based on its condition and utility
Effective age reflects the property's condition and functional utility rather than its chronological age — a well-maintained building may have a lower effective age.
Question 4: In the income capitalization approach, if a property generates a Net Operating Income (NOI) of $120,000 and the capitalization rate is 8%, what is the estimated value?
- $960,000
- $1,200,000
- $1,500,000 (Correct answer)
- $960
Correct answer: $1,500,000
Value = NOI ÷ Cap Rate = $120,000 ÷ 0.08 = $1,500,000.
Question 5: Which type of depreciation results from factors outside the property itself, such as a nearby industrial facility?
- Physical depreciation
- Functional obsolescence
- External (economic) obsolescence (Correct answer)
- Curable depreciation
Correct answer: External (economic) obsolescence
External or economic obsolescence is caused by factors beyond the property boundaries, like neighborhood decline or nearby nuisances, and is typically incurable.
Question 6: What is the primary purpose of a Uniform Residential Appraisal Report (URAR) in HUD programs?
- To document rental payment history
- To establish market value for mortgage underwriting and program compliance (Correct answer)
- To calculate replacement reserve contributions
- To assess tenant income eligibility
Correct answer: To establish market value for mortgage underwriting and program compliance
The URAR (Fannie Mae Form 1004) documents the appraiser's analysis and conclusion of market value, which HUD uses for mortgage insurance and program compliance.
Question 7: Which principle states that the value of a property is influenced by the expectation of future benefits it will provide?
- Principle of substitution
- Principle of anticipation (Correct answer)
- Principle of contribution
- Principle of conformity
Correct answer: Principle of anticipation
The principle of anticipation holds that value is created by the expectation of future income, utility, or amenities a property will provide.
COS Property Valuation & Appraisal 2
Which appraisal approach estimates value by calculating the cost to replace a property's improvements minus depreciation, plus land value?