Property Valuation Methods & Techniques Flashcards
7 cards from real FHA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Property Valuation Methods & Techniques flashcards as text
A buyer paid $350,000 for a property but included $15,000 in seller concessions. For FHA appraisal purposes, the adjusted sale price used as the basis for the insured loan is:
Answer: $335,000
FHA requires the appraised value or adjusted sale price (contract price minus seller concessions) to be used, whichever is lower; $350,000 − $15,000 = $335,000.
Which principle underlies the appraiser's selection of the highest and best use as the use that produces the greatest present value for a property?
Answer: Principle of anticipation
The principle of anticipation holds that value is created by the expectation of future benefits; highest and best use maximizes those anticipated benefits, yielding the greatest present value.
When an FHA appraiser applies the income approach to a two-unit property, the market rent used should be:
Answer: Market rent as estimated from comparable rentals in the area
FHA requires market rent derived from comparable rental properties to ensure the income approach reflects what the property could reasonably earn under typical conditions, not just current lease terms.
The effective gross income of an investment property is calculated as:
Answer: Potential gross income minus vacancy and collection loss
Effective gross income (EGI) = Potential gross income (PGI) − Vacancy and collection loss; it represents realistic income before deducting operating expenses.
In a declining market, the market conditions adjustment on comparable sales that occurred prior to the effective appraisal date would typically be:
Answer: Negative, to decrease older sale prices to current levels
In a declining market, older sales prices are higher than current prices, so a negative market conditions adjustment is required to bring older comparable sales in line with today's lower values.
The cost approach is typically given the MOST weight in which of the following scenarios?
Answer: New construction where the cost closely reflects market value
The cost approach is most reliable and receives the greatest weight for new or nearly new construction, where depreciation is minimal and cost closely mirrors market value.
Which statement correctly describes the relationship between a capitalization rate and property value, all else being equal?
Answer: A lower cap rate produces a higher indicated value
Since Value = NOI ÷ Cap rate, a lower cap rate (denominator) produces a higher value for the same NOI, reflecting lower perceived risk and higher investor demand.