CRM Property Valuation & Appraisal 3

Question 1

In the cost approach, what does 'reproduction cost' mean as opposed to 'replacement cost'?

Accepted Answer

Reproducing an exact replica using original materials vs. building with modern equivalent materials

Answer

Reproduction cost estimates the expense to build an exact duplicate; replacement cost estimates the expense to build a functionally equivalent structure with modern materials.

Question 2

What is the primary purpose of a Uniform Residential Appraisal Report (URAR)?

Accepted Answer

To provide a standardized format for appraising single-family residential properties for lending purposes

Answer

The URAR (Fannie Mae Form 1004) is the standard appraisal form required by most lenders for conventional single-family mortgage transactions.

Question 3

Which economic principle explains why a property's value may rise when it is located near properties of higher value?

Accepted Answer

Principle of progression

Answer

The principle of progression states that the value of a lesser property is enhanced by its proximity to more valuable properties.

Question 4

What is 'functional obsolescence' in the context of property appraisal?

Accepted Answer

A loss of value due to deficiencies or superadequacies in the property's design or features

Answer

Functional obsolescence results from outmoded design elements such as insufficient closet space, outdated floor plans, or features no longer desired by the market.

Question 5

A property's assessed value is $180,000, and the assessment ratio in the jurisdiction is 60%. What is the indicated market value?

Accepted Answer

$300,000

Answer

Market Value = Assessed Value ÷ Assessment Ratio = $180,000 ÷ 0.60 = $300,000.

(CRM) Certified Residential Manager Practice Test

(CRM) Certified Residential Manager Practice Test

CRM Property Valuation & Appraisal 3