CRU CRU Property Appraisal & Valuation 2 — Questions and Answers
Question 1: What is 'functional obsolescence' in the context of residential appraisal?
- Physical deterioration from normal wear and tear
- Loss in value due to deficiencies or super-adequacies within the property (Correct answer)
- Value loss caused by negative external factors
- Depreciation applied uniformly over a property's useful life
Correct answer: Loss in value due to deficiencies or super-adequacies within the property
Functional obsolescence is a loss in value from features that are inadequate, outdated, or excessive relative to current market preferences.
Question 2: An underwriter notices the appraiser used comparables located more than one mile from the subject in a dense urban neighborhood. What concern should this raise?
- The appraisal automatically fails USPAP
- The distance may indicate the appraiser could not find truly comparable local sales (Correct answer)
- Comparable distance is irrelevant if square footage matches
- The lender must order a second appraisal by default
Correct answer: The distance may indicate the appraiser could not find truly comparable local sales
In dense urban markets, comparables beyond typical proximity may reflect a different sub-market, potentially distorting the subject's value.
Question 3: Which condition in an appraisal report most directly triggers a requirement for a FHA/HUD repair escrow or completion certificate before closing?
- Minor cosmetic defects noted as C3 condition
- Safety hazards, structural deficiencies, or property condition issues flagged as 'subject to repair' (Correct answer)
- Comparable sales older than six months
- A gross living area difference of more than 10% from county records
Correct answer: Safety hazards, structural deficiencies, or property condition issues flagged as 'subject to repair'
FHA requires that health, safety, and structural deficiencies identified in the appraisal be corrected prior to or at closing via escrow or completion certificate.
Question 4: What is the primary reason an underwriter would request an appraisal desk review or field review?
- To comply with state licensing requirements
- To independently verify the appraisal's credibility when value or methodology appears questionable (Correct answer)
- To reduce the appraiser's liability on the loan file
- To substitute for a missing property inspection
Correct answer: To independently verify the appraisal's credibility when value or methodology appears questionable
A desk or field review provides a secondary opinion to validate or challenge the original appraisal when the underwriter has concerns about accuracy or methodology.
Question 5: Under USPAP's Competency Rule, what must an appraiser do if they lack the knowledge or experience to complete a specific appraisal assignment?
- Decline the assignment immediately without any other obligation
- Disclose the lack of competency and either acquire the necessary competency or withdraw (Correct answer)
- Complete the appraisal and note the limitation in the limiting conditions
- Refer only to published data sources to compensate for lack of local knowledge
Correct answer: Disclose the lack of competency and either acquire the necessary competency or withdraw
USPAP requires appraisers to disclose competency limitations and take steps to gain competency or decline the assignment.
Question 6: Which valuation method is most appropriate for a single-family home in a market with abundant recent comparable sales?
- Income capitalization approach
- Cost approach only
- Sales comparison approach (Correct answer)
- Gross income multiplier
Correct answer: Sales comparison approach
The sales comparison approach is preferred for residential properties when sufficient market data exists because it directly reflects what buyers are willing to pay.
CRU CRU Property Appraisal & Valuation 2
What is 'functional obsolescence' in the context of residential appraisal?