Free Arkansas Real Estate License Property Valuation and Appraisal Questions and Answers

Question 1

An Arkansas real estate agent is preparing a Comparative Market Analysis (CMA) for a residential property. Which of the following principles of value is the primary basis for the Sales Comparison Approach used in the CMA?

Accepted Answer

Principle of Substitution

Answer

The Principle of Substitution is the foundation of the sales comparison approach. It states that a knowledgeable buyer will not pay more for a property than the cost of acquiring a similar substitute property with the same utility and desirability. A CMA relies on this by analyzing what similar properties have recently sold for.

Question 2

A property in a well-kept residential neighborhood loses value because a large, noisy factory is built on an adjacent lot. This loss of value is an example of which type of depreciation?

Accepted Answer

Economic Obsolescence

Answer

Economic Obsolescence (also called external obsolescence) is a loss in value due to factors outside the subject property's boundaries, such as changes in zoning, construction of a nearby factory, or a general economic downturn in the area. The problem is external to the property itself.

Question 3

When an appraiser is determining the value of a special-purpose property, such as a public school or a church in Arkansas, which valuation approach is likely to be given the most weight?

Accepted Answer

Cost Approach

Answer

The Cost Approach is most reliable for unique, special-purpose properties that do not produce income and have few, if any, comparable sales. This approach determines value by calculating the cost to build a similar structure from new, subtracting depreciation, and adding the value of the land.

Question 4

A residential investment property in Arkansas generates a gross annual rental income of $60,000. If it sells for $750,000, what is the Gross Rent Multiplier (GRM) for the property?

Accepted Answer

12.5

Answer

The Gross Rent Multiplier (GRM) is calculated by dividing the property's sale price by its gross annual rental income. The formula is: Sale Price / Gross Annual Income = GRM. In this case, $750,000 / $60,000 = 12.5.

Question 5

Which of the following BEST describes the role of a Comparative Market Analysis (CMA) in an Arkansas real estate transaction?

Accepted Answer

It is a tool used by a real estate licensee to estimate a probable selling price for a client.

Answer

A Comparative Market Analysis (CMA) is an informal estimate of a property's market value, prepared by a real estate agent to help sellers set a list price or buyers make an offer. It is not a formal appraisal, which must be performed by a licensed appraiser and is typically required by lenders.

Arkansas Real Estate License Practice Test

Arkansas Real Estate License Practice Test

Free Arkansas Real Estate License Property Valuation and Appraisal Questions and Answers